What Happens When People Plead the Fifth on Form 1040

Pleading the Fifth
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Tax protesters contend there’s a constitutional basis for not filing a Form 1040 or not paying taxes. When confronted by their accountants or the IRS, they try to dodge the consequences by claiming an individual’s Fifth Amendment right not to be forced to testify against himself justifies his failure to file.

Does that sound too good to be true? Absolutely, says the IRS, which has been backed on this issue by the courts in scores of cases.

Contrary to what protesters and other self-proclaimed experts in constitutional law assert, the IRS isn’t powerless to take action against someone who files a 1040 with only his name and address and invokes the Fifth as his reason for not filling in the other lines that apply to him. The courts routinely uphold the collection by the IRS of a nondeductible civil penalty for each failure to file.

The penalty goes as high as 25 percent of the balance due with a return and is in addition to other fines for negligence and not making estimated payments, as well as back taxes and interest.

Moreover, these civil sanctions aren’t the only weapons the Internal Revenue Code empowers the tax enforcers to unleash against far-out protest scams. It’s long-standing law that claiming the Fifth doesn’t prevent the feds from bringing criminal charges. A conviction can mean a jail term of up to a year and/or a fine of up to $25,000 for each failure to file (Code Section 7203).

As Supreme Court Justice Holmes noted back in 1927, a taxpayer can’t “draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government’s blank would bring him into danger of the law.”

This point was driven home to Donald Johnson, who unsuccessfully argued that he was excused from filing a return because he would incriminate himself if he reported his income from illegal dealings in gold. His conviction by a jury was upheld by the Fifth Circuit Court of Appeals. Although Donald or anyone else faced with a similar problem can refuse to answer incriminating questions, no one can decline to file.

The proper way for a person to comply with the tax laws and still exercise their constitutional rights, the courts noted, is to record illegal income in the space provided on Form 1040 for “other income.” The amount isn’t shielded by the Fifth, only the source.

John D. Morelli, Jr., also learned the expensive way that the IRS isn’t a paper tiger. He failed to file returns for a five-year period, conduct that triggered assessment of almost $18,000 for taxes and penalties. John took the dispute to the Tax Court and acted as his own attorney.

His argument went something like this: The Internal Revenue Code seeks “voluntary compliance.” Well, he was just unwilling to volunteer. The court icily replied that his position was “frivolous and groundless” and fined him an extra $6,000.

He actually got off easy. It could have imposed a fine of as much as $25,000.

 A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 250 and counting). 

About Julian Block

Julian Block

Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com

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