DOJ Seeks to Reform Serial Employment Tax Offenders

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April 13 — The Department of Justice Tax Division is filing injunctions in instances where companies have been exceptionally poor at paying employment taxes, in an effort to boost compliance in the area.

The Tax Division has filed about 15 injunctions in the first quarter this year—nearly as many as were filed in all of 2015—to help ensure companies are compliant in the future, Noreene Stehlik, senior litigation counsel for the division, said April 13.

“This is quite an increase in number,” Stehlik said at a District of Columbia Bar event, adding that the injunctions are usually used in more extreme cases where the company hasn't paid for at least several quarters or it's a large dollar amount. If employers don't comply with the order, which compels a company to pay going forward, the case could be referred to criminal enforcement, she said.

DOJ Crackdown

The emphasized use of injunctions is part of a push by the DOJ Tax Division's Acting Assistant Attorney General Caroline Ciraolo to crack down on employers who have repeatedly not paid employment taxes and are likely to slip back into non-payment patterns even after back obligations are resolved (213 DTR G-6, 11/4/15).

The injunctions usually require employers to pay employment taxes on time and notify their revenue agent when the taxes have been submitted, Stehlik said. Offenders are usually also prohibited from transferring assets until the taxes are paid and must notify the Internal Revenue Service if they set up a new business.

If the injunction isn't being complied with, the Tax Division will be talking with its IRS counterpart to see whether a referral for criminal enforcement should be made,” Stehlik said.

The standards to warrant criminal action aren't that different from civil action, she said. “It isn't the same as in other kinds of taxes. You know as an employer or as a principal officer of an employer, that these taxes have to be withheld. Knowledge and intent aren't that difficult to prove.”

Compliance Reminders

The IRS has recently begun seeking to prevent buildup on unpaid employment taxes before they reach the point of DOJ involvement. The agency launched an employment tax early-interaction pilot program in December to identify employers who are falling behind in payments to help correct the problem before unpaid taxes accumulate and it has to assess penalties.

“It hasn't been as positive as we thought it might be,” IRS Commissioner John Koskinen told reporters April 13. The agency is reviewing whether “there is another way we can get more people to become compliant.”

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To contact the editor responsible for this story: Brett Ferguson at