Last month, we wrote about the distinction between “fraud” and “negligence” when it comes to your taxes. In other words, this is the difference between an honest mistake and an inaccuracy that you might have made on purpose – particularly one that benefits you in some way.
Of course, you are the only person who knows for sure whether a “mistake” was truly a mistake, but the IRS probably won’t take your word for it. In fact, a recent article in Forbes discusses the issue of “willfulness” as determined by the IRS. If the agency deems your violations to be willful, you could face serious penalties and even incarceration.
First, let’s start with a definition. The IRS explains (paraphrased in the Forbes article) that “willfulness means you acted with knowledge that your conduct was unlawful—a voluntary, intentional, violation of a known legal duty.”
Unfortunately, there may not be any easy rules of thumb as to what you can do to avoid raising suspicions. The actions that can raise red flags may be as simple as failing to declare an offshore bank account, using cash too often or under-reporting your business income.
Given that the IRS has been accused in recent years of making its own innocent and not-so-innocent mistakes, this double standard hardly seems fair. Yet the reality is that risking an IRS audit or worse is not something that most of us can afford. As such, strict compliance is crucial.
Thankfully, there are professionals available to help, whether you are seeking to maintain compliance or are facing scrutiny from the IRS. An experienced tax attorney can ensure that you do not go through these daunting processes alone.
Source: Forbes, “What IRS Calls 'Willful'--Even A Smidgen--Can Mean Penalties Or Jail,” Robert W. Wood, Dec. 3, 2014