26 USC 7202 – Willful Failure To Collect Or Pay Tax Translated
To establish a violation of section 7202, the following elements must be proved beyond a reasonable doubt:
- Duty to collect, and/or to truthfully account for, and/or pay over;
- Failure to collect, or truthfully account for, and/or pay over; and
Cases prosecuted under this statute usually involve social security taxes (FICA) and withholding tax. The duty of employers to collect, truthfully account for, and pay over is created by sections 3102(a), 3111(a), and 3402 of the Internal Revenue Code of 1986.
Under section 7202, it is the individual or business with the duty to collect, truthfully account for, and pay over who are culpable when there is a failure to perform this duty. A person is responsible for collecting, accounting for, and paying over trust fund taxes if they have “the authority required to exercise significant control over the [employer’s] financial affairs, regardless of whether [the individual] exercised such control in fact.” United States v. Jones, 33 F.3d 1137, 1139 (9th Cir. 1994).
The Tax Division’s position historically has been that either a willful failure to truthfully account for or a willful failure to pay over is a breach of the obligation to truthfully account for and pay over. Thus, under this theory, a willful failure to pay over after the filing of a return making a truthful accounting leaves the duty as a whole unfulfilled and the responsible person subject to prosecution.
The requisite element of willfulness under section 7202 is the same as in other offenses under Title 26. It must be shown that a defendant voluntarily and intentionally acted in violation of a known legal duty. Cheek v. United States, 498 U.S. 192 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346, 360 (1973).
With respect to employment taxes imposed by the Internal Revenue Code, the legal duty enforced by section 7202 is the obligation to withhold those taxes from the gross wages of employees, to truthfully account for those taxes, and to pay over those taxes to the United States Treasury. Under section 6672, the civil counterpart to section 7202, a voluntary, conscious, and intentional act of paying the claims of other creditors, including the wage claims of employees, instead of the trust fund taxes, constitutes a “willful” violation of the duty to pay over. See Sorenson v. United States, 521 F.2d 325, 328 (9th Cir. 1975).
Similarly, it is the Tax Division’s position that a person willfully fails to pay over tax under section 7202 when, instead of paying the trust fund taxes, he voluntarily and intentionally uses the money to pay the claims of other creditors, including wages to employees, with knowledge that the collected funds are due to be paid over to the United States. Evil motive or bad purpose is not necessary to establish willfulness under the criminal tax statutes.
To prove a willful failure to pay over the government has to show is that payments were voluntarily and intentionally made to creditors other than the United States with knowledge that the withheld funds were due to the United States. There is no separate requirement that the Government prove that the payments were without justification.
If you or someone you know is being investigated for or charged with a violation of 26 USC 7202 contact Kresta Daly today. Kresta has successfully defended countless tax cases. Hiring experienced counsel as soon as possible is the best option – preferably before the IRS makes a criminal referral. Other times that is not possible, hiring counsel after being indicted still allows you time to build your defense.
26 USC 7202 Defined
Any person who willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both. Any person required pursuant to section 6047(b), section 6104(d), or subsection (i) or (j) of section 527 to furnish any information to the Secretary or any other person who willfully furnishes to the Secretary or such other person any information known by him to be fraudulent or to be false as to any material matter shall be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.