Another Trust Fund-Related Tax Indictment

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Another Trust Fund-Related Tax Indictment

The Department of Justice recently announced another indictment of a taxpayer charged with evading the payment of “trust fund” taxes—taxes withheld from employees’ wages to be paid over to the government.  The DOJ press release provides a succinct summary of the allegations and the relevant facts:

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.

As I’ve blogged and written about before (see, e.g., here), trust fund tax actions are on the rise.  As I’ve also previously discussed here, the Department of Justice has increased its use of 26 U.S.C. § 7202 to prosecute individuals who fail to comply with their employment tax obligations.  This case, however, was charged as a straight tax evasion charge under 26 U.S.C. § 7201, and DOJ focused on the acts described above to support its evasion charge.

As the government details in its indictment, every employer has at least one person with the obligation to collect, account for, and pay over to the government any trust fund taxes.  Each such person—who could be an employee, bookkeeper/CPA, or other person—is referred to as a “responsible person” in the trust fund lingo.  If a responsible person willfully fails to pay over trust fund taxes, the IRS can impose a civil penalty equal to the trust fund taxes against each such responsible person, making them personally liable for the penalty.  As the Larkin case demonstrates, such facts can often also support a criminal action.