As to understated (or unreported) income, there are at least two possibilities. One is to show that it was legitimately excludable from gross income. Another is to show the existence of available, but not taken, deductions which would have reduced the taxable income and eliminated the alleged tax deficiency
As to deductions, there are a host of Internal Revenue Code sections,
I.R.S. Regulations, and civil and criminal case decisions dealing with the often extremely complex subject of tax deductions. These deductions have to be fought for vigorously not only because, if allowed, they could eliminate any tax deficiency (and thus any fraud/evasion charge), but also because a vigorous fight bears on my next point, willfulness.
As to “willfulness,” remember that it’s a state of mind (“a voluntary, intentional violation of a known legal duty”). Even if a particular deduction doesn’t pan out for you, even if you’re left with a tax deficiency, there’s still something important that you can do with your belief that you were entitled to the deduction: submit it to the jury to negate your alleged “willfulness.” Obviously, your belief that you weren’t acting wrongly has to be legitimate and can’t be contrary to anything that’s clear beyond doubt, but, as you’ve seen by now, much in the Internal Revenue Code isn’t so clear, and that’s a fertile field for defense.
And that’s not all you can do about “willfulness.” There’s a great deal more that bears on it: your reputation, your physical and emotional stamina , your past tax compliance, etc. And there’s a great deal more to say about this core element in any fraud/evasion case the government tries to bring, as we’ll see in the following chapters. But meanwhile, remember what I said earlier in this chapter about fraud and evasion. More
