IRS Off-shore Tax Evasion: 5th Amendment (Greenfield)

Forbes (8/3/16) reported that the 2d Circuit Court of Appeals ruled that the 5th amendment protects taxpayer Steven Greenfield from turning over documents (from 2001) related to offshore tax evasion in Liechtenstein (a tiny European Alpine country once fabled for its bank secrecy laws, but still remains a favored place by billionaires to stash their holding companies and investment entities that hold their assets).

As the Court noted: “The story goes back to 2008 when the Wall Street Journal ran a story on a US Senate probe that indicated offshore tax evasion costs the US about $100 B per year (since updated to $184B for federal/state and local lost tax revenues).” The Court stated: ” A remarkable amount of American wealth is held offshore, often in an effort to evade taxes… such lost income diminishes the Treasury and exacerbates problems of inequality since, generally, only the wealthiest of individuals can take advantage of foreign tax havens.”

Harvey and Steven Greenfield are a father and son who live in New York. Harvey is the Chairman and CEO of Commonwealth Toy and Novelty Co. Steven served as its President for 15 years. LGT private bankers, including Prince Philipp of Liechtenstein, met with the Greenfields to solicit the transfer of $30m from Bank of Bermuda to LGT. The Greenfields are currently in negotiations with the IRS and the US DOJ over Liechtenstein tax liability issues.

Although the 2d Circuit Court of Appeals repudiated tax evasion they balanced it with the 5th amendment protections under the US Constitution and stated: “The need to curtail tax evasion, however pressing, nevertheless cannot warrant the erosion of protection that the Constitution gives to all individuals, including those suspected of hiding assets offshore. The 5th Amendment states:

“No person shall be compelled in any criminal case to be a witness against himself”. Turning over documents is not being a witness against yourself but only if it is a “foregone conclusion” that:

1) The documents existed;

2) Were in the witness possession;

3) Could be authenticated.

In Greenfield’s case, the “foregone conclusion” requirement applies to both to 2001 when the documents would first have been in his possession and 2013 when they were summoned. The government failed to meet the evidentiary burden of “the foregone conclusion”. The Court stated: ” First, we find that, for all but a small subset of the documents covered by the District Court’s order, the government has not demonstrated that it is a “foregone conclusion” that the documents existed, were in Greenfield’s control, and were authentic even in 2001. Second, we find that the government has failed to present any evidence that it was a foregone conclusion that any of the documents subject to the summons remained in Greenfield’s control through 2013, when the summons was issued. Accordingly, because the government has not made the showing that is necessary to render Greenfield’s production of the documents “non-testimonial” and, hence, exempt from 5th Amendment challenge, we vacate the District Court’s order and remand.”

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