Trust Fund Recovery Penalty

Over the last few years, the Justice Department has worked with the IRS to more aggressively prosecute cases involving employment tax noncompliance and the failure to remit trust fund taxes to the U.S. Treasury.  Trust fund taxes are taxes withheld from the wages of employees such as federal income tax withholding and FICA tax withholding.  Owners, corporate officers, and employees who are responsible for remitting such taxes may also be found to be personally liable for the failure to pay over trust fund taxes and, as the following described cases indicate, they may face criminal prosecution for such failures. 
Continue Reading Justice Department Continues Criminal Prosecutions in Employment Tax Cases

On remand from the Eleventh Circuit, the Tax Court, in Romano-Murphy v. Comm’r, determined that the failure of the IRS to provide a pre-assessment appeals hearing invalidated the IRS’s assessment of trust fund recovery penalty under section 6672 and proposed levy to collect the same.  In July 2006, the IRS sent a letter to the chief operating officer of a healthcare staffing company proposing assessment of a trust fund recovery penalty against her for the business’s failure to withhold and pay over employment taxes.  The letter indicated that the COO had the opportunity to protest the decision to the IRS Office of Appeals.  The COO sent a response requesting an Appeals conference in September of 2006, but the IRS failed to act on it and then subsequently assessed the penalty.  The COO later requested a collection due process hearing after receiving a notice of intent to levy and notice of federal tax lien filing.  As is typically the case, the Settlement Officer issued a determination that the assessment and collection activity, including the proposed levy, were valid, leading to the COO’s challenge in Tax Court.

Continue Reading Tax Court Reverses Course on TFRP after Remand from Eleventh Circuit

Consistent with its ongoing employment tax enforcement efforts, the Justice Department recently announced developments in two cases involving the failure to properly withhold and remit federal employment taxes from employee wages.

On April 25, the Justice Department announced that Kae Wook Lee, the sole owner and CEO of Mona Lisa 7 Corporation, was sentenced to twelve months and one day in prison for failing to collect and remit federal employment taxes related to his operation of a karaoke bar in Queens, New York.  The Justice Department’s press release states that Lee manipulated receipts from operations and paid employees in cash without collecting, accounting for, or remitting employment taxes to the IRS.  The press release also states that he concealed the cash payroll from his accountant and executed false tax returns underreporting wages and the amount of employment taxes owed.  In addition to the prison sentence, Lee was ordered to serve two years of supervised release and pay $612,500 in restitution.

Continue Reading Justice Department Announces Employment Tax Enforcement Actions