Tax compliance challenges, part 2: the concept of willful evasion

Let’s continue our discussion of how the sheer complexity of the tax code makes it difficult to stay in full compliance.

As we noted in the first part of the post, it’s all too easy to make an innocent error or to be unaware of some specific requirement.

This is where the concept of “willfulness” in evading taxes comes in. In this part of the post, we will look at how the IRS defines this concept.

If the IRS considers your conduct to be willful, you could face civil penalties or even criminal prosecution.

So what does “willful” mean?

Willfulness can be a tricky term to pin down. Being unaware of detailed filing requirements does not necessarily mean willful tax evasion. But the reverse is also true: being ignorant of the law does not necessarily mean innocence.

As Forbes contributor Robert W. Wood has explained, the IRS’s ongoing enforcement crackdown on offshore accounts is a case in point. In one recent case, United States v. J. Bryan Williams, a taxpayer stated that he didn’t have foreign accounts. He did this by checking the “no” box on his tax return.

It turned out that he did have foreign accounts. But the U.S. district court held that even such a seemingly straightforward error is not willful tax evasion if it’s based on an honest misunderstanding of what the law requires.

It does not follow from this, however, a good-faith belief that no tax is due is sufficient for a taxpayer to avoid penalties or prosecution. Some arguments, such as the so-called “sovereign citizen” arguments, are deemed to be frivolous – no matter how deeply held.

In short, willfulness is not an easy term to define. That is why, if you involved in a tax controversy, it makes sense to get counsel from a knowledge tax attorney.

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