Because willfulness requires an intentional violation of a known legal duty, the element of willfulness can be negated by a producing evidence to show that the defendant’s conduct was inadvertent, careless, or otherwise negligent. The government will attempt to refute this defense by showing that the defendant’s conduct is inconsistent with the claimed inadvertence or neglect. For example, in failure to file cases, the government usually relies on multiple, consecutive failures to file to negate any claimed inadvertence or neglect.
Willfulness requires that there be a legal duty with which the taxpayer fails to comply. The courts have consistently held that where the state of the law is uncertain as to whether there is a legal duty, criminal liability will not be imposed. Moreover, the weight of legal authority in this area is that the taxpayer’s actual knowledge regarding the unsettled state of the law is irrelevant. The bottom line here is that if the law is in fact uncertain, the taxpayer has not committed a crime.
Since the government’s burden in establishing willfulness requires that the taxpayer violate a known legal duty, it is a viable defense to offer evidence that the taxpayer did not know of the specific duty at issue. The Supreme Court itself has held that willfulness may be negated by a good faith claim of ignorance or misunderstanding of the law or a good faith belief that there was no violation of the law, regardless of whether the belief was objectively reasonable. One rationale for this “good faith” defense is the criminal tax provisions were not drafted with the intention of penalizing a taxpayer for innocent mistakes caused by the inherent complexities of the Tax Code.
The Supreme Court’s line of decisions in the area have held that a taxpayer is not guilty of willful failure to file if he honestly believed his income was too low to require him to file a return or if the taxpayer believed that he was not required to file a return if he was unable to pay.
The defense of mistake is not limited solely to mistakes of law. A defendant who, through a mistake of fact, unknowingly violates a statute also does not act willfully.
Evidence establishing that a taxpayer relied on the advice of counsel or an accountant may successfully be used to negate willfulness if it can be shown that the taxpayer acted in good faith and that he or she provided the preparer with full and accurate information at the time the advice was sought. This defense may not be successful if the government can establish that full disclosure to the attorney or accountant was not made at the time the advice was rendered. Reliance on a lawyer’s advice has occasionally been held a valid defense, even where such reliance was objectively unreasonable.
Because the government’s burden in proving willfulness requires a showing of a specific intent to disobey the law, the courts have consistently permitted expert medical testimony to establish that the defendant has developed a delusion about the tax laws that interfered with the mental ability to form the specific intent to disobey the law.
Under the government’s voluntary disclosure policy published in the Internal Revenue Manual, a taxpayer who, in essence admits to a potential tax crime by filing an amended or delinquent return may avoid prosecution, provided the disclosure was voluntary and made before the taxpayer was first contacted by the IRS regarding a potential problem with the tax liability. However, amended or delinquent returns filed after a taxpayer has been contacted by the IRS do not qualify for the voluntary disclosure policy, even thought the courts tend to hold that the filing of delinquent or amended returns or the late payment of tax is admissible by a defendant on the issue of willfulness. The filing of amended returns after notice by the IRS that a particular return is under investigation is a patently bad idea. Case law shows that in numerous instances, the very act of filing of a delinquent or amended return during the course of an IRS investigation has been presented as a key piece of evidence that eventually led directly to a taxpayer’s indictment. Case law also shows that the government routinely relies on delinquent and amended returns as the very admission that establishes the existence of an understatement in tax liability of the original return.
When a taxpayer’s conduct can be shown to be intentional and knowing, the taxpayer’s personal reasons for taking the criminal action are irrelevant. Accordingly, presenting evidence of, a taxpayer’s disagreement with the law, inability to pay, marital or financial difficulties, or fear of filing are generally not effective defenses. Moreover, defenses that tend to explain a taxpayer’s reasons for taking an action, or refusing to act, that do not effectively rebut the required specific intent to disobey the law are not effective defenses to willfulness. Thus, presenting evidence to show that a taxpayer was a political tax protester, had religious objections or personal problems, are generally not effective defenses to negate the element of willfulness.
Evidence on, personal problems or preoccupation with business affairs may, where extreme, tends to negate willfulness if it can be used to show that the taxpayer may have been so disturbed by the problems that they prevented the formation of a specific intent violate the law. However case law shows that such defenses are rarely successful.
While inability to pay in and of itself is not generally an effective defense, such evidence may be a defense if it can be sown that the taxpayer had the erroneous belief that returns could not be filed without the associated payment of tax. Additionally a taxpayer’s inability to pay also can be an effective defense to a failure to pay charge if it can be shown that the defendant’s inability to pay was not the result of lavish and extravagant living.
If you are facing potential criminal tax charges, it is imperative that you contact me at my offices in Orange County or Los Angeles as soon as possible to discuss your case. With over 20 years of focused tax experience, I can provide sound and effective strategies and defenses for mitigating or eliminating your criminal tax liability.