IRS Stumbles on Trail of Tax-Evasion Breadcrumbs

     (CN) — Having waited years to probe a 2001 tax scheme, the IRS needs proof that the old financial records still exist before it can demand to see them, the Second Circuit ruled Monday.
     Experts estimate that approximately $1.2 trillion of U.S. money — about 4 percent of the nation’s wealth — is held offshore, depriving the Treasury of $35 billion every year.
     While acknowledging the scourge of tax evasion by the wealthy, the Manhattan-based federal appeals court ruled Monday that “the need to curtail tax evasion nevertheless cannot warrant the erosion of protections that the Constitution gives to all individuals, including those suspected of hiding assets offshore.”
     Steven Greenfield was implicated in a tax-evasion scheme in 2001 when an employee of Liechtenstein Global Trust leaked thousands of documents from accounts held by the private financial institution.
     Over a decade after the leak, the Internal Revenue Service issued a 2013 summons for Greenfield’s financial records, including all records related to his management of offshore accounts.
     Greenfield refused to comply, however, citing his Fifth Amendment right against self-incrimination.
     Though a federal judge ordered him to produce a subset of the records demanded by the IRS, the Second Circuit vacated the order Monday.
     “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,” U.S. Circuit Judge Guido Calabresi wrote for the three-judge panel. “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.”
     Tax authorities can confirm that Greenfield’s passport existed in 2001, as well as documents related to his passport, and some of the requested bank documents. The circuit found it could be incriminatory, however, for Greenfield to have kept the documents in his possession since that time.
     “The documents’ continued existence could be incriminatory in a number of ways,” Calabresi wrote.
     For example, “One of Greenfield’s strongest defenses to a charge of tax evasion would be to argue that his father, Harvey, was the sole person with knowledge of how the family’s finances were organized,” according to the 34-page opinion. “If Greenfield were found to have taken physical possession of LGT-related documents following his father’s death, this narrative would be obviously undercut.”
     The panel found it highly likely, given that Greenfield’s account was under intense scrutiny after the 2001 leak, that the family would have reordered its financial affairs and destroyed many of the documents now sought by the IRS.
     This undercuts the government’s claim, according to the ruling, Greenfield necessarily still has the documents in his possession to defeat the act-of-production privilege.

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