A federal district court in U.S. v. Agape Health Services recently issued an order permanently enjoining a taxpayer and his business, Agape Health Services, LLC, from failing to make employment tax withholdings and payments. The order, which extends to the business’s “representatives, agents, servants, employees, attorneys, successors in interest and assigns, and anyone in active concert or participation with them,” carries the threat of contempt and imprisonment for future failures to comply with the employment tax laws. In other words, a failure to comply with the order could subject the noncompliant party to civil and criminal sanctions for contempt of court.
The Order was issued under 26 U.S.C. § 7402(a). That statute provides federal district courts with “such jurisdiction to make and issue in civil actions, writs and orders of injunction … and such other orders and processes . . . and decrees as [are] necessary or appropriate for the enforcement of the internal revenue laws.” As referenced below, injunctive orders like this are becoming more common as the government ramps up its battle against individuals and businesses that are not complying with the employment tax laws.
The most relevant injunctive provisions of the recent Order are set forth below:
It is FURTHER ORDERED and ADJUDGED pursuant to 26 U.S.C. § 7402(a):
Alonzo Johnson (individually and doing business under any other name or using any other entity) and Agape Health Services, LLC, and their representatives, agents, servants, employees, attorneys, successors in interest and assigns, and anyone in active concert or participation with them, are prohibited from failing to withhold and pay over to the IRS all employment taxes, including federal income, FUTA, and FICA taxes, required by law;
(B.) Alonzo Johnson and Agape Health Services, LLC, shall segregate and hold separate and apart from all other funds all monies withheld from employees or collected from others for taxes under any internal revenue laws of the United States and to deposit the monies so withheld and collected, as well as the employer’s share of FICA taxes, in an appropriate federal depository bank in accordance with the federal deposit regulations;
(C.) Alonzo Johnson and Agape Health Services, LLC, shall deposit FUTA taxes in an appropriate federal depository bank each quarter in accordance with the federal deposit regulations;
(D.) Alonzo Johnson and Agape Health Services, LLC, and any other individuals who are responsible for carrying out the duties established under paragraphs B. and C. above, shall, for a period of five years, sign and deliver affidavits, letters, or other correspondence signed under penalty of perjury pursuant to 28 U.S.C § 1746 to the Internal Revenue Service, 1835 Assembly Street, MDP 36, Columbia, South Carolina 29201 or to such other specific location as directed by the IRS, no later than the twentieth day of each month, stating that the requisite withheld income, FICA, and FUTA tax deposits were timely made;
(E.) Alonzo Johnson and Agape Health Services, LLC, shall timely file all Form 941 and 940 tax returns with the IRS at 1835 Assembly Street, MDP 36, Columbia, South Carolina 29201, or to such other specific location as directed by the IRS;
(F.) Alonzo Johnson and Agape Health Services, LLC, shall timely pay all required outstanding liabilities due on each tax return required to be filed;
(G.) Alonzo Johnson and Agape Health Services, LLC, and their representatives, agents, servants, employees, attorneys, successors in interest and assigns, and anyone in active concert or participation with them, are prohibited from assigning any property or rights to property or making any disbursements before paying all required outstanding liabilities due on each tax return required to be filed going forward from the date of this Judgment and Permanent Injunction by Consent; and
(H.) Alonzo Johnson shall notify the IRS in the future of any new company he may come to own, manage, or work for in the next five years.
These provisions are serious, extensive, and detailed. And as I’ve blogged about before, it appears that injunctive orders like this are becoming a more commonplace government weapon when it comes to employment tax enforcement. See No Soup for You. I’ve also blogged about the increasing enforcement focus on employment tax noncompliance. See Employment Tax Enforcement is on the Rise, The Crime of Willfully Failing to Collect and Pay Over Tax, and Another Trust-Fund-Related Tax Indictment.
26 U.S.C. Sec. 7402 provides as follows:
(a) To issue orders, processes, and judgments
The district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue in civil actions, writs and orders of injunction, and of ne exeat republica, orders appointing receivers, and such other orders and processes, and to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws. The remedies hereby provided are in addition to and not exclusive of any and all other remedies of the United States in such courts or otherwise to enforce such laws.
If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides or may be found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data.
(c) For damages to United States officers or employees
Any officer or employee of the United States acting under authority of this title, or any person acting under or by authority of any such officer or employee, receiving any injury to his person or property in the discharge of his duty shall be entitled to maintain an action for damages therefor, in the district court of the United States, in the district wherein the party doing the injury may reside or shall be found.
[(d) Repealed. Pub. L. 92–310, title II, § 230(d), June 6, 1972, 86 Stat. 209]
The United States district courts shall have jurisdiction of any action brought by the United States to quiet title to property if the title claimed by the United States to such property was derived from enforcement of a lien under this title.
For general jurisdiction of the district courts of the United States in civil actions involving internal revenue, see section 1340 of title 28 of the United States Code.
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