A. Willful Failure to Collect or Pay Over Tax Statute – IRC 7202
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 not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution. 26 U.S.C. 7202.
B. Interpretation of IRC 7202
IRC section 7202 creates to crimes: (1) the willful failure to collect tax; and (2) the willful failure to properly account for and pay over tax. This crime is primarily designed to assurance compliance by and punish those under an obligation to collect excise taxes, wage withholding taxes, FICA, and other trust fund taxes.
1. Elements of Willful Failure to Collect or Pay Over Tax
The elements of the offense are:
- Duty to collect, and/or truthfully account for and pay over tax;
- Failure to collect, or truthfully account for and pay over tax; and
2. Who Can Be Criminally Liable?
As can be inferred from the first element, the individual with the duty to account for and pay over the tax is criminally liable when there is a failure to perform that duty.
Willfulness is generally the same as other tax crimes: it must be shown that the taxpayer voluntarily and intentionally acted in violation of a known legal duty.
The 9th Circuit Court of Appeals interpretation of IRC 7202 has added a wrinkle to the willfulness element. Specifically, a violation to pay over the tax is not willful where the taxpayer lacked sufficient funds to pay the tax, and the lack of sufficient funds was not result of voluntary or intentional acts in light of all financial circumstances of the taxpayer.
The penalty for this felony offense is up to 5 years in federal prison, plus fines and costs. There are defenses to raise, and challenges that can be made as to the sufficiency of evidence under each element. It is important to have representation at each step to protect yourself. If you are or suspect you are being investigated for this crime, give us a call at (408) 459-8427.