Charging Decisions for Trust Fund Tax Violations (11/17/16)

DOJ Tax issued this press release:  Nevada Woman Indicted For Evading Payment of Trust Fund Recovery Penalties (11/16/16), here.  The key excerpts are:

According to the superseding indictment, Maria Larkin aka Maria Bella-Larkin, owned and operated Five Star Home Health Care Inc. (FSHHC) from 1996 through 2009 and was responsible for collecting, accounting for, and paying over income, social security, and Medicare tax withheld from employees’ wages.  The tax withheld is referred to as “trust fund tax” because the employer holds those funds in trust until the amounts are paid over to the Internal Revenue Service (IRS) on behalf of the employee.  If a responsible person willfully fails to pay over trust fund taxes, the IRS may impose a penalty equal to the amount of the trust fund taxes on the responsible person.  This penalty is known as the trust fund recovery penalty.  

The superseding indictment alleges that from 2004 through 2009, FSHHC failed to pay over the tax withheld from its employees’ wages and, as a result, the IRS assessed trust fund recovery penalties against Larkin equal to the amount withheld and not paid over. 

According to the superseding indictment, Larkin willfully attempted to evade and defeat the payment of the trust fund recovery penalties assessed against her by concealing and attempting to conceal from the IRS her access to personal funds and assets.  Specifically, the superseding indictment alleges that Larkin purchased a home in the name of a nominee, engaged in currency transactions with financial institutions in amounts less than $10,000 to prevent the filing of currency transaction reports, changed the name of her business and placed the business in the name of a nominee, and provided false information to the IRS regarding her ability to pay the trust fund recovery penalties.

The superseding indictment is here:

This is a fairly routine prosecution as described in the press release and superseding indictment.  Trust fund prosecutions have been increasing for a number of years now.  See DOJ Tax Promotes Employment Tax Criminal Prosecutions (3/10/16), here (noting DOJ Tax's request, adopted in the 2016 Guidelines under § 2T1.6, to drop the description in the Sentencing Guidelines that § 7202 is "infrequently prosecuted"); see also Michael Chittenden and Yongo Ding, DOJ Repeatedly Signals Intent to Ramp Up Criminal Prosecutions for Employment Tax Failures (Miller & Chevalier Blog 4/16/16), here; and an ABA slide presentation titled Civil and Criminal Employment Tax Enforcement Efforts - Employers Beware (5/18/16), here, presented by Josh Ungerman, Leigh Kessler and Dennis L. Perez.

The question I address in this blog is the overlap between willful failure to collect and pay over tax § 7202, here, and other tax crimes, such as tax evasion § 7201, here.  I have addressed this subject before:  Evasion of Trust Fund Taxes and Charging Decisions (1/23/2012), here, where I discuss the Farr case referenced in the CTM quote below; United States v. Farr, 536 F.3d 1174 (10th Cir. 2008), here; and Criminal Restitution for Employment Taxes and Trust Fund Liability Under Section 6672 (6/18/13), here.  The ABA slide presentation above indicates that the following crimes are often present:

− Willful Failure to Collect, Account For or Pay Over Tax (26 U.S.C. § 7202)
− Tax Evasion (26 U.S.C. § 7201)
− False Return (26 U.S.C. § 7206(1))
− Obstruction (26 U.S.C. § 7212(a))
− Conspiracy to Defraud (18 U.S.C. § 371)

I add to that list the offense conspiracy under 18 U.S.C. § 371 to commit either tax evasion § 7201 or willful failure to collect and pay over § 7201.  The difference between conspiracy to defraud listed by the authors and the offense conspiracy is important and, in a given fact pattern, both could be charged, usually in the same conspiracy count.

The DOJ CTM Guidance, here, on this choice sparse:

9.02 TAX DIVISION POLICY [ON 7202 PROSECUTIONS]

* * * * 

As an alternative to charging § 7202, prosecutors may charge violations of the duty to pay with respect to both the employee and employer portions of employment tax; for example, by charging evasion in violation of 26 U.S.C. § 7201. n7 See generally United States v. McKee, 506 F.3d 225, 233-34 (3d Cir. 2006); United States v. Butler, 297 F.3d 505, 509 (6th Cir. 2002).
   fn7 If evasion of payment, in violation of § 7201, is charged, prosecutors should take care to distinguish between the employment tax owed by the employer and the civil trust fund recovery penalty that can be assessed against responsible persons under § 6672. Cf. United States v. Farr, 536 F.3d 1174 (10th Cir. 2008) (vacating § 7201 evasion count on the ground the indictment had been constructively amended, where the indictment alleged the defendant evaded employment tax, but further alleged, inaccurately, that the evaded tax was personally owed by the defendant (as opposed to the corporation), and the jury was instructed that the defendant could also be convicted of evading a § 6672 civil trust fund penalty she personally owed); United States v. Farr, 591 F.3d 1322 (10th Cir. 2010) (holding that double jeopardy did not bar retrial); United States v. Farr, 701 F.3d 1274, 1287-88 (10th Cir. 2012) (holding that the defendant could be charged, and was properly convicted, under § 7201, with evading a trust fund recovery penalty (which is treated as a tax, see 26 U.S.C. § 6671) assessed under § 6672).