Thursday, March 10, 2016

DOJ Tax Promotes Employment Tax Criminal Prosecutions (3/10/16)

I have previously posted on certain comments at a recent Federal Bar Conference.  See Report on Remarks of AAG Tax and Practitioner Regarding Nonwillfulness and Foreign Account Enablers (3/7/16), here, and Acting AAG Remarks to Tax Conference - the Criminal Topics (3/4/16), here. A significant portion of the  AAG's prepared remarks related to criminal enforcement initiatives for prosecutions under § 7202, Willful failure to collect or pay over tax, here.  This is the criminal analog to the trust fund recovery penalty, § 6672, Failure to collect and pay over tax, or attempt to evade or defeat tax, here.  The article is Matthew R. Madara,  DOJ Seeking to Change Employment Tax Sentencing Guideline, 2016 TNT 45-8 (3/8/16) [no link available].

Key points and extrapolations from the article are:

1.  As DOJ Tax has made clear both in pronouncements and prosecutions, it is very serious about § 7202 prosecutions.

2.  DOJ Tax is seeking to amend the Sentencing Guidelines statement in the background to the § 7202 Guideline, §2T1.6.Failing to Collect or Truthfully Account for and Pay Over Tax, here, that "The offense is a felony that is infrequently prosecuted."  Specifically, DOJ Tax wants the vestige reference to infrequently dropped (which would probably mean dropping out all after felony).  The proposed amendments are here, with the proposal on § 7202 at pp. 3-4 which says in pertinent part:
The Background commentary to §2T1.6 states that “[t]he offense is a felony that is infrequently prosecuted.” The Department of Justice in its annual letter to the Commission has proposed that the “infrequently prosecuted” statement should be deleted. The Department points out that while that statement may have been accurate when the relevant commentary was originally written (in 1987), the number of prosecutions under section 7202 have since increased substantially. The use of §2T1.6 increased from three cases in 2002 to 46 cases in 2014. See United States Sentencing Commission, Use of Guidelines and Specific Offense Characteristics: Guideline Calculation Based (Fiscal Year 2002), at; United States Sentencing Commission, Use of Guidelines and Specific Offense Characteristics: Guideline Calculation Based (Fiscal Year 2014), at
3.  Besides being inaccurate because of the increase in § 7202 prosecutions, the statement is being deployed by defense lawyers to minimize the gravity of the offense in sentencings.  I would not think, however, that sentencing judges are much swayed by that genre of argument.

4.  As to characteristics of failure to withhold and pay over cases that are prosecutors, a DOJ Tax attorney said that DOJ Tax is particularly looking for cases where the responsible parties have lied to the IRS.  (As I has said often on the blog, criminal tax cases, like many or most white collar crimes cases, are principally about the lie, in one form or another.)  The lie is what will help make the substantial burden to prove willfulness beyond a reasonable doubt.

5.  Proving willfulness -- and thus obtaining conviction -- is relatively straightfoward despite the criminal burden of proof.  If the employer -- with the action of the responsible person -- has withheld from the wages, any defense by the responsible person with regard to failing to pay over "falls by the wayside."

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