Fifth Amendment Claim Ruled Not Frivolous

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Fifth Amendment Claim Ruled Not Frivolous

Post by The Observer »

The neat thing about this case is that it proves that Tax Court judges are not in the pockets of the IRS...

YOUSSEF YOUSSEFZADEH,
Petitioner(s),
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

Release Date: NOVEMBER 06, 2015



Pursuant to Tax Court Rule 50(f), orders shall not be treated as precedent, except as otherwise provided.

UNITED STATES TAX COURT
WASHINGTON, DC 20217

ORDER AND DECISION

This case was on the October 26, 2015 calendar for Los Angeles, and arises from Youssefzadeh's 2011 tax return. On Schedule B of that return he omitted some information and asserted his Fifth Amendment privilege against self-incrimination instead. The IRS assessed a frivolous-return penalty against Youssefzadeh and filed a notice of intent to levy. Youssefzadeh timely requested a collection due process (CDP) hearing, at which he contested only the penalty. The Appeals officer upheld the penalty, and Youssefzadeh petitioned this Court for review. The Commissioner moved for summary judgment and Youssefzadeh filed a response and cross-motion.

Background

We may grant summary judgment when there is no genuine dispute of any material fact and a party is entitled to judgment as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992). After the moving party submits a proper summary-judgment motion, the nonmoving party cannot rest on allegations or denials in his pleadings, but he must present specific facts showing that there is a genuine issue for trial. Rule 121(d); Dahlstrom v. Commissioner, 85 T.C. 812, 820 (1985). However, the moving party still has the burden of proving that there is no genuine dispute of material fact and we draw any factual inferences in favor of the nonmoving party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).

This Court reviews a determination of a CDP hearing de novo when the underlying liability was properly before the Appeals Officer. Goza v. Commissioner, 114 T.C. 176, 181-82 (2000). Although the notice-of-deficiency procedures don't apply to frivolous-return penalties, we've held that the penalty is itself is the underlying liability. Callahan v. Commissioner, 130 T.C. 44, 49 (2008). Because Youssefzadeh never had an opportunity to dispute the penalty before his CDP hearing, we review the issue de novo. Id.

We heard oral argument on the motion on October 26, 2015. At that argument both parties agreed that the scope of review in this case could be limited to the administrative record that the Commissioner compiled. Youssefzadeh had a few items to add to the record, but it turns out that we don't need them to decide the case. That means that, even though we use a de novo standard of review, we don't need a trial to determine the relevant facts, about which the parties agree there is no genuine dispute.

The Facts

Youssefzadeh timely filed his 2011 tax return, and filled out most of the lines in a normal fashion. But on Schedule B (interest and dividends) he refused to answer some questions and fill in some values. He instead invoked his Fifth Amendment privilege against self-incrimination, and wrote that if his answers to these questions might lead to (or actually be) incriminating evidence against him. The IRS warned that it would assess a frivolous-return penalty against him unless he filed a return with all the required information. Youssefzadeh refused and the IRS made good on its threat. It then started collection procedures and issued Letter 1058 to Youssefzadeh to notify him of its intent to levy. Youssefzadeh timely filed a request for a CDP hearing.

Youssefzadeh's form said he was interested in collection alternatives, but he was actually only interested in contesting the entire penalty. His argument was straightforward -- he had a valid Fifth Amendment claim and wasn't trying to waste the IRS's time. The Appeals officer upheld the revenue agent's determination. Youssefzadeh then petitioned this Court for review
.

In his motion for summary judgment, the Commissioner argues that Youssefzadeh's return was frivolous as a matter of law. Youssefzadeh disagrees.

Discussion

The Commissioner must find three things to assess a frivolous return penalty. First, the document must purport to be a tax return. I.R.C. section 6702(a)(1). Second, the return must either omit enough information to prevent the IRS from judging "the substantial correctness of the self-assessment" or must clearly appear to be substantially incorrect. I.R.C. section 6702(a)(1)(A)-(B). Third, the taxpayer's position must be frivolous or demonstrate a desire to impede the IRS's administration of the Code. I.R.C. section 6702(a)(2)(A)-(B). We limit our review to the face of the return when deciding if the return was frivolous as a matter of law. Callahan, 130 T.C. at 51. The burden of proof is on the Commissioner when he asserts a penalty under I.R.C. section 6702. I.R.C. section 6703(a).

We can easily check factor one off the list. Youssefzadeh filed the standard Form 1040 and we have no problem saying he meant it to be his tax return (nor does the Commissioner contest this). The second factor isn't so easy, but after examining the face of the return, we ultimately hold that it contained sufficient information. The face of Youssefzadeh's return includes all of a normal return's numerical information -- he's not one of those tax protesters who fills out a return with zeroes on nearly every line. See, e.g., Lindberg v. Commissioner, 99 TCM 1273, 1277 (2010); Hill v. Commissioner, 108 TCM 12, 14 (2014). He did black out the source and amount of some interest on Schedule B, but importantly, he included the total amount of interest on line 4. There don't appear to be any other irregularities.

The Commissioner argues that he needs the missing information to determine if Youssefzadeh's return is accurate, but he fails to give any reasons why. And it's important that the standard isn't "Is the return completely correct?" but "Is the return substantially correct?" We hold that this return on these undisputed facts is -- considering that the face of the return appears to include the total amount of interest while only redacting the source of one payer.

The Commissioner stumbles into the third factor too. He argues that Youssefzadeh's return is frivolous because the IRS has identified claiming the Fifth Amendment as a reason for omitting information is a frivolous argument. Notice 2010-33, 2010-17 I.R.B. 609. Therefore, the Commissioner argues, Youssefzadeh's return must've been frivolous. But Notice 2010-33 doesn't say omitting some information because of fear of self-incrimination is frivolous; it says that omitting "all financial information" is frivolous. Id. (emphasis added). This distinction is important and appears elsewhere. The Internal Revenue Manual says it's frivolous when an "individual makes an improper blanket assertion of the Fifth Amendment right against self-incrimination as a basis for not providing any financial information." I.R.M. 4.10.12.1.1(10) (emphasis added). The Manual goes on to say that "judicial precedents clearly establish that failure to comply with the filing and reporting requirements of the federal income tax laws will not be excused based upon blanket assertions of" the Fifth Amendment. I.R.M. 4.10.12.1.2(6) (emphasis added). A review of Youssefzadeh's return reveals that it contains plenty of financial information and isn't covered by any blanket assertions.

The Supreme Court held a long time ago that the Fifth Amendment doesn't excuse a complete failure to file a tax return. United States v. Sullivan, 274 U.S. 259, 263 (1927). But the Court went on to say in the same opinion that if the form "called for answers that the defendant was privileged from making he could have raised the objection in the return." Id. It later specifically held the privilege does apply to tax returns, provided the taxpayer affirmatively claims the privilege on the return and does so before he files it. Garner v. United States, 424 U.S. 648, 656 (1976). The Commissioner's assertion without further analysis that a claim of the Fifth Amendment privilege on a return must in all cases be frivolous is simply wrong.

The law doesn't let taxpayers invoke the privilege on a tax return with random and unjustified invocations. Instead, he "must be faced with substantial hazards of self incrimination * * * that are real and appreciable." United States v. Neff, 615 F.2d 1235, 1239 (9th Cir. 1980) (internal quotations omitted). He must have "reasonable cause" to fear that answering a question on a tax return could lead to criminal prosecution. Id. But the answer doesn't have to be so incriminating that it supports conviction itself. Id. All the answer has to do is "provide a lead or clue to evidence having a tendency to incriminate." Id.

At the same time, a taxpayer must show enough to allow us to conclude that there is at least a risk of self-incrimination (while at the same time not revealing enough information to realize the very risk the taxpayer is trying to avoid). Hoffman v. United States, 341 U.S. 479, 486 (1951). We first determine if we find "a real and appreciable danger of incrimination exists" by examining the "implications of the questions(s) in the setting in which (they are) asked." Neff, 615 F.2d at 1239-40. If we aren't convinced, then it's up to the taxpayer to show us why we're wrong. Id.

Youssefzadeh correctly tells us here that 31 U.S.C. section 5314 and 31 U.S.C. section 5322 make it a crime to willfully fail to file an FBAR. 1 The questions asked on Section B of the Form 1040 elicit information that can easily be used to determine if the taxpayer has filed an FBAR. And, as the Sixth Circuit pointed out, "this section of the return refers taxpayers to a booklet that further outlines their responsibilities for reporting foreign bank transactions. This booklet discusses the duty to file [the FBAR]." United States v. Sturman, 951 F.2d 1466, 1477 (6th Cir. 1991). Because the lines that Youssefzadeh redacted ask for information that triggers the duty to file an FBAR, 2 and because willful failure to file an FBAR is a crime, we hold that Youssefzadeh has shown us a real and appreciable danger of self-incrimination by being compelled to answer the questions on Section B. In other words, Youssefzadeh's return wasn't frivolous by reason of invoking the Fifth Amendment privilege. Because the Commissioner raised no other grounds for imposing the penalty, we hold that Youssefzadeh's return wasn't frivolous or made with an intent to impede the administration of the code.

We cannot sustain the penalty, which means that we cannot sustain the Commissioner's determination to collect it.

It is therefore

ORDERED that respondent's motion for summary judgment is denied. It is also

ORDERED that petitioner's cross-motion for summary judgment is granted. It is also

ORDERED and DECIDED that respondent may not proceed with the collection of petitioner's federal income tax liability for the tax year 2011 as described in the Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330, dated May 28, 2014.

Mark V. Holmes
Judge

Entered: November 06, 2015

FOOTNOTES:

/1/ An FBAR is the Report of Foreign Bank and Financial Accounts (Form TD-F 90-22.1). Each U.S. person that has a financial interest in or signature authority over a foreign financial interest must annually file this form, subject to certain definitions and limitations. See 31 C.F.R. section 1010.350(a).

/2/ Question 7a on Form 1040 asks the taxpayer if he or she is required to file an FBAR. If the taxpayer is forced to answer this as "yes" but has failed to file an FBAR, the answer at least reasonably raises the threat of criminal prosecution.
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Famspear »

This is case number 014868-14 L, for future reference.

I'm sorta scratching my head on this one. An IRS Revenue Agent (exam) or Revenue Officer (collections) might be excused for not knowing the basic teachings of Sullivan and Garner.

I don't think it's too much, however, to expect an IRS appeals officer to know the difference between a clearly improper blanket privilege assertion as to virtually every item on a federal income tax return and a valid, narrow assertion of the privilege as to a specific question on the return.

But I definitely would expect attorneys in the IRS Chief Counsel's office to have this down pat. How this case got this far down the road on this particular issue is puzzling.

Side note: The taxpayer's legal counsel was Edward Robbins at Hochman, Salkin, Rettig, Toscher & Perez, PC, of Beverly Hills, California.
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Re: Fifth Amendment Claim Ruled Not Frivolous

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Famspear wrote:The taxpayer's legal counsel was Edward Robbins at Hochman, Salkin, Rettig, Toscher & Perez, PC, of Beverly Hills, California.
Then the IRS was up against some of the best in the West on this one. Edward Robbins worked in the US Attorney's office in its Tax Division in years past and was certainly one of the sharpest knives in the government's drawer; Hochman's firm has been representing clients on tax issues for a number of years. I can't help but think that there had to be some head scratching on this one as well by Robbins as to why the government though they were going to win on this one.
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Famspear »

Youssefzadeh timely filed his 2011 tax return, and filled out most of the lines in a normal fashion. But on Schedule B (interest and dividends) he refused to answer some questions and fill in some values. ....
Maybe this is significant. If the "values" that the taxpayer did not show on the tax return were amounts of income, this could raise the issue of whether the Fifth Amendment privilege can be validly asserted on a tax return to refuse to report the amount of an item of income. Often, commentators summarize Sullivan and Garner by saying that the taxpayer is allowed the benefit of the claim of privilege to refuse to disclose the SOURCE of an item of income, but that he or she still must report the AMOUNT of the income.

But, it's not entirely clear that this is the case. Maybe there could be a situation where even disclosing the amount of the income would present a real danger that the taxpayer could be accused, charged, or prosecuted for an alleged crime -- such as, for example, where the government already has evidence from somewhere else that the taxpayer received a specific sum in a criminal enterprise, and that the taxpayer is required to disclose that particular, specific amount as income.
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Burnaby49 »

Maybe this is significant. If the "values" that the taxpayer did not show on the tax return were amounts of income, this could raise the issue of whether the Fifth Amendment privilege can be validly asserted on a tax return to refuse to report the amount of an item of income. Often, commentators summarize Sullivan and Garner by saying that the taxpayer is allowed the benefit of the claim of privilege to refuse to disclose the SOURCE of an item of income, but that he or she still must report the AMOUNT of the income.

But, it's not entirely clear that this is the case. Maybe there could be a situation where even disclosing the amount of the income would present a real danger that the taxpayer could be accused, charged, or prosecuted for an alleged crime -- such as, for example, where the government already has evidence from somewhere else that the taxpayer received a specific sum in a criminal enterprise, and that the taxpayer is required to disclose that particular, specific amount as income.
Does this mean that information submitted to the IRS as part of an income tax return filing can be used by the government for some other purposes apart from determining tax liability?

That's not how it works, or at least is supposed to work, in Canada. Information submitted with, or in respect to an income tax return is legally confidential even if it discloses criminal activities. It cannot be used for any other purpose. I say "is supposed to work" because I was never involved in the issue and I know of no jurisprudence on the matter. Criminals tend not to file in any case so it is largely theoretical. And we don't have your fifth amendment. When an invidividual charged with a criminal act, say tax evasion, he cannot be compelled to provide information in respect to it but there is no protection for a simple information request from the Canada Revenue Agency even if criminal activity is involved.

This only stops the CRA from divulging information. It does not stop it from receiving it. The CRA often gets information from police when they are investigating a criminal and uses that to go after non-reporters. Happens all the time in drug cases.
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by KickahaOta »

Burnaby49 wrote:Does this mean that information submitted to the IRS as part of an income tax return filing can be used by the government for some other purposes apart from determining tax liability?
Yes, and not just for the obvious things like "criminal income tax evasion" or "perjury". The information on the form can be used against you, both civilly and criminally. For example, there's a blank on the form that asks you to list your occupation. If you list "Cocaine Dealer", that can be used against you. Hence it would be well-advised to give a technically-true-but-euphemistic answer like "Salesperson".
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Famspear »

Burnaby49 wrote:....Does this mean that information submitted to the IRS as part of an income tax return filing can be used by the government for some other purposes apart from determining tax liability?
Yeah, here are the general rules for the United States:
Sec. 6103. Confidentiality and disclosure of returns and return information.

(a) General rule--Returns and return information shall be confidential, and except as authorized by this title [that is, as authorized by the Internal Revenue Title, known as the Internal Revenue Code of 1986, as amended, separately codified as Title 26 of the United States Code]—

(1) no officer or employee of the United States,

(2) no officer or employee of any State, any local law enforcement agency receiving information under subsection (i)(7)(A), any local child support enforcement agency, or any local agency administering a program listed in subsection (l)(7)(D) who has or had access to returns or return information under this section or section 6104 (c), and

(3) no other person (or officer or employee thereof) who has or had access to returns or return information under subsection (e)(1)(D)(iii),subsection (k)(10), paragraph (6), (10), (12), (16), (19), (20), or (21) of subsection (l), paragraph (2) or (4)(B) of subsection (m), or subsection (n),

shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee or otherwise or under the provisions of this section. For purposes of this subsection, the term “officer or employee” includes a former officer or employee.

[ . . . ]
Unfortunately, section 6103 then goes on into quite a bit of detail on the "except as authorized by this title" language. Specifically, about forty pages of exceptions. Section 6103 is probably the longest single section in the U.S. Internal Revenue Code.

Subsection (d) authorizes disclosure to certain state tax officials and state and local law enforcement agencies.

Subsection (e) authorizes disclosure to certain persons having a "material interest." For example, if an individual files a bankruptcy, the IRS may be required to disclose the individual's prior tax returns, etc., to the bankruptcy Trustee -- and permission of the taxpayer is neither required nor generally requested. (Actually, there are two provisions in subsection (e) dealing with disclosure of information of persons or entities in bankruptcy.)

There is a provision for authorized disclosure to the President or to employees of the White House Office as designated by the President -- but the President must personally sign a written request for that.

Subsection (h) provides for disclosure to certain U.S. federal government officers for the purposes of tax administration, including disclosure to the Department of Justice for use in a Federal grand jury matter, etc.

Subsection (i) even provides for disclosure to federal officers or employees for administration of laws NOT related to "tax administration," including but not limited to Federal criminal law.

This is barely scratching the surface of section 6103. The rules are very, very detailed, and fairly specific.
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Famspear »

Getting back to the point about being required to disclose the amount of the income versus the source of the income, here are some cases where the courts indicated that the taxpayer asserting the Fifth Amendment privilege would still have to disclose the amount of the income:

1. United States v. Johnson, 577 F.2d 1304 (5th Cir. 1978), at:

http://scholar.google.ca/scholar_case?c ... s_sdt=3,44



2. United States v. Brown, 600 F.2d 248 (10th Cir. 1979), at:

http://scholar.google.ca/scholar_case?c ... s_sdt=3,44
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by operabuff »

This is an interesting case. The IRS seems to have misidentified it as a frivolous return case. I think Judge Holmes correctly holds that the frivolous return penalty doesn't apply.

But the more interesting issue is the underlying one of whether a Fifth Amendment claim protects the taxpayer from supplying the FBAR information that Youssefzadeh omitted from the return. If so, the IRS might as well not bother having these particular lines on the return. There was nothing special about Youssefzadeh's circumstances - any taxpayer with a foreign bank account could potentially make the same Fifth Amendment argument.

Note that the Tax Court doesn't decide whether the Fifth Amendment claim is valid - simply that it is not frivolous. A finding that the Fifth Amendment claim was valid would probably elicit an appeal by the government.
KickahaOta wrote:
Burnaby49 wrote:Does this mean that information submitted to the IRS as part of an income tax return filing can be used by the government for some other purposes apart from determining tax liability?
Yes, and not just for the obvious things like "criminal income tax evasion" or "perjury". The information on the form can be used against you, both civilly and criminally. For example, there's a blank on the form that asks you to list your occupation. If you list "Cocaine Dealer", that can be used against you. Hence it would be well-advised to give a technically-true-but-euphemistic answer like "Salesperson".
While I think KickahaOta's advice is correct in that I would never suggest someone list "cocaine dealer" as their occupation on a Form 1040, he substantially overstates the hazard of disclosure to law enforcement.

Section 6103(d) prevents the IRS from disclosing return information to state and local governments for any other purpose than tax administration. The IRS could not contact a local police department to inform them that some taxpayer claimed to be a cocaine dealer.

And there are substantial limitations of the IRS's ability to disclose taxpayer return information to Federal law enforcement agencies for any other purpose than tax administration. In general, section 6103(i)(1) requires a court order to allow such a disclosure (taxpayer return information includes the information supplied by the taxpayer on his return such as "occupation=cocaine dealer"). Sections 6103(i)(2 et seq.) are less restrictive but apply only to return information other than taxpayer return information. (The state and local limitations of section 6103(d) apply to the broader category of return information.)

So while I wouldn't advise a taxpayer to put down "cocaine dealer" on the occupation line, it's not because of concern that either local narcs or the DEA would be beating down his door in response. I would worry about identifying the taxpayer to the IRS as being in a cash business with substantial limitations on the business deductions he's allowed to take. It would almost be asking for an audit to see if he had unreported income.

[And then there's the hazard that the taxpayer himself might leave a physical copy of the return in a place where it could be read by someone who shouldn't.]
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Famspear »

operabuff wrote:This is an interesting case. The IRS seems to have misidentified it as a frivolous return case. I think Judge Holmes correctly holds that the frivolous return penalty doesn't apply.

But the more interesting issue is the underlying one of whether a Fifth Amendment claim protects the taxpayer from supplying the FBAR information that Youssefzadeh omitted from the return. If so, the IRS might as well not bother having these particular lines on the return. There was nothing special about Youssefzadeh's circumstances - any taxpayer with a foreign bank account could potentially make the same Fifth Amendment argument.

Note that the Tax Court doesn't decide whether the Fifth Amendment claim is valid - simply that it is not frivolous. A finding that the Fifth Amendment claim was valid would probably elicit an appeal by the government....
Really good points.

I hadn't thought about the case with those points in mind.

How "dangerous" does giving an answer to that particular question on a tax form have to be before the assertion of the privilege will be deemed valid? I don't know.
.....it need only be evident from the implications of the question, in the setting in which it is asked, that a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result. The trial judge in appraising the claim 'must be governed as much by his personal perception of the peculiarities of the case as by the facts actually in evidence.'
--from Hoffman v. United States, 341 U.S. 479 (1951).

There has to be a “reasonable cause to apprehend danger from a direct answer.” See generally Ohio v. Reiner, 532 U.S. 17 (2001) (per curiam), citing Hoffman v. United States, 341 U. S. 479, 486 (1951) and Mason v. United States, 244 U.S. 362, 366 (1917).

:thinking:
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by operabuff »

As Famspear noted several posts above, the taxpayer here was represented by Hochman, Salkin, Rettig, et al., who are one of the best tax litigation firms in Southern Cal. Ed Robbins is a very experienced trial lawyer. They don't seem like the kind of firm that would be taking on frivolous cases. I wonder whether this is a shot at the FBAR set up - which has been controversial from its beginnings.
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Arthur Rubin »

As FinCEN form 114 (formerly TD F 90-22.1) is not a tax form, I don't see why the 5th Amendment shouldn't apply. The questions aren't relevant to tax administration, so claiming the 5th Amendment doesn't seem frivolous. In a few years, we may find out whether the questions on the tax form are legal to ask. (Note to IRS or other Treasury agents: You know who am I. I don't know of any foreign assets which I own or have control over, unless you count about $100 of Canadian currency and about US$10 (face value) of other foreign currency, which is in a storage unit somewhere in my house. I say "somewhere", because I don't know where it is.)
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by operabuff »

Arthur Rubin wrote:As FinCEN form 114 (formerly TD F 90-22.1) is not a tax form, I don't see why the 5th Amendment shouldn't apply. The questions aren't relevant to tax administration, so claiming the 5th Amendment doesn't seem frivolous. In a few years, we may find out whether the questions on the tax form are legal to ask.
The questions on the tax form are legal to ask. The IRS has been given the authority to enforce the FBAR provisions. So they have the authority to ask whether you have a foreign bank account on Schedule B. The issue is whether there's a fifth amendment defense that allows you to refuse to answer. Just as the police have the authority to ask whether you shot that man and you have the right not to answer.

And FBAR is relevant to tax administration. The reports identify foreign accounts that may be used by US taxpayers to shelter unreported income. That's why the authority to enforce the statute was transferred to the IRS from FinCEN. Here's an article written by a DOJ Tax Division attorney providing some background:

https://americansabroad.org/files/1813/ ... owntax.pdf

The author notes that criminal prosecutions for FBAR violations have been rare and usually in connection with other offenses.

Thinking a bit more about it, I wonder whether it's wise to assert a Fifth Amendment privilege even if you have a valid claim. It would draw attention to a return that might otherwise just pass unnoticed. If you are required to file a FBAR form and fail to do so, you are liable for civil and criminal penalties regardless of whether you check a box on Schedule B or assert the privilege.
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by JamesVincent »

Alright, couple of nooby questions. Could the source of income be in a country we have embargoed, could that be reason he doesn't want it known? If he did report the interest, which it says he did and which the court agreed he did, isn't the true source kinda irrelevant, except maybe to verify the amount?
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by operabuff »

It occurred to me as well that the account may have been in a country we've embargoed or may have been used to transfer funds to such countries. But like I said, putting the fifth amendment claim on the return is sort of like jumping up and down and shouting "look at me, look at me." Yes, the IRS may not be able to compel him to incriminate himself, but they certainly have other means of investigation at their disposal which they are perfectly free to use.

So if I was trying to get away with something illegal that was important to me, I wouldn't be attaching a fifth amendment claim.

And that thought process led me to wonder whether this was just sort of a test case. Once the frivolous return penalty is gone, there really isn't any other Title 26 penalty that's applicable. There are civil and criminal penalties for failing to file the FBAR form which the IRS has the power to apply. But I guess they don't yet know whether he was actually required to file a FBAR form. They would need to investigate. And that might also explain the curious IRS action in pursuing the friv return penalty. They don't have any other readily available sanction that they can use without investigation and they may have thought they had a reasonable argument for the penalty. Fifth amendment claims are among those that the Secretary of Treasury has listed as frivolous - so it would appear that section 6702(a)(2)(A) provides for the applicability of the penalty. But Judge Holmes rejected this argument. (Correctly, I think.)

The order is a final disposition of the case, so the IRS could file an appeal (assuming Justice is on board). As an order, the opinion has limited precedential value, so the IRS might walk away from this case without appealing. Also, the 9th Circuit would probably not be the government's first choice of places to try this issue.
Famspear
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Famspear »

operabuff wrote:.....Fifth amendment claims are among those that the Secretary of Treasury has listed as frivolous - so it would appear that section 6702(a)(2)(A) provides for the applicability of the penalty. But Judge Holmes rejected this argument. (Correctly, I think.)
In fairness to the Secretary of the Treasury, I should point out that Notice 2010-33 (which I think is the most recent official list under section 6702(c)) states that this is a frivolous position:
The Fifth Amendment privilege against self-incrimination grants taxpayers the right not to file returns or the right to withhold all financial information from the Service.
(emphasis added).

The Secretary does not state that ANY AND ALL assertions of the privilege are frivolous.

And, the March 2014 version of "The Truth About Frivolous Tax Arguments" from the IRS states:
There is no constitutional right to refuse to file an income tax return on the ground that it violates the Fifth Amendment privilege against self-incrimination. As the Supreme Court has stated, a taxpayer cannot “draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law.” United States v. Sullivan, 274 U.S. 259, 264 (1927). The failure to comply with the filing and reporting requirements of the federal tax laws will not be excused based upon blanket assertions of the constitutional privilege against compelled self-incrimination under the Fifth Amendment.
(emphasis added).

These Treasury pronouncements seem to conform to Sullivan and Garner, in my view. It might have just been the IRS personnel in this particular case (including the IRS appeals officer and the IRS attorneys) who wandered off into the weeds.

EDIT: I just checked, and it appears that the most recent version of "The Truth About Frivolous Tax Arguments" is dated January 2015. The relevant text (quoted above) appears to be unchanged.
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LaVidaRoja
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by LaVidaRoja »

Some 30 years ago, I was a Disclosure Specialist (I kept my clothes on!) in a District Office. There was an on-going criminal case that did NOT involve tax matters. The defendant was accused of receiving (and for tax purposes failing to report) payments from a foreign government. However, at the time the return involved as evidence in the case was filed it was required that the filer indicate on Schedule B if they had any interest in a foreign account. If they did say yes, the return had to be screened by a Revenue Agent to determine if it warranted further scrutiny. By the time I was involved in the case, that requirement had been removed. However, the party on trial had failed to indicate ownership/control of a foreign account. I had to get permission from D.C. for our agent to testify as to what would have happened if the taxpayer had been truthful on the return. I honestly do not know if the income from the foreign government had been reported on the return. So, the issue was did the taxpayer report the SOURCE of the income.
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Arthur Rubin
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Arthur Rubin »

(Referring to a different case)
LaVidaRoja wrote:So, the issue was did the taxpayer report the SOURCE of the income.
That's not a matter of tax administration. As we all know, the source of the income doesn't affect the taxability. (NO sarcasm smiley)
Arthur Rubin, unemployed tax preparer and aerospace engineer
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Famspear
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by Famspear »

LaVidaRoja wrote:Some 30 years ago, I was a Disclosure Specialist (I kept my clothes on!) in a District Office.....
Disclosure Specialist!

I would assume that you probably had a pretty interesting job.
"My greatest fear is that the audience will beat me to the punch line." -- David Mamet
operabuff
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Re: Fifth Amendment Claim Ruled Not Frivolous

Post by operabuff »

Famspear wrote:
operabuff wrote:.....Fifth amendment claims are among those that the Secretary of Treasury has listed as frivolous - so it would appear that section 6702(a)(2)(A) provides for the applicability of the penalty. But Judge Holmes rejected this argument. (Correctly, I think.)
In fairness to the Secretary of the Treasury, I should point out that Notice 2010-33 (which I think is the most recent official list under section 6702(c)) states that this is a frivolous position:
The Fifth Amendment privilege against self-incrimination grants taxpayers the right not to file returns or the right to withhold all financial information from the Service.
(emphasis added).

The Secretary does not state that ANY AND ALL assertions of the privilege are frivolous.

And, the March 2014 version of "The Truth About Frivolous Tax Arguments" from the IRS states:
There is no constitutional right to refuse to file an income tax return on the ground that it violates the Fifth Amendment privilege against self-incrimination. As the Supreme Court has stated, a taxpayer cannot “draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law.” United States v. Sullivan, 274 U.S. 259, 264 (1927). The failure to comply with the filing and reporting requirements of the federal tax laws will not be excused based upon blanket assertions of the constitutional privilege against compelled self-incrimination under the Fifth Amendment.
(emphasis added).

These Treasury pronouncements seem to conform to Sullivan and Garner, in my view. It might have just been the IRS personnel in this particular case (including the IRS appeals officer and the IRS attorneys) who wandered off into the weeds.

EDIT: I just checked, and it appears that the most recent version of "The Truth About Frivolous Tax Arguments" is dated January 2015. The relevant text (quoted above) appears to be unchanged.
Just to clarify, "The Truth About Frivolous Tax Arguments" is not a "Treasury pronouncement." It is not published in the Internal Revenue Bulletin and is not signed off on by the Assistant Secretary for Tax Policy before its release. Notice 2010-33 was published in the IRB and was reviewed by the Assistant Secretary.

In fact, "The Truth" is prepared by the same group of IRS attorneys who would have been responsible for reviewing the MSJ in this case before it was filed. I've argued above that there was a significant enforcement issue at stake here and the IRS may have tried to make the best argument they could to defend the effectiveness of the question on Schedule B. It would be interesting to read the MSJ, but the Tax Court's website doesn't make it available. I'd also be interested to know whether the motion was reviewed in the Chief Counsel's national office.