Tax Court Rejects the Frivolous Return Penalty for Fifth Amendment Assertion on Schedule B FBAR Question (11/71/5)

In Youssefzadeh v. Commissioner, Order (11/6/15), here, on Schedule B for 2011, the taxpayer "refused to answer some questions and fill in some values."  Instead, he "invoked his Fifth Amendment privilege against self-incrimination, and wrote that if (sic) his answers to these questions might lead to (or actually be) incriminating evidence against him.."  Later in the order, the Court says that the taxpayer "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."

The IRS asserted a frivolous return penalty under § 6702(a), here.

The taxpayer contested the penalty in a CDP proceeding.  The Tax Court held that he had properly invoked his Fifth Amendment privilege and therefore rejected the IRS's assertion of the frivolous return penalty.

Although this is a nonprecedential order, the discussion of this issue often faced by tax practitioners is very good.  The issue is how does the taxpayer properly invoke his or her Fifth Amendment privilege when some information on the tax return may be potentially incriminating.  In broad strokes, the taxpayer cannot assert the Fifth Amendment privilege by filing no return.  Nor can he assert the privilege by filing a return with no information other than identifying information and the assertion of the Fifth Amendment claim.  Rather, as I stated in the last version of my Federal Tax Crime book (footnotes omitted:

From the above, we derive the conclusion that generally, the proper way to assert the Fifth Amendment on current returns is to selectively assert it on the return in response to the line item requesting information that may be incriminating.  Certainly line items on the return that require disclosure of a source of income or a type of business (as in Schedule C) might permit the assertion of the Fifth Amendment to avoid answering the question.  What about the amount of the income?  Any lawyer worth his or her pay can provide reasons, often tenuous, as to why putting the amount of income would be incriminating even if the Fifth Amendment is asserted as to the source.  But the amount of income is usually not thought of as the quality of information that is incriminating for Fifth Amendment purposes. fn
   fn. E.g., United States v. Goetz, 746 F.2d 705, 710 (11th Cir. 1984); United States v. Brown, 600 F.2d 248, 252 (10th Cir. 1979), cert. denied, 444 U.S. 917 (1979); United States v. Johnson, 577 F.2d 1304, 1311 (5th Cir. 1978).

I am not sure that I picked up all nuances in this concluding statement and Youssafzaeh may be offer some nuance.  So, I include here significant portions of Judge Holmes' Order because it is short, touches all the right bases, and well-stated: