The audit is the IRS’ most powerful tool in promoting voluntary compliance with the tax system. The IRS uses audits to pressure taxpayers to disclose all of their financial records to the agency. This operation allows the IRS to transfer the burden of proof from the government to the individual.
The question is, of course, how can the IRS do this when the 5th Amendment specifically provides that “No person . . . shall be compelled in any criminal case to be a witness against himself.” The first answer might well be that it is a civil, not a criminal matter, but according to Black Law Dictionary, any action by the government against an individual is a criminal matter*1.
Even the IRS agrees with this: Section 342.11 (2) of the IRS Special Agent Handbook states, “the right to refuse to answer incriminating questions applies not only to court trials, but to all kinds of criminal or civil proceedings, including administrative investigations. [George Smith v. U.S., 337 S. Ct 1000 (1949); McCarthy v. Arndstein; Counselman v. Hitchcock; U.S. v. Harold Gross, 276 F2d 816 (CA-2), 60-1 USTC 9401]. The Handbook goes into more detail in Section 342.12 which states:
Books and Records of An Individual
(1) An individual taxpayer may refuse to exhibit his/her books and records for examination on the grounds that compelling him/her to do so might violate his/her right against self-incrimination under the Fifth Amendment and constitute an illegal search and seizure under the Fourth Amendment. [Boyd v. U.S., 116 U.S. 616, 6 S. Ct 524 (1886); U.S. v. Vadner, 119 F. Supp 330 (E.D. Pa.) 54-11 USTC 9173] However, in the absence of such claims, it is not error for a court to charge the jury that it may consider the refusal to produce books and records, in determining willfulness. [Louis C. Smith v. U.S., 236 F.2d 260 (CA-8), 56-2 USTC 9380, cert denied 352 U.S. 909, 77 S.Ct. 148; Beard v. U.S., 222 F.2d 84 (CA-4)., 55-1 USTC 9400, cert denied 350 U.S. 846, 76 S. Ct 48; Olson v. U.S., 191 F.2d 985 (CA-9), 51-2 USTC 9468; Myres v. U.S., 174 F.2d 320 (CA-8), 49-1 USTC 9275, cert denied 338 U.S. 49]
(2) The privilege against self-incrimination does not permit a taxpayer to refuse to obey a summons issued under IRC 7602 or a court order directing his/her appearance. He/she is required to appear and cannot use the Fifth Amendment as an excuse for failure to do so, although he/she may exercise it in connection with specific questions. [Landy v. U.S., 283 F.2d 303, cert denied 365 U.S. 845] He/she cannot refuse to bring his/her records, but may decline to submit them for inspection on constitutional grounds. In the Vander case, the government moved to hold a taxpayer in contempt of court for refusal to obey a court order to produce his books and records. He refused to submit them for inspection by the Government, basing his refusal on the Fifth Amendment. The court denied the motion to hold him in contempt, holding that disclosure of his assets would provide a starting point for a tax evasion case.
This clearly shows that IRS audits are not compulsory. However, one can not blindly refuse to participate. Several of the above referenced cases allow the jury to use the refusal to disclose records as a basis of determining willfulness, only if the defendant did not claim a constitutional basis for withhold the records. The other necessity when refusing to disclosure records is that court orders and summons not be ignored, but rather specific questions or specific requests for records be denied on constitutional grounds. That is, they can order you around physically, but can not force your disclosure of information. The system is obviously focused against those who don’t know their rights.
Some people, however, think it is better to cooperate with the IRS, the logic being that if you are nice to them, they will return the favor. This is not the case, however. In U.S. v. Dickerson [413 F.2d 1111] the court observed that “only the rare taxpayer would be likely to know that he could refuse to produce his records to IRS agents,” and “who would believe the ironic truth that the cooperative taxpayer fares much worse than the individual who relies upon his constitutional rights.”
*1 The distinction between a crime and a tort or civil injury is that the former is a breach and violation of the public right and of duties due to the whole community considered as such, and on its social aggregate or capacity; whereas the later is an infringement or privation of the civil rights of individuals merely.
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