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Is Mistake or Ignorance of Law a Valid Defense for Tax Crimes?

If you are being investigated for a criminal tax offense, you might wonder what defenses you can assert to avoid prosecution or severe penalties. The defense you assert must be specifically tailored to the criminal charge being brought against you. Because the IRS must prove each element of your crime beyond a reasonable doubt, your goal in coming up with a winning defense should be to negate at least one of the elements of the offense. For example, a taxpayer being prosecuted for tax evasion may attempt to show that there was no additional tax due and owing, or that the unreported income was offset by unclaimed deductions or constituted a gift or nontaxable receipt. A taxpayer prosecuted under IRC § 7206(1) may mount a defense by arguing that the false statement was not material.

In this article, we will examine one of the most common available defenses: mistake or ignorance of law.

Defense: Mistake or Ignorance of Law

In criminal tax offenses, “willfulness” must always be present. Willfulness refers to an intentional violation of a known legal duty. For a taxpayer’s conduct to be considered willful for these purposes, the taxpayer must know of or being aware of his or her legal duty. On top of this knowledge, the taxpayer must then intentionally chose to disregard the legal duty. In order to prevent taxpayers from simply claiming ignorance of the law, this defense is balanced by another rule, that “ignorance of the law is no excuse.” In the context of tax crimes, however, ignorance or mistake of law may negate willfulness, a necessary element of criminal tax offenses. In order to support a mistake or ignorance of law defense, the taxpayer is allowed to present evidence.

Related to the mistake or ignorance of law defense is the defense that the taxpayer never received fair warning about his or her legal obligations, and therefore lacks the intent required for conviction of a criminal tax offense. In cases where neither the Treasury Regulations nor Supreme Court provide a clear answer to whether the taxpayer has tax liability, a defense may exist. This “clear rule of law” defense has limits. If there is a clear statement of law in a particular issues, then the taxpayer’s defense will fail. If you are attempting to mount a defense based on mistake or ignorance of the law, you should keep in mind several basic principles:

  1. Disagreement with the law is not a valid defense. A bona fide misunderstanding of the law is a valid defense, but if the taxpayer simply disagrees with the law, that is not a valid defense. This is true even the taxpayer’s disagreement with the law is earnest and well-intended. In a case in which a taxpayer claimed he did not believe that wages constituted taxable income, the court rejected his argument, finding that “there is a difference between willful defiance of a statute and ignorance of a statute's existence and meaning”. For this reason, a good faith belief that a tax is unconstitutional is also not a defense to a criminal tax offense.
  2. The jury plays an important role in deciding whether the taxpayer had a reasonable mistake or ignorance of the law. It is up to the jury to decide that the taxpayer genuinely was mistaken or ignorant about his or her requirements under tax laws. The defendant must also be allowed to introduce evidence to support his or her claim that there was a mistake or ignorance about duties under the tax laws.
  3. Objective or subjective good faith? One of the most difficult aspects of the mistake or ignorance of law defense is proving that the taxpayer made the mistake in good faith. Most courts agree that the taxpayer’s mistake need not be objectively reasonable. In other words, the taxpayer’s mistaken belief can be a valid defense, even if an average taxpayer would not reasonably have the same mistaken belief as the taxpayer. However, there are still some courts who require the taxpayer’s mistaken belief to be objectively reasonable. In those jurisdictions, the court will often provide an instruction to the jury regarding “willful blindness” – the jury can impute knowledge to the defendant if they determine that the requirements of the law should have been obvious to the taxpayer, particularly where the jury finds that the taxpayer had a conscious purpose of avoiding learning the law. The Supreme Court in United States v. Cheek finally resolved the disagreement among courts by holding that that a good faith misunderstanding of the law or a good faith belief that one is not violating the law need not be “objectively reasonable if it is to be considered as possibly negating the Government's evidence purporting to show a defendant's awareness of the legal duty at issue.”
  4. Willful Blindness may negate a taxpayer’s defense. Most courts agree that if the taxpayer willfully remains “blind” to his or her obligations under the tax laws, no valid defense can exist. The court will find willfulness where the taxpayer acts with willful blindness to obvious or known risks. Thus, if there are facts or circumstances suggesting that the taxpayer took steps to avoid learning about his or her duties, then the defense based on mistake or ignorance of the law will fail.

How a Tax Attorney Can Help

If you are under investigation by the IRS for criminal tax crimes then you must consult with an experienced criminal tax defense attorney. San Diego Tax Lawyer William D Hartsock has been successfully helping clients with criminal tax issues since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.

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The Tax Lawyer - William D. Hartsock, Esq. – San Diego Tax Attorney

Author: William D. Hartsock, Esq

A "Certified Tax Law Specialist" for over 37 years, Mr. Hartsock is one of the most trusted and respected tax attorneys in Southern California. Call today to discuss the facts of your case and learn about your options. Mr. Hartsock offers free consultations and all conversations are protected under attorney-client privilege; meaning that no information shared with a tax attorney will be shared with the IRS or California Franchise Tax Board.