Ignorance of the Law forms part of a much broader Reasonable Cause Exception which is almost a universal defense against the imposition of IRS civil penalties. Ignorance of the Law is often utilized as a defense against the US international tax information return penalties, including penalties envisioned under FBAR, Form 8938, Form 5471, Form 8865, et cetera. In this article, I would like provide a general description for the Ignorance of the Law defense.
It is important to remember that the application of the Ignorance of the Law defense depends on the specific circumstances of your case and nothing in this article should be interpreted as a legal advice. Rather, you need the help of an experienced tax attorney to determine whether the Ignorance of Law defense applies to your case.
Ignorance of the Law Defense Legal Test
Ignorance of the Law may provide the basis for an effective reasonable cause defense in situations where a taxpayer does no know about his obligations to comply with a tax requirement in question and/or pay taxes. However, the ignorance by itself is not sufficient to establish a reasonable cause; other circumstances must be reviewed in order to determine whether all or the requirements of this defense’s legal test are satisfied.
The legal test for the Ignorance of the Law defense requires that three requirements are satisfied in order the for taxpayer’s conduct to satisfy the reasonable cause exception:
1). The taxpayer was not aware of the tax requirement in question;
2). The taxpayer could not reasonably be expected to know of the requirement; and
3). The taxpayer’s conduct satisfied the “ordinary business care and prudence” standard.
Oftentimes, the second and the third requirement are blended into the same analysis. This is why I now turn to the examination of the ordinary business care and prudence standard for the purposes of the Ignorance of the Law defense.
Ignorance of the Law and Ordinary Business Care and Prudence Standard
Ordinary Business Care and Prudence Standard is a requirement present in all reasonable cause defenses. With respect to the Ignorance of the Law defense, the ordinary business care and prudence standard requires that a taxpayer acts in good faith, reasonably and attempts to determine his tax obligations. This means all of the relevant circumstances must be reviewed before the determination is made whether the taxpayer’s conduct satisfied the ordinary business care and prudence standard.
The precise circumstances that need to be considered depend on the particular facts of a case. Some of the common factors include: the taxpayer’s education, his tax advisors (including what information the taxpayer supplied to his tax advisors, whether he has been previously subject the tax at issue, whether he has filed the tax forms in question before, whether he has been penalized before with respect to the issue at hand, whether there any changes to the tax forms or tax law (which the taxpayer could not reasonably be expected to know), the level of complexity of the issue in question, et cetera.
Contact Sherayzen Law Office for Professional Help with Your Ignorance of the Law Reasonable Cause Defense
If you were penalized by the IRS with respect to a tax requirement and you did not know about this requirement, contact Sherayzen Law Office for professional and experienced legal help. We have helped taxpayers around the world to successfully reduce and even entirely eliminate penalties based on the reasonable cause defense that often stemmed from our clients’ ignorance of relevant tax requirements. We can also help You!