Willfully or Not, That Is the Question

By Alan Olsen, CPA, MBA (tax)
Managing Partner
Greenstein Rogoff Olsen & Co. LLP


“I didn’t know; it was an honest mistake.” “No one told me that I had to do that.” “But honestly, I didn’t understand what that meant.” Do these phrases sound familiar? Of course, they could be applied to many different situations in life and most of us have probably uttered all of them, or something similar, at some point in our lives. However, when referring to a tax situation, specifically a mistake, these phrases might not carry much weight as far as the IRS is concerned.

What You Don’t Know Can Hurt You

Even though many people make honest mistakes when it comes to their taxes, that doesn’t mean the IRS will just turn the other cheek and give you a slap on the wrist. In other words, if you mess up, the IRS won’t just forgive and forget. In fact, the consequences could be very costly. Claiming ignorance might work in other situations, but the IRS won’t be so forgiving. Therefore, when it comes to your taxes, never assume that the IRS will consider what you call an innocent mistake, innocent.

Deciphering the IRS Code

No one is perfect and people do make honest mistakes, but as far as taxes go you must understand where the IRS draws the line between willful and non-willful. Failing to understand this concept can lead to severe penalties, including prison time and huge monetary penalties. One example of the difference between willful and non-willful is with offshore accounts. The IRS recently introduced a revamped amnesty program for non-willful activity for offshore accounts. You can read more about this program by clicking here.

Big Differences

However, if you fall into the willful category, then the IRS recommends that you use the OVDP. The difference is that the OVDP program requires eight amended tax returns and eight FBARs. On the other hand, if you use the streamlined program you only have to file three returns and six FBARs. You do have to pay your missing taxes and interest but you won’t be hit with any penalties, like you will in the OVDP program (20%). The new streamlined program obviously offers many advantages, but you better tread carefully.

Burden of Proof

Of course, anyone who is not compliant will want to be considered non-willful, but you need to make sure you can prove that. If it chooses, the IRS can take a deeper look into your situation and its perception of willfulness might not be the same as yours. According to the IRS, if there was any voluntary or intentional violation of your legal obligation then you are willful. In other words, if you did anything that appears to be a conscious choice to conceal anything, rather than comply with proper tax laws and procedures, then the IRS considers you willful. In that case, you could be facing some stiff penalties; even if you didn’t mean any harm.

Do Your Due Diligence

In many things in life ignorance is bliss. Not so with your taxes. The IRS considers it your obligation to know tax laws and requirements. If you aren’t sure of your tax obligations, then you might want to meet with the professionals at GROCO to make sure you are not willfully missing any important rules or procedures. That’s because with taxes, what you don’t know can hurt you.




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