From the Archives: Does the 5th Amendment Protect You During an Audit?

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PROGRAMMING NOTE: Over the next two weeks, I’ll be re-posting popular blog posts from the past. New material will resume on Monday, January 4th.

This is one of the oldest posts on this blog, from nearly 5 years ago.

I used to write about Tax Court cases a lot in those early days. Since then I’ve changed the focus of my blogging and let other bloggers handle writing about the happenings in the Tax Court. But this post from February of 2011 is one of my early forays into chronicling what the Tax Court is up to.

And the short answer to the question posed in the title is: no, it doesn’t protect you.


Originally published February 18, 2011

If you’re ever audited by the IRS, don’t rely on your 5th Amendment privilege against self-incrimination to protect you.  A self-employed architectural consultant tried using the 5th Amendment as a defense but got shot down in Tax Court last week.

The consultant, a Mr. Raeber, was audited by the IRS for his Schedule C deductions in 2006 and 2007.  The IRS asked Mr. Raeber to substantiate his deductions — which totaled more than $250,000 each year.

Rather than trying to prove his deductions, Mr. Raeber instead refused to provide substantiation, arguing that the substantiation requirement violates his 5th Amendment rights.  In Tax Court, Mr. Raeber stated that the fact that he signed his tax returns under penalty of perjury constitutes substantiation (look at the small print at the bottom of Form 1040 to see what he’s talking about).

The Tax Court didn’t buy Mr. Raeber’s argument.  According to the Court, the 5th Amendment doesn’t apply in cases where a taxpayer is not facing criminal charges.  From the Court ruling:

We have long held that signing a return under penalty of perjury is not sufficient to substantiate its accuracy….  (H)olding that a taxpayer does not satisfy his burden to substantiate claimed business expenses by merely signing his return under penalty of perjury and testifying to its accuracy, without producing additional evidence….

Petitioner failed to introduce any other evidence to substantiate his claimed business expenses, asserting instead his Fifth Amendment privilege against self-incrimination. The Court is not aware of any pending or likely criminal investigation of petitioner. The privilege against self-incrimination does not apply where the possibility of criminal prosecution is remote or unlikely. Petitioner’s baseless Fifth Amendment claim cannot stand in the way of a determination of his civil tax liability.

During the court proceedings, the Tax Court offered Mr. Raeber another chance to offer substantiation of his deductions, but he continued to argue for his 5th Amendment rights.  That stance cost him about $180,000 in additional taxes owed, plus another $36,000 of accuracy related penalties for negligence or disregard of the tax law.