Page 3 - The Fifth Amendment Privilege Against Self-Incrimination and Tax Returns: Oil and Water or Peanut Butter and Jelly?

Fifth Amendment o ensively as a tool to avoid paying taxes as opposed to defensively making targeted assertions of the privilege based on a speci c and legitimate fear of criminal prosecution. Accordingly, the main lesson from these cases is that taxpayers should tailor any assertion of the Fifth Amendment on the tax return to the speci c item or items that could be incriminatory and should avoid blanket assertions of the privilege.
is understanding of the case law was recently con rmed by the Tax Court in Youssefzadeh.9 e taxpayer in that case led his tax return and lled out most of the lines in a nor- mal fashion. However, on Part I of Schedule B (interest), he refused to list the name of a bank and he refused to provide a speci c amount of interest paid. On Part III of Schedule B (foreign accounts and trusts), he refused to state whether he had an interest in a foreign bank account based on his Fifth Amendment privilege. e IRS assessed a frivolous return penalty against the taxpayer on the ground that the return did not provide su cient information to allow the IRS judge the substantial correctness of the self-assessment and failure to do so was frivolous.
e Tax Court disagreed and abated the frivolous return penalty. e court noted that the taxpayer had very selec- tively asserted the Fifth Amendment privilege. Importantly, while the taxpayer blacked out the source and amount of some interest income on the return, he did include the total amount of interest subject to tax on line 4 of the return and he computed and paid the correct amount of tax. For these reasons, the court held that the taxpayer had provided su cient information for the IRS to judge the substantial correctness of the return and that his assertion of the privi- lege was in good faith and was not frivolous.
Conclusion
e lesson from these cases is that the Fifth Amendment must be considered by any taxpayer who fears criminal prosecution before he or she les a tax return. While the Fifth Amendment probably does not allow a person to avoid ling an income tax return altogether, it probably does apply to any particular line items on the return. e key to properly asserting the Fifth Amendment on a tax return is to assert it selectively, only where the an- swer legitimately could be used against the taxpayer in a prosecution. In some cases, this could include the source or amount of income reported on the return. If the Fifth Amendment is asserted with respect to the amount of income, it appears to be important to compute the proper tax liability, including the tax on the income subject to the privilege. Of course, it would be a good idea to pay the tax as well. ere is no suggestion in any of the cases that the Fifth Amendment allows a taxpayer to legitimately avoid paying any tax due.
ENDNOTES
1 M.S. Sullivan, SCt, 1 ustc ¶236, 274 US 259, 47 SCt 607.
2 Sullivan, 274 US at 263.
3 R.D. Garner, SCt, 76-1 ustc ¶9301, 424 US 648, 96 SCt 1178.
4 Garner, 424 US at 652.
5 Garner, 424 US at 663. The Supreme Court expressly stated that “a valid
claim of privilege cannot be the basis for a 7203 conviction ... ” It is not clear to what extent this dictum was meant to overrule.
Barnes, CA-2, 604 F2d 121 (1979).
6
7 Barnes, 604 at 148.
8 E.g., W.W. Shivers, Jr., CA-5, 86-1 ustc ¶9404, 788 F2d 1046; S.T. Heise,
CA-6, 83-1 ustc ¶9419, 709 F2d 499; and R. Neff, CA-9, 80-1 ustc ¶9397,
615 F2d 1235.
9 Youssefzadeh, Dkt. No. 14868-14 (2015).
This article is reprinted with the publisher’s permission from the Journal of Tax Practice & Procedure,
a bi-monthly journal published by CCH, a part of Wolters Kluwer. Copying or distribution without the publisher’s permission is prohibited. To subscribe to the Journal of Tax Practice & Procedure or other CCH, a part of Wolters Kluwer Journals please call 800-449-8114 or visit CCHGroup.com. All views expressed in the articles and columns are those of the author and not necessarily those of CCH, a part of Wolters Kluwer or any other person.
FEBRUARY–MARCH 2016 © 2016 CCH INCORPORATED AND ITS AFFILLIATES. ALL RIGHTS RESERVED. 23