Tax Fraud 101: What is Willfulness?

willfulnessThe nature of a tax controversy hinges on whether a misstep or mistake was willful or non-willful. If you are challenged by the Internal Revenue Service (IRS), knowing and being able to prove the difference can have big implications for penalties and allegations of tax crime.


The IRS defines willfulness as “the intentional, purposeful, deliberate act to hide income or assets and therefore evade filing requirements or payment of tax.” As the agency says, it is a deliberate attempt to evade or pay a legitimate tax obligation.


Willfully avoiding or not paying a tax obligation is an aspect of both civil and criminal tax fraud. There are three factors used by the IRS to determine whether an action was willful or not.  Those factors are:

  • Intent: Though difficult to prove, the IRS can use the behavior and related evidence to prove a taxpayer willfully deceived the IRS. Activities that suggest an overall plan could be used to suggest a taxpayer had an intent to deceive.
  • Purpose: Perhaps easier to document than intent, the actions taken to avoid a legitimate tax can be used to show purpose. Submitting a tax return with false deductions, misstated income, and fake expenses can be powerful in proving what purpose a taxpayer had in mind.
  • Knowledge: Basic knowledge is a part of willfulness. A taxpayer who used a dishonest tax preparer may be audited and found to have had no knowledge of the overall arc of the tax preparer's intent (which will not lessen penalties but is less likely to be used to prove willfulness).


For several years, the National Taxpayer Advocate (TAS) has included revision of the definition of “willful” as a legislative recommendation when it relates to the report of foreign bank accounts and FBAR reports.


Fines for willfully failing to file a report of Foreign Bank and Financial Accounts (FBAR) can result in draconian fines. As noted by the TAS, the IRS can only assess penalties up to 50 percent of the highest aggregate balance of a foreign bank account for non-willful deficiencies. A taxpayer whom the IRS believes has engaged in willful deception concerning the foreign bank account is subject to a penalty up to 100 percent of the highest aggregate value of their account. The TAS notes some critics of the IRS feel the penalty is so excessive as to be prohibited by the Constitution of the United States.


If the IRS alleges you willfully evaded or failed to pay your tax liability, speak with a tax attorney experienced with IRS tax controversies quickly.


Trusted tax representation if contacted by the IRS in Cleveland, Chicago, or abroad

If you are concerned about business compliance, an offshore tax question, or need guidance with an IRS audit, Robert J. Fedor, Esq., LLC can help. We deliver seasoned, strategic tax guidance. Call us at 440-250-9709 or contact us online.


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