No Penalty Despite Taxpayer’s 5th Amendment Claim

 

Some folks we’ve run into have a hard time with the questions on the individual tax return regarding the existence of foreign bank accounts.  “None of their business!” claim some, even though the law says that it sure is.

So here comes taxpayer Youssefzadeh who asserted his 5th amendment protection against self-incrimination in objecting to provide certain info called for on  Schedule B of his 2011 tax return.  Along come the Revenooers, however, slapping our boy with the $5,000 frivolous return penalty, which the law requires in cases where the return doesn’t contain info on which the substantial correctness of the self-assessed tax may be judged.  Even though his return did include the numerical information, including the total amount of interest income which he received for the year.

“Whoa,” said the Tax Court, in concluding that indeed the return was not frivolous.  Indeed, noted the Court, the document filed by the taxpayer did contain sufficient information for IRS to judge “the substantial correctness of the self-assessment.”  The Court found that the return was sufficient to determine its substantial correctness – which doesn’t necessarily require that It be “completely correct.”  The Court noted that the total amount of interest was included on the return, thus distinguishing Youssefzadeh from other tax protestors who merely fill out a return with zeroes on every line.

Anyway, we don’t advise folks to just ignore information requests on returns (like the queries about foreign bank accounts).  This guy may have avoided the frivolous return penalty in his case, but playing fast and loose with the foreign financial account requirements presently permeating the law often is just asking for trouble.

And here’s a novel idea – advanced by Congressman Andy Harris (R-Md) whose recent bill would permit individuals to prepay their federal estate tax during their lives by increasing their income tax obligation by one percent of their adjusted gross income, generally, and foregoing basis adjustments at death.

The  estate tax would be avoided only if the taxpayer paid at least seven years of additional income tax.  If the bloke otherwise dies fewer than seven years after making the election, the taxes paid  would be allowed as a credit against the estate tax liability.

Sounds like one Bernie would favor, don’t ya think?

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He welcomes comments at jquinn@ashleyquinncpas.com.

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