The Fifth Amendment And Civil Tax Enforcement

The Fifth Amendment to the U.S. Constitution provides that "[n]o person...shall be compelled in any criminal case to be a witness against himself." This privilege against self-incrimination not only protects criminal defendants from being forced to testify at trial, but it also provides all individuals with the right to refuse to answer questions that may provide a "link in the chain of evidence needed to prosecute" them.1 The ability to refuse to answer questions during an investigation is especially important in civil tax audits because responding to questions posed by an IRS revenue agent seeking additional taxes, interest and penalties may lead to a referral to a special agent who will attempt to brand the taxpayer a criminal and deprive him of his liberty. Indeed, attorneys representing taxpayers in high-risk, "eggshell" audits frequently struggle with the issue of whether (and when) the client should assert the privilege against self-incrimination.

The U.S. Supreme Court's recent decision in Salinas v. Texas2 complicates this equation. In Salinas, a plurality of the Supreme Court ruled that an individual must affirmatively assert his right to remain silent; merely refusing to answer a question is not sufficient to come within the ambit of the constitutional protection. Moreover, the court did not foreclose the possibility that the prosecution may be allowed to comment on a defendant's assertion of the privilege against self-incrimination during a non-custodial interview. Although Salinas was decided in the context of a murder investigation, professionals representing taxpayers in audits need to consider its implications in deciding how to respond to questions posed by revenue agents.

Tax Enforcement

More than 30 percent of the nearly 90,000 IRS employees are either revenue agents assigned to conduct civil audits, revenue officers assigned to collect taxes that are due and owing, or tax examiners assigned to review tax returns for accuracy and completeness.3 However, the civil nature of an audit does not preclude a revenue agent examining a taxpayer's returns from uncovering fraud and referring the matter for criminal investigation.

Revenue agents are barred from conducting criminal investigations under the guise of civil audits and once a revenue agent identifies a "firm indication of fraud," she is obligated to suspend her civil audit and refer the case for criminal investigation.4 Moreover, while a revenue agent is not required to tell the taxpayer or his representatives that she is developing indicators of fraud or that the case may be referred for criminal investigation,5 she is also not allowed to mislead or deceive a taxpayer about the status of the investigation in hopes of eliciting incriminating statements or documents.

In the landmark case of United States v. Tweel,6 a revenue agent told the taxpayer's accountant that there was no IRS special agent involved in the case, even though a criminal investigator had previously participated in the investigation. The revenue agent also did not disclose that the audit was being conducted at the request of the Department of Justice. The U.S. Court of Appeals for the Fifth Circuit suppressed the statements and documents provided by the taxpayer in Tweel, holding that the revenue...