According to the IRS, a fine line may separate tax planning from tax evasion. To be fair, the type of planning we’re talking about isn’t just setting up a new filing system to document next year’s deductions. In the eyes of the IRS, tax planning might refer to tax avoidance schemes.
Could an honest mistake result in tax penalties? Although the answer depends on the specific tax return or issue, our Connecticut tax law firm has seen many instances where a taxpayer needs our help to avoid substantial penalties.
For example, every tax return is filed under penalties of perjury. If an error is discovered which results in the taxpayer owing additional tax, it is his or her burden of proving reasonableness. If the taxpayer can’t produce evidence to satisfy that showing, he or she may have to pay penalties, in addition to the additional tax. To add insult to injury, the size of the penalties is substantial, often around 25 percent.
There is an additional note of caution: If the IRS suspects there was a deliberate intent to evade tax, the taxpayer may face not only criminal tax charges, but penalties as high as 75 percent.
Given that there is so much at stake, our law firm recommends consulting with a tax law attorney as soon as you receive communications from the IRS about a tax issue. Our experience helps us to issue spot and proactively protect a taxpayer’s rights. With an attorney present, the IRS may also be more open to administrative negotiations or settlement.
Source: Forbes, “IRS Polices What Is Tax Planning Or Tax Evasion,” Robert W. Wood, April 3, 2017