Tax Insights

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Can a trust or trustee plead the fifth?

The Fifth Amendment of the Constitution allows a person to refuse to answer questions or give testimony that would go against his or her interest in a criminal proceeding. It also allows someone to refuse to produce incriminating documents. However, this protection does not extend to document requests directed at a person acting in a representative capacity of a “collective entity,” even in situations where doing so would incriminate the individual providing the documents.

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A collective entity is an organization that is separate and independent from its individual members. For example, the Supreme Court ruled that a corporation is a collective entity and that officers of the corporation must provide documents requested in a subpoena directed at the corporation. In a recent court ruling, U.S. v. Fridman, the Second Circuit (New York area) concluded that a trust was also a collective entity.

Mr. Fridman was the trustee of a trust. The IRS sent a summons to Mr. Fridman, in his capacity as trustee, requesting banking information for the trust. Mr. Fridman refused to provide the information, claiming that his Fifth Amendment privilege applied. The court disagreed. It ruled that the trust was a collective entity because it was a separate legal entity distinct from Mr. Fridman. Even if Mr. Fridman resigned or was removed, the trust would continue. Like a corporation, the trust’s books and records were separate from Mr. Fridman personal records. For these reasons, Mr. Fridman was required to produce the documents the IRS requested. This is a good reminder that you should always consult tax & legal counsel whenever you have questions about your obligations to comply with an IRS subpoena.

Please contact your Henry+Horne advisor with any questions.

Jennifer King, CPA