Bad Facts Make Bad Law: The Tax Court Unnecessarily Used Willful Blindness to Find Fraud in Fiore.

By Bryan C. Skarlatos and Henry Stow Lovejoy
Journal of Tax Practice & Procedure
February - March 2013 Edition

Willful blindness is a judicially created concept that equates intentional avoidance of knowledge of a fact with actual knowledge of the fact for purposes of proving the elements of an offense. To support a finding of civil fraud, the IRS must prove by clear and convincing evidence that the taxpayer willfully underreported tax. Sometimes, courts use the concept of “willful blindness” to tip the balance of evidence in favor of a finding of fraud. However, if “willful blindness” is used when it does not properly apply to the facts at hand, it can lead to confusion between negligence and fraud. This is what happened in the case of O.G. Fiore,1 where the Tax Court unnecessarily used willful blindness to impose a fraud penalty even though it easily could have found that there was clear and convincing evidence of actual fraudulent intent. 

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