Risk of Confidentiality for Foreign Account Disclosure with AI

The Risk of AI for FBAR & FATCA Offshore Disclosure

With the introduction of AI, many U.S. taxpayers are relying on various AI software to generate documents and prepare legal submissions, including for offshore disclosure and reporting. It is very important to note that based on a recent court case ruling in Heppner, information provided to the AI software may not be privileged. In other words, by inputting your confidential information into a AI database to generate documents, you may be waiving the attorney-client privilege to the information you provided. Conceptually, this makes sense because the AI system is not another person and so there is no inherent confidentiality when nput information into a public type of domain in order for it to generate the documents.

Key Excerpts from the Case Ruling:

• • • At a pretrial conference in this matter held on February 10, 2026, the Court, after hearing the arguments of counsel, granted from the bench the Government’s motion for a ruling that certain written exchanges that defendant Bradley Heppner had with a generative artificial intelligence (“AI”) platform were not protected from Government inspection by either the attorney-client privilege or the work product doctrine. See ECF No. 22 (“Gov’t Mot.”). This Memorandum sets forth the reasons for the Court’s ruling.

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    • It is well established that the attorney-client privilege attaches to, and protects from disclosure, “communications (1) between a client and his or her attorney (2) that are intended to be, and in fact were, kept confidential (3) for the purpose of obtaining or providing legal advice.” United States v. Mejia, 655 F.3d 126, 132 (2d Cir. 2011).2 Courts construe the attorney-client privilege narrowly because it operates as an exception to the rule that “all relevant proof is essential” for a complete record and for “confidence in the fair administration of justice.” In re Six Grand Jury Witnesses, 979 F.2d 939, 943 (2d Cir. 1992). See also, Calvin Klein TrademarkTr. v. Wachner, 198 F.R.D. 53, 55 (S.D.N.Y. 2000).

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    • Applying these principles here, the AI Documents lack at least two, if not all three, elements of the attorney-client privilege.

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    • First, the AI Documents are not communications between Heppner and his counsel. Heppner does not, and indeed could not, maintain that Claude is an attorney. “In the absence of an attorney-client relationship, the discussion of legal issues between two non-attorneys is not protected by attorney-client privilege.” ?,   In re OpenAI, Inc., Copyright Infringement Litig., 802 F. Supp. 3d 688, 699 (S.D.N.Y. 2025). Because Claude is not an attorney, see ECF No. 23-6, that alone disposes of Heppner’s claim of privilege.

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    • The Court is aware that some commentators have argued that whether Claude is an attorney is irrelevant because a user’s AI inputs, rather than being communications, are more akin to the use of other Internet-based software, such as cloud-based word processing applications. But the use of such applications is not intrinsically privileged in any case, and the argument that Claude is like any other form of software.

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    • Second, the communications memorialized in the AI Documents were not confidential. This is not merely because Heppner communicated with a third-party AI platform but also because the written privacy policy to which users of Claude consent provides that Anthropic collects data on both users’ “inputs” and Claude’s “outputs,” that it uses such data to “train” Claude, and that Anthropic reserves the right to disclose such data to a host of “third parties,” including “governmental regulatory authorities.” See Anthropic, Privacy Policy (as of February 19, 2025), https://www.anthropic.com/legal/archive/ a2eecf43-807a-4a53-89dd-04c44c351138.

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    • The policy clearly puts Claude’s users on notice that Anthropic, even in the absence of a subpoena compelling it to do so, may “disclose personal data to third parties in connection with claims, disputes [,] or litigation.” Id. More generally, as another court in this District recently observed, AI users do not have substantial privacy interests in their “conversations with [another publicly accessible AI platform] which users voluntarily disclosed” to the platform and which the platform “retains in the normal course of its business.” In re OpenAI, Inc., Copyright Infringement Litig., No. 25 MD 3143, ECF No. 1021 at 3 (Jan. 5, 2026).

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    • For these reasons, Heppner could have had no “reasonable expectation of confidentiality in his communications” with Claude. See Mejia, 655 F.3d at 132-34. And the AI Documents are not like confidential notes that a client prepares with the intent of sharing them with an attorney because Heppner first shared the equivalent of his notes with a third-party, Claude. Cf. United States v. DeFonte, 441 F.3d 92, 95-96 (2d Cir. 2006) (per curiam).

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    • Third, Heppner did not communicate with Claude for the purpose of obtaining legal advice. This issue perhaps presents a closer call because Heppner’s counsel asserts that Heppner communicated with Claude for the “express purpose of talking to counsel.” ECF No. 23-5. But, as Heppner’s counsel also conceded, Heppner did not do so at the suggestion or direction of counsel. See id. (noting that counsel “did not direct [Heppner] to run Claude searches”).

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    • Had counsel directed Heppner to use Claude, Claude might arguably be said to have functioned in a manner akin to a highly trained professional who may act as a lawyer’s agent within the protection of the attorney-client privilege. Cf. United States v. Adlman, 68 F.3d 1495, 1498-99 (2d Cir. 1995) (citing United States v. Kovel, 296 F.2d 918 (2d Cir. 1961)) But because Heppner communicated with Claude of his own volition, what matters for the attorney-client privilege is whether Heppner intended to obtain legal advice from Claude, not whether he later shared Claude’s outputs with counsel.

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    • And Claude disclaims providing legal advice. Indeed, when the Government asked Claude whether it could give legal advice, it responded that “I’m not a lawyer and can’t provide formal legal advice or recommendations” and went on to recommend that a user “should consult with a qualified attorney who can properly assess your specific circumstances.” ECF No. 23-6 at 1-2.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.

Contact our firm today for assistance.