The Crime of Willfully Failing to Collect or Pay Over Tax

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

In recent years, the Department of Justice has increased the number of prosecutions under 26 U.S.C. § 7202 for willful failures to collect or pay over taxes.  Section 7202 is used to prosecute individual who willfully fail to comply with their statutory obligations to collect, account for, and pay over taxes imposed on another person.  Employment tax crimes are regularly prosecuted under § 7202 (although they are often prosecuted under other statutes as well—e.g., 26 U.S.C. § 7201 (tax evasion), 26 U.S.C. § 7206(1) (false returns), 26 U.S.C. § 7212(a) (obstruction), and 18 U.S.C. § 371 (conspiracy to defraud)).

The relevant statutory provision sets forth the crime of a willful failure to collect or pay over taxes:

Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined . . . or imprisoned not more than 5 years, or both, together with the costs of prosecution.

26 U.S.C. § 7202.  The maximum fine for a violation of § 7202 is generally $250,000 for individuals and $500,000 for organizations. 18 U.S.C. §§ 3571(b) & (c).

As the statutory language indicates, Section 7202 applies to “[a]ny person required under [Title 26] to collect, account for, and pay over any tax imposed by [Title 26].”  To establish a violation of the statute, the government must demonstrate the following three elements:

United States v. Thayer, 201 F.3d 214, 219-21 (3d Cir. 1999); see also United States v. Simkanin, 420 F.3d 397, 404-05 (5th Cir. 2005).

Violations of § 7202 most often arise in the context of employment taxes—for example, where a person has an obligation to withhold and pay over payroll taxes and fails to do so.  Employers are required to withhold employee FICA and income tax from the wages paid to their employees, and to pay over the withheld amounts to the United States. 26 U.S.C. §§ 3102(a), 3102(b), 3402, 3403. The employer is required to pay the United States the amount that is required to be collected even if the taxes are not actually withheld from the wages of the employee. See, e.g., United States v. Simkanin, 420 F.3d 397 (5th Cir. 2005) (responsible person’s § 7202 convictions based upon failure to collect).

The employee FICA and income taxes required to be withheld and paid over to the United States are commonly referred to as “trust fund taxes.”  Section 6672 provides for a civil Trust Fund Recovery Penalty applicable against “responsible persons” who willfully fail to collect or pay over such tax.  Such persons can be held personally liable for the entire amount of such taxes.  Notably, the statutory text of § 7202 and of § 6672 largely track each other and are virtually identical.  That means that a person facing a Trust Fund Recovery Penalty assessment may (and often does) exhibit many of the characteristics that the government looks for to justify a criminal referral.  And because of the similarities between the two statutory provisions, the Department of Justice draws on § 6672 Trust Fund Recovery Penalty case law to interpret the scope of § 7202.

For related topics, see

Representation in Tax Audits & Appeals

Need assistance in managing the audit process? Freeman Law’s team of attorneys and dual-credentialed attorney-CPAs regularly represents taxpayers before the IRS and Texas Comptroller. Our team also provides tax return-related representations and helps taxpayers navigate state tax laws. Our Firm offers value-driven services and provides practical solutions to complex issues. Schedule a consultation or call (214) 984-3410 to discuss our tax representation services.