Published on: October 6, 2017 Last modified: November 12, 2020

Willful Misconduct and Tax Penalties

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    If you are Michigan resident behind on paying your federal taxes, you are likely facing significant penalties and fines. But being behind on your taxes – even significantly behind – is not the same as saying you are guilty of tax evasion or fraud.

    Willful misconduct

    It is not the dollar amount that will necessarily lead to tax evasion allegations. What the IRS is actually looking for when bringing charges of tax evasion is whether willfulness was present. A determination of willful misconduct can lead to enhanced penalties as high as 75 percent along with a criminal investigation.

    Please do remember, however, that making a plea of ignorance may be insufficient. The burden of proving innocence when mistakes on tax returns occur is on you, the taxpayer, and not the IRS. You may have to demonstrate that you attempted to comply with regulations and sought professional advice regarding your tax issue.


    Avoid using ignorance as an excuse if at all possible. Tax authorities expect you to make a reasonable effort to learn the legal filing requirements. Without an effort to learn your legal obligations, innocent mistakes you make on tax returns may lead to a finding of concealment.

    Concealment can take many forms. Concealment can involve using more than one set of books for accounting purposes, or using corporations or trusts in an attempt to disguise ownership of an account. (This could be particularly important to remember when it concerns ownership of offshore accounts.) It can also involve a failure not to submit all of the necessary forms.

    Finally, it may be a defense to say you only made the mistake once. Even so, making the same mistake over and over again will raise red flags.

    There are defenses to allegations by tax authorities of willful misconduct. Courts do not always interpret willful misconduct in the same way as the IRS. Experienced tax attorneys will be familiar with such court interpretations, and can provide you legal representation.

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