Follow Up on Fifth Amendment Limits

Yesterday, two practitioners and myself had a lively discussion about the decision in United States v. Elmes (S.D. FL 2009 - No. 0:09-mc-61726, dated December 17, 2009) involving summons enforcement. The blog and the comments may be viewed here. That discussion centered around the court's rejection of the witness's Fifth Amendment privilege. The decision that was the focus of the discussion was entered by the court on December 17, 2009. As to some key points of interest, that December 17 opinion we were discussing was a bit cryptic. Today, in Lexis-Nexis, an earlier opinion (dated December 7, 2009 appeared. United States v. Elmes (S.D. FL 2009 - No. 0:09-mc-61726, dated December 7, 2009). This December 7, opinion may be viewed or downloaded here.

This newly published (but prior) opinion adds a lot of flavor to yesterday's discussion.

Regarding the Fifth Amendment, the Court then has a fair discussion of the general ground rules. Specifically, as it relates to our discussion in the prior blog, the Court says that the witness asserting the Fifth Amendment must show a real fear of potential incrimination. Then the Court says that, in consideration of the ground rules, the Court held an in camera hearing. The Court's discussion of that hearing and its outcome is self explanatory:

The Court asked Respondent, in sum and substance, the following questions:

. In the past ten years, have you resided out of the United States for periods of six months or longer?
. How much cash do you have on hand that is not included in a bank account?
. What personal bank accounts do you have?

Respondent did not invoke her Fifth Amendment privilege in response to the above questions and instead she provided the Court with answers. Therefore, the Respondent is directed to also provide such information to the IRS. In addition, Respondent should provide the IRS with all documents in her possession related to the above questions.

The Court also asked Respondent, in sum and substance, the following questions:

. Do you have an employer?
. Who is your husband's employer?
. What is your employer's address, work telephone number, occupation and number of years with current employer?
. What is your husband's employer's address, work telephone number, occupation [*16] and number of years with current employer?
. Are you a party to any lawsuits?
. Do you anticipate any increase or decrease in your income?
. Are you the beneficiary of any trust, estate or life insurance policy?
. Do you have any bank accounts in foreign countries?
. Do you own any investments, like stocks, bonds, mutual funds, stock options, certificates of deposit, IRA accounts, PO, 401k plans?
. Do you have any credit cards?
. Do you have any credit cards in foreign countries?
. Do you have any life insurance policies?
. In the past ten years have any assets been transferred by you to someone else for less than full value?
. Do you own, rent or lease any real estate?
. Do you own or lease any vehicles?
. What personal assets do you own including furniture, personal effects, artwork, jewelry, collections, antiques or other assets?
. What is your monthly income and what is the source of that income?
. What are your total living expenses?
. In the event you are self-employed, what is the name of your business?
. Does the business engage in E-commerce, internet sales?
. Does your business have credit cards?
. What credit cards does your business accept?
. How much cash on hand does the business have?
. What business accounts do you have?
. What accounts receivable does your company have?
. What business assets do you have?
. What is the business's total monthly income and total monthly expenses?

Respondent invoked her Fifth Amendment privilege and declined to answer the twenty-seven questions listed immediately above. The Court concludes that Respondent does not have a valid Fifth Amendment privilege with respect to these twenty-seven questions for two reasons. First, these questions relate to Respondent's current financial situation. At the August 26, 2008 interview, the Revenue Officer explained that the purpose of the interview was to determine Respondents' "ability to pay what you owe on the income taxes for the years 2000 and 2001." Exhibit 1 to DE 4 at 12:19-21. The Summons relates to Respondent's nonpayment of her 2000 and 2001 taxes. Therefore, information regarding the Respondent's current financial status does not provide a real and substantial hazard of criminal prosecution. See United States v. Redhead, 194 Fed. Appx. 234, 236 (5th Cir. 2006) ("The documents requested by the IRS pertain only to Redhead's asset holdings, and thus, are not inherently incriminating in nature."); United States v. McMillian, 2007 WL 646952, *3 (M.D. Fla. Feb. 27, 2007) ("But asking him about his current assets for collecting on his past due obligations does not implicate the Fifth Amendment's self-incrimination protections.") (emphasis in original).

Second, Respondent invoked the same, blanket reason to justify her invocation of the Fifth Amendment for each question. In essence, Respondent's argument is that there is a real hazard of criminal prosecution because the IRS will "lie" and "twist" any information provided by Ms. Elmes in a future criminal prosecution. The Court finds that this justification is speculative. Respondent may not rely on a general distrust of the IRS to refuse to comply with an otherwise valid summons. Moreover, Respondent invoked a similar justification each time she asserted the Fifth Amendment. Invoking the same, generalized fear twenty-seven separate times is no different than asserting a blanket claim of self-incrimination.

Accordingly, the Respondent is directed to provide answers to the IRS for the twenty-seven questions noted above. In addition, Respondent should provide the IRS with all documents in her possession related to the above questions.

Finally, the Court asked Respondent, in sum and substance, the following questions:

. Why didn't you file tax returns for the years 2002 through 2007?
. Do you plan on filing those returns?

With respect to these two questions, the Court finds that Respondent properly invoked the Fifth Amendment. By responding to these questions, Ms. Elmes may provide information which could lead to a criminal prosecution for failure to file tax returns for the years 2002 through 2007.

Fifth Amendment Limits

CAVEAT:  This blog and the excellent comments from readers below should be read in conjunction with a follow-up blog here.

In a Q&A session such as a summons interview or grand jury session, witnesses may assert a Fifth Amendnment privilege only as to questions the answers to which might have a tendency to incriminate them. That is to say that there are questions that do not implicate the privilege and must be answered. Practitioners advising witnesses must be careful to properly assert the privilege and not to inadevertently allow answers that should be within the privilege. That is a bit dicey in grand jury proceedings where the attorney is outside the grand jury room, and the witness must stop the grand jury questioning in order to consult with his or her attorney. But the key issue for this blog is what answers would tend to incriminate the witness.

A recent case develops the issue quite nicely. In United States v. Elmes (S.D. FL 2009 - No. 0:09-mc-61726), the IRS issued a summons for the taxpayer's testimony and documents. The summons was issued in aid of collection of 2000 and 2001 income taxes that were already assessed; the IRS needed to develop facts relevant to the taxpayer's current financial condition and ability to pay. At the ensuing Q&A session, the witness declined to answer the majority of the questions, asserting First, Fourth and Fifth Amendment privileges.

The IRS brought a summons enforcement case. The court held two hearings, and at the second hearing evaluated the witness's claim of privilege on a question by question basis. The court held that, except as to 2 questions, the witness's assertion of privilege was improper and ordered her to answer.

Focusing on the Fifth Amendment (the only real potentially viable claim of privilege), the Court made the following holdings:

1. The Fifth Amendment privilege does not apply to questions relevant to current financial condition because there is no real and substantial hazard of criminal prosecution. (JAT Note, if the issue were whether prior recent statements as to her financial condition constituted criminal conduct, then her present financial condition might invoke the Fifth Amendment privilege, but that was not the casel in Elmes.)

2. The Court rejected a claim of privilege with respect to the production of documents. The taxpayer's generalized claim of privilege failed to state how the documents or the act of producing the documents could tend to incriminate. (JAT note: presumably the documents requested in the summons cleared the Hubble particularity hurdle.)

3. Section 7210, providing a criminal penalty for failure to comply with a summons, is not a basis for a Fifth Amendment claim; all the taxpayer has to do is comply with the summons by producing documents and answering the questions (subject to proper assertions of privilege) to avoid that criminal possibility.

4. The potential for committing perjury in the summons enforcement proceeding is not a valid Fifth Amendment claim.

The court concluded:

Due to the nuances of the applicable law, it is important for the Court to specify exactly what issues are being decided. The Court finds that Respondent cannot rely on a generalized fear of the IRS to invoke her Fifth Amendment privilege to avoid providing information regarding her current financial ability to pay outstanding tax liabilities from 2000 and 2001. That Respondent may face future criminal prosecution if she decides not to comply with the Summons or because she will not pay civil penalties is insufficient to withhold current financial information, which is not incriminating. The Court acknowledges that a different analysis will apply if the United States uses any information provided by Ms. Elmes in response to the Summons for a criminal prosecution unrelated to her 2000 and 2001 liabilities.

This is not a fishing expedition. The IRS is seeking basic financial information that millions of American taxpayers voluntarily provide to the government each year. Most of those with no more prompting than an April 15th deadline. Whether Ms. Elmes pays her taxes is ultimately an issue to be resolved between her and the IRS. While the Court respects Respondent's right to present a good-faith and vigorous defense on her own behalf, the Court also expects that the Respondent will comply with this Court's Orders once a decision has been made. Failure to do so will subject Ms. Elmes to possible sanctions such as the imposition of costs and incarceration separate and apart from her issues with the IRS.

Summons Power to Force Summonsed Party to Gather Records from Third Parties

NOTE TO READERS - PLEASE SEE THE UPDATE AT THE END OF THIS BLOG

In a recent summons enforcement case (United States v. Bright, 2009 U.S. Dist. LEXIS 84577 (D. Haw. Sept. 15, 2009), and predecessor case, United States v. Bright, 2009 U.S. Dist. LEXIS 70911 (D. Haw. 2009)), the summonsed party (the taxpayer in the case) was held in contempt for failing to make proper efforts to secure information from a tax haven bank for credit card information related to her account. The court seems to have assumed that it had the contempt power to force the taxpayer to gather the records for the IRS.

I was surprised based on my anecdotal experience that the IRS could force the witness to retrieve information for the IRS. Certainly, the witness would have to produce documents within the scope of the summons held by the witness' agent (such as an attorney or an accountant). Any documents constructively in the witness' possession through agents are certainly fair game. So, the issue is whether the summons power includes the power to direct the summonsed party to use his or her best efforts to get the documents from third parties who are not agents simply because they can.

For example, can the IRS issue a summons to me for today's New York Times that I do not possess and thereby force me to go buy one that I can then produce? I do not think so.

Now, let's focus on bank records. At least for U.S. banks, the historical practice that I have encountered is for the IRS to summons the bank and not the a depositor (usually the taxpayer being investigated) to force him to retrieve the bank records and turn them over. Now, of course, for foreign banks -- tax haven banks in particular -- the IRS usually has no way to summons them or otherwise pressure them for the documents. (In countries with some type of exchange of information agreement, such as the standard double tax treaty, the U.S. with the proper information (taxpayer, bank, etc.,) can get the treaty partner to get the documents, but that is a hassle that can be short circuited through the process discussed here.) Should it make a difference whether the bank is a U.S. bank or a foreign bank or a tax haven bank in terms of defining the proper scope of the summons and contempt power?

One aspect of this type of summons that might be explored in particular cases is that the IRS would have to have very specific information about the existence of the bank account (as it did in Bright). Otherwise, if the IRS is just "fishing," the summons would suffer the same Fifth Amendment infirmities as the grand jury subpoena in the infamous Hubbell case (United States v. Hubbell, 530 U.S. 27 (2000)) and would implicate the concerns presented with the consent directive (see Doe v. United States, 487 U.S. 201 (1988)).

Let's consider some examples to test just how far the concept can go. Keep in mind the concept is that the summons power can force the taxpayer to gather documents otherwise not within his possession to deliver to the IRS.

Example 1: The IRS summonses the taxpayer ("T") to produce records that are, in fact, owned, possessed and controlled by a business associate ("BA") in England. T has no right to force BA to give him the documents (or a copy), but the truth is that, if T asked sincerely, BA would probably deliver them to T. Can the IRS use the summons power to force T to make the request?

Example 2: T does not have his cell phone records for the last 3 years (he gets them digitally by email and routinely destroys them after reviewing them). The cell phone company would deliver them to T upon request. The IRS summonses T for the records. Is T required to request them from the cell phone company so that T can respond to the request? Does or should it make a difference if the cell phone company is a foreign company?

Do the readers have any further thoughts? I have not undertaken to research the issue, so if any reader has, I would appreciate receiving their thoughts and, if possible, the authorities addressing the issue.

UPDATE AS OF 10/7/2009

I now think courts would enforce a summons (or other compulsory process) to require a summonsed party to make good faith efforts to obtain the summonsed parties offshore bank account records. I received enought anecdotal feedback from readers (including comments below), that I am convinced that it happens and summonsed parties dance to the tune called by the judge threatening to put the in jail if they don't go get the records. I still have not found any authority directly on point (suspect some may be out there but just have not spent the time looking). Some of the issues are, however, addressed in United States v. Norwood, 420 F.3d 888 (8th Cir. 2005). I provide the pertinent part of the Norwood decision (pp. 895 and 896):

Norwood argues that his Fifth Amendment privilege against self-incrimination would be violated by enforcement of the IRS summons. The Fifth Amendment provides that "no person . . . shall be compelled in any criminal case to be a witness against himself." U.S. Const. Amend. V. This language has been interpreted to prohibit compelled production of evidence where the communicative aspects of such production are testimonial and incriminating. Fisher v. United States, 425 U.S. 391, 408, 48 L. Ed. 2d 39, 96 S. Ct. 1569 (1976); United States v. Teeple, 286 F.3d 1047, 1049 (8th Cir. 2002).

The district court found that because the IRS already knew of the existence of the two Leadenhall cards and a corresponding account, the existence of the documents associated with the cards and account was a "foregone conclusion." The production of documents the existence of which is a foregone conclusion is not testimony for purposes of the Fifth Amendment. Fisher, 425 U.S. at 411. When the existence of documents is a foregone conclusion, the taxpayer's concession that he has the documents would add "little or nothing" to the government's information, and the "the question is not of testimony but of surrender." Id. (internal quotation omitted). Whether the existence of documents is a foregone conclusion is a question of fact, subject to review for clear error. United States v. Doe, 465 U.S. 605, 613-14, 79 L. Ed. 2d 552, 104 S. Ct. 1237 (1984).

Norwood asserts that the summons did not specifically identify documents the existence of which was a foregone conclusion, and that it therefore fell short of the specificity required by United States v. Hubbell, 530 U.S. 27, 44-45, 147 L. Ed. 2d 24, 120 S. Ct. 2037 (2000). In Hubbell, the Court held that the existence of "general business and tax records" possessed by the defendant was not a foregone conclusion for Fifth Amendment purposes where the government could not show that "it had any prior knowledge of either the existence or the whereabouts" of the documents in question. Id. at 45. Here, Norwood does not dispute that the IRS has prior knowledge of two Leadenhall payment cards and one Leadenhall account controlled by him. He contends that the summons includes documents outside the IRS's prior knowledge, however, because the language of the summons is not restricted to Leadenhall cards and account. It is true that the summons as written is not restricted to records associated with Norwood's Leadenhall cards and account, but the government seeks enforcement of the summons only to the extent that the documents requested are a foregone conclusion. (Br. of Appellee at 10 n.2). The district court's memorandum, moreover, relied on the government's knowledge of the Leadenhall cards and account as the basis for its decision that complying with the summons would not implicate the Fifth Amendment. We therefore interpret the district court's order to enforce the summons only to the extent the summoned records pertain to Norwood's Leadenhall cards and account.

The existence of the requested records relating to Norwood's Leadenhall cards and account is a foregone conclusion. The summons seeks records such as account applications, periodic account statements, and charge receipts, all of which are possessed by the owners of financial accounts as a matter of course. Norwood does not [*896] contend that he does not possess any of these documents, and the government knows far more about the documents associated with Norwood's Leadenhall cards and account than it did about the defendant's business records in Hubbell. 530 U.S. at 44. In Hubbell, the government could not show "any prior knowledge of either the existence or whereabouts" of the documents sought. Id. (emphasis added). Here, by contrast, the government knows the name and location of the bank that created the records sought, Norwood's payment card numbers, and even the details of a number of discrete transactions involving the cards and his Leadenhall account. Accordingly, the district court's conclusion that "Norwood's production of the records has no testimonial significance," (Add. at 4), is not clearly erroneous.

IRS Guys in the Trenches on the UBS Mess

My experience -- dated experience, I might add -- with DOJ Tax was that, as attorneys litigating in the federal district court, we relied heavily upon IRS agents and IRS attorneys assigned to assist us do our job. These agents and attorneys did critical work to make us better at what we were supposed to do, but rarely surfaced outside the confines of the case. Most tax cases gather no press because, well, the topics are boring to the average reader of news publications.

The Wall Street Journal has an interesting article here on an IRS agent and an IRS attorney who are in the thick of things in the UBS mess. Nothing earthshaking here in terms of adding to the criminal tax defense lawyer's bag of tricks or knowledge, but the article does provide an interesting sidelight on the personalities involved in this whole mess.