We had the pleasure today of hearing the comments of Caroline Ciraolo, Acting Assistant Attorney General (AAG) for the Tax Division of the U.S. Department of Justice (DOJ), regarding DOJ Tax Division’s current enforcement priorities. Acting AAG Ciraolo provided one of the keynote addresses at the American Law Institute’s Continuing Legal Education conference, Handling a Tax Controversy: Current Trends in Civil Tax Controversies and Litigation, held in Washington, D.C. This blog entry will focus on, just as Acting AAG Ciraolo did, the issue of employment tax enforcement.
Acting AAG Ciraolo described the issue of employment and payroll taxes as a “really big area for us right now.” Although employment taxes have been listed as a DOJ Tax Division priority in the past, Acting AAG Ciraolo noted that enforcement in this area has become a “team effort” between DOJ and the civil and criminal sides of IRS. This team effort includes related training of IRS Revenue Officers, Fraud Technical Advisors, and Special Agents, as well as DOJ lawyers. Acting AAG Ciraolo also announced that the Criminal Section of DOJ Tax Division recently updated the section of the DOJ Criminal Tax Manual that pertains to 26 U.S.C. § 7202, a criminal statute which specifically applies to willful failures to collect or pay over employment taxes.
At least part of the government’s purpose in emphasizing employment taxes seems clear: the tax enforcement authorities’ traditional goal of “general deterrence,” i.e., attempting to encourage millions of taxpayers to comply with their own tax obligations, within the constraints of limited government resources, by sending a message through publicized enforcement actions that violators, when detected, will receive significant punishment.
Acting AAG Ciraolo stated that the government does not want “honest employers looking down the street . . . and asking [themselves], why am I complying?” She provided examples of certain recently-imposed long sentences obtained by DOJ in criminal employment tax cases, including the example of Maria Townsend, the former president of an electrical contractor company who was sentenced to 40 months in prison after being convicted for failing to pay over $3.3 million in payroll taxes.
As acknowledged by Acting AAG Ciraolo, this topic always has been important, and civil and criminal tax payroll cases are nothing new. Nonetheless, the topic certainly seems to be the focus of increasing attention by taxing authorities, and it was similarly emphasized at the American Bar Association Section of Taxation May 2015 Meeting during remarks by Rebecca Sparkman of Internal Revenue Service-Criminal Investigation before the Committee on Civil and Criminal Tax Penalties. Moreover, DOJ and IRS are not the only players in this area – the Department of Labor recently has made clear that worker classification issues are a primary enforcement focus, as discussed in our earlier article, which reflects a semi-coordinated effort across several sections of the government.
Acting AAG Ciraolo also discussed other matters beyond employment taxes, including DOJ’s continued enforcement efforts against allegedly abusive tax shelters and DOJ’s defense of FATCA against multiple court challenges. She concluded by referencing – of course – the ongoing enforcement campaign against undisclosed foreign bank accounts held by U.S. taxpayers, described by Acting AAG Ciraolo as extending now “well beyond Switzerland” and focusing on financial institutions in countries in Asia, Central and South America, the Caribbean, and Israel.