Tax Mistakes That Are Willful Or Innocently Negligent

tax mistakes

Most people in their right mind are familiar with the concept of “ignorance of the law excuses no one.”

But of course, there are always people who are going to test that in every area of life — especially when it comes to taxes.

We often describe a person who deliberately behaves badly as being “willful.” Meaning they are purposely doing whatever it is they do to take advantage, annoy, disrupt or otherwise perpetuate something unpleasant. Often, though, people do make mistakes innocently. It’s not that they could be described as willful, but perhaps flaky or unconscious, distracted or frightened, ad infinitum.

People And Taxes Are Complex

We humans are truly complex. And we have different ways of dealing with people who are willfully behaving badly. We reprimand, discipline and make every effort to correct our children and teach them the difference between right and wrong. Adults are expected to behave lawfully and when they willfully break the law there are consequences. We humans are a complex species to be sure.

When it comes to taxes, which are getting more complicated every year, they are so complex most people hire an attorney, professional tax preparer or a CPA to prepare their taxes. Many people put their trust fully in the hands of their tax preparers and they really don’t have a clue if or when a mistake might be made. But some people willingly collude with preparers to take illegal deductions or declare bogus contributions, lower income and other actions they hope will be overlooked by the IRS.

With tax scams at an all-time high and cryptocurrency appearing to be a form of tax evasion, the IRS is taking a closer look at everything. If mistakes are being willfully made the IRS will do its best to find out. And whether the IRS will consider a mistake willful or negligent could mean the difference between penalties exacted or penalties forgiven. In many cases it can also mean the difference between freedom or incarceration.

What The IRS Considers Willful

An interesting article on areas the IRS is looking at for willful and innocent mistakes states, “With crypto, the IRS has said it is digging hard, investigating both tax evasion and just poor compliance. But any interaction with the IRS can routinely involve some kind of penalty. Sometimes, the IRS uses the threat of penalties to encourage payments. But in other cases, the IRS pursues penalties with a vengeance.”

The article goes on to explain, “A good example is offshore accounts, which have strong parallels to crypto tax-compliance issues. Both willful and non-willful failures to report offshore accounts can be penalized. Civil penalties for non-willful violations can be $10,000 per account per year. But if the IRS says you were willful, you can pay up to $100,000 or 50% of the amount in the account. This is for civil cases, imposed in the context of regular IRS audits, even through the mail.”

Stay Innocent

You want any mistakes that might be made on your federal tax return forms to be viewed as innocent. You know when you’re committing fraud, lying about your income, your charitable contributions, offshore accounts and other holdings. Even if you don’t fully understand everything on your prepared tax form, ask questions until you are satisfied you do understand. And, if your tax preparer is evasive in his or her explanation, you may want to find a more willing preparer.

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