Many taxpayers do not have a wide grasp of the myriad of regulations and procedures that make up US Code Title 26, or what is more commonly known as the Internal Revenue Code. Because of this lack of knowledge, some taxpayers can find themselves facing significant tax penalties and interest charges due to not knowing that an action they have taken makes them liable for a tax. For example, there are many new taxes that an individual might face when they open up a business, yet they were unaware they existed as an individual taxpayer.
In these cases, the IRS may be willing to waive tax penalties based on ignorance of the law. Reasonable cause can be established if the taxpayer was not aware that a tax was owed. In establishing ignorance of the law as a reasonable cause the IRS will look at several different factors including the education level of the taxpayer, if the taxpayer had ever been subject to the tax before, if the taxpayer had ever been penalized before, if there were changes to the tax forms or law that a taxpayer could not reasonably be expected to know, and finally the complexity of the tax or compliance issue. In addition, the taxpayer must still have made an effort to determine that they were meeting their tax obligations.
If a taxpayer is truly able to show that they were unaware of the tax liability that was due, and they have been assessed tax penalties, they may be able to successfully use ignorance of the law as a defense in having these penalties waived.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.