IRS Conflict Resolution

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IRS Law Defense

As US Tax Court Counsels, SMAART can defend you in any tax related cases. Before you speak to any IRS agent, make sure you talk to us first.

You may wonder what you can do to protect yourself against criminal tax charges and the associated penalties if you find out that you are under investigation. Your defense should address the exact allegations made against you in the criminal complaint. Given that the IRS must establish every element of your crime beyond a reasonable doubt, your best bet for a successful defense is to attack the weakest link in the IRS’s case.

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A taxpayer facing tax evasion charges may raise defenses such as the absence of any new tax liability, the application of previously unrecognized tax deductions, the status of the unreported income as a gift or nontaxable transaction, and so on. A taxpayer who is being prosecuted under IRC 7206(1) can assert not materiality as a defense.

Ignorance or Mistake of Law

Criminal tax violations can never occur without “willfulness.” Sins of willfulness are those committed with full knowledge that they are wrong. For these purposes, “willful” taxpayer behavior requires knowledge of, or reckless disregard for, the law on the taxpayer’s part. The taxpayer must also consciously decide to ignore the law after being aware of it.

Another provision, that “ignorance of the law is no excuse,” counteracts this defense by preventing taxpayers from using it as a reason for breaking the law. However, in the case of tax crimes, willfulness, a fundamental element of criminal tax offenses, may be nullified by ignorance or error of law. The taxpayer has the right to offer proof in support of a mistake or ignorance of legal defense.

To the same effect as the “mistake or ignorance of the law” defense, the assertion that the taxpayer lacked the necessary “intent” to commit a criminal tax offence because they were never provided “fair warning” regarding their legal obligations is also common. The existence of a defense to tax liability may be in question when neither the Treasury Regulations nor the Supreme Court provides a definitive answer.

The argument of “clear rule of law” has its limitations. If the taxpayer’s position goes against settled law, the taxpayer’s case will fail. The following fundamentals should be kept in mind if you intend to defend yourself on the grounds of error or lack of knowledge of the law:

It is not a defense to disagree with the law. The taxpayer has a viable argument if they can demonstrate that they genuinely misunderstand the law, but the taxpayer has no defense if they disagree with it. This is true even if the taxpayer’s disagreement with the law is sincere and not meant to cause harm. There is a distinction between wilful disobedience of a statute and ignorance of its existence and interpretation. Therefore, a sincere view that a tax is unlawful is never a valid excuse for breaking the law in this area.

The jury’s decision on whether the taxpayer made a reasonable mistake or was just ignorant of the law is crucial. The burden of proof rests with the jury to determine whether or not the taxpayer was honestly confused or uninformed about tax regulations. The defendant must be allowed to present evidence supporting their claim of mistake or ignorance concerning tax obligations.

A taxpayer’s defense could be invalidated if they willfully ignored relevant information. Most courts believe taxpayers have no defense if they wilfully choose to “blindly” ignore their obligations under the tax laws. The court will conclude willfulness if the taxpayer displays wilful ignorance of material facts or hazards. Therefore, the defense grounded on mistake or ignorance of the law will collapse if evidence or conditions indicate that the taxpayer made steps to avoid understanding their duty.

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