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.… Read More
In 2012, the Sixth Circuit ruled that supplemental unemployment compensation benefits (so-called SUB payments) are not wages subject to FICA under the Internal Revenue Code. In re Quality Stores, Inc., 693 F.3d 605(6th Cir. 2012). The court of appeals elected not to follow the opinion of the Federal Circuit in CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008), which reached the opposite result. The Supreme Court has now reversed the Sixth Circuit. United States v. Quality Stores, Inc., 2014 U.S. LEXIS 2213 (March 25, 2014).
First, the Court ruled that the payments fell within the statutory definition of wages under FICA as they were remuneration for employment under Section 3121(a) of the Internal Revenue Code. … Read More
The owner of a small business who is the subject of an assessment for the trust fund recovery penalty under Section 6672 of the Internal Revenue Code is generally in a tight spot. Consequently, a recent District of Maryland case in which the owner successfully defeated a summary judgment motion by the government is worth reading.
In Hudak v. United States, 2013 U.S. LEXIS 98790 (D. Md. July 16, 2013), the government sought summary judgment on its claim that Timothy Hudak, the owner of the Hudak Companies, was responsible for roughly 2.3 million dollars in unpaid payroll taxes over a period from 2007 to 2010.… Read More
To ensure that employers properly handle payroll taxes, Section 6672 imposes a penalty on individuals associated with the employer, making them potentially liable for any short fall in the payment of taxes that are withheld from employees’ paychecks. When payroll taxes are transmitted, the payments have two components: one portion represents the employer’s share of FICA and FUTA, and the other represents the employees’ withholding. The IRS accepts written direction on the application of voluntary payments, so that savvy employers will provide a designation with each tax payment, indicating that the funds transmitted are to be applied first to the satisfaction of trust fund taxes and then to the employer’s liability.… Read More
When an employer falls behind on payments of taxes withheld from employees’ paychecks, the IRS tends to take prompt enforcement measures. In addition to taking action against the employer, the government will generally look at individuals associated with the employer to determine whether they are potentially liable under Section 6672 of the Internal Revenue Code, which imposes potential liability for any shortfall in withholding upon “[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof.” I.R.C.… Read More
If you read the Sixth Circuit’s opinion in Quality Stores in a vacuum, it is highly persuasive: it is logical to believe that Congress wanted wages to be construed the same way for both FICA and withholding, since it used essentially identical definitions. Similarly, when you learn that Congress put a provision into the Code indicating that supplemental unemployment compensation benefits (SUB payments) are to be treated as if they were wages for withholding, it makes sense to conclude that it added that provision because it thought they were not wages, as the Sixth Circuit reasons. See In re Quality Stores, Inc.… Read More
My initial post on the Sixth Circuit’s Quality Stores opinion introduced the basic framework of the Court’s analysis. If that was all that you read on the subject, you would think this was a pretty straightforward issue: first, since Congress passed a law, Section 3402(o) of the Code, indicating that so-called SUB payments “should be treated as wages” for purposes of withholding, it must have concluded that they didn’t fall within the definition of “wages” for purposes of withholding; second, since the definition of the term “wages” in FICA is essentially the same as the definition of “wages” for withholding, SUB payments must not be wages for FICA.… Read More
On September 7, 2012, the Sixth Circuit ruled that supplemental unemployment compensation benefits (so-called SUB payments) are not wages subject to FICA under the Internal Revenue Code. In re Quality Stores, Inc., 2012 U.S. App. LEXIS 18820 (6th Cir. Sept. 7, 2012). The Court elected not to follow the opinion of the Federal Circuit in CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008), which reached the opposite result.
As part of a financial restructuring and a bankruptcy, Quality Stores and its affiliates closed a number of stores and distribution centers in two waves: an initial group of closures occurred prior to bankruptcy and another set occurred during bankruptcy.… Read More
Lenders can be exposed to liability for federal payroll taxes under Section 3505(b) of the Internal Revenue Code if they advance money for wages with knowledge that the employer either does not intend to pay the associated payroll taxes or will not be able to do so. That liability is capped at twenty-five percent of the amount advanced.
How long does the IRS have to collect? The relevant regulation provides a ten year limit on collection, Treas. Reg. § 31.3505-1(d), which mirrors the general limitation for collections under the Internal Revenue Code, Section 6502.
A recent opinion from the Middle District of Florida explores the limitations period in a common scenario, where collection action occurs after the employer has filed for bankruptcy.… Read More