Generally, one of the first steps in commencing a new job is filling out the W-4 withholding exemption certificate. The employer uses the information contained on the form to calculate how much to withhold in taxes. For high earning professionals and executives, such as those represented by Brown, PC, additional withholdings can amount to tens or hundreds of thousands of dollars in saved tax liability.
The government holds employees responsible for the correctness of the withholding exemptions and allowances they claim and may charge a taxpayer for taking too many inaccurate exemptions. A conviction can result in jail and extensive fines and, equally devastating, a damaged reputation and career. Brown, PC is a leading white collar crime and criminal tax defense litigation law firm. We have a history of handling landmark IRS cases and getting the best results possible for our clients.
Element of a False W-4 Filing
A violation of 26 U.S.C. §7205 is a misdemeanor, subject to up to one year in jail and fines, in addition to interests and penalties on the tax owed. To convict, the government must prove each element of fraudulent withholding beyond a reasonable doubt:
- The taxpayer had a duty to furnish an employer with a signed W-4.
- The taxpayer supplied the employer with a signed W-4.
- The information on the signed W-4 was false or fraudulent.
- The taxpayer’s actions were willful.
The government rarely brings charges under §7205. Usually instead the government charges the taxpayer with the more serious tax evasion under §7201, which is a felony. A §7205 violation is often the fallback charge when the government lacks enough evidence to prove evasion. A Fort Worth tax law attorney at our firm also can negotiate reduction of a felony tax evasion charge to the lesser W-4 fraud misdemeanor by offering our client’s full cooperation, assistance with a criminal prosecution, satisfaction of tax liability or other mitigating circumstances.
Duty of the Employee to Complete a W-4
The employee has a duty to give an employer a W-4 form that contains accurate information regarding withholding exemptions on or before employment start date. Only employees are required to follow §7201. Therefore, independent contractors, freelancers, business partners and other working relationships are not subject to this rule.
Because it is an essential element of the crime, the government carries the burden of proving beyond a reasonable doubt that the taxpayer is an employee. The government considers the taxpayer’s submission of the W-4 form as an admission of employee status. The government also considers the employer’s W-2 payroll records as proof of status. However, our Fort Worth criminal tax defense lawyers may refute the government’s position by showing the taxpayer was misclassified and did not otherwise meet the criteria for employee status.
What Constitutes False or Fraudulent Information?
These charges typically arise when the employee claims too many exemptions from withholdings or withholding allowances and, thus, lower tax liability. The W-4 form specifically requires the employee to read the certificate to determine entitlement to the exemption.
The government must prove beyond a reasonable doubt that the number of exemptions or allowances on the W-4 was false or fraudulent. The standard for this burden is low. Where the information is incorrect this is enough to satisfy the definition of false; the information does not need to rise to the level of deceptive. In addition, the government is not required to demonstrate the actual number of exemptions, only that the taxpayer provided incorrect information with the intent to deceive or that was false in the sense of deceptive.
Willfulness of the Taxpayer’s Actions
Violating §7205 is a specific intent crime, meaning the taxpayer voluntarily and intentionally violated a known legal duty. The government, therefore, has the burden of proving that the taxpayer acted willfully in filing a false W-4.
The taxpayer’s good faith understanding of the law is a defense to the element of willfulness. However, a disagreement with the law is not a valid defense. The taxpayer’s frame of mind is a question for the jury. Examples of actions that were found to be willful include:
- A taxpayer claimed nine exemptions, even though he had claimed none the previous year. The W-4 showed that he was in fact entitled to two exemptions and the taxpayer testified that he claimed excessive exemptions to zero out his tax liability.
- A taxpayer had tax liability in a prior year. The following year he filed a document that indicated he did not have liability in the past year and did not anticipate liability in the filing year. He also claimed 99 exemptions on his W-4.
- A taxpayer entered the word “none,” “5th Amend,” or an asterisk on lines that called for dollar amounts. The IRS subsequently sent notice that the return was invalid because of the missing financial information.
- The failure to file a tax return coupled with the failure to pay taxes demonstrated a general motive to avoid taxes, which make the taxpayer’s willful filing of fraudulent withholding exemptions more likely.
- The taxpayer claimed a large number of exemptions and an increase in exemptions that coincided with the increase in the taxpayer’s income.
- The IRS and the taxpayer’s employer attempted to explain the legal requirements to the taxpayer. Proof of these actions coupled with the taxpayer’s tax paying history showed that he was aware of his obligations, but chose not to comply.
- A husband and wife filed W-4s that showed five withholdings allowances. Then days after attending a seminar about tax defiance, they changed their W-4 to claim 28 allowances. When questioned by their employers, the couple gave vague answers and did not argue at trial that they expected to actually have the amount of allowances they claimed.
- The taxpayer expressed “moral and religious convictions” against income taxes.
Consult With a Fort Worth Tax Law Attorney Regarding W-4 Filing Charges
Employees can face significant charges for filing incorrect W-4s. A Fort Worth tax law attorney at Brown, PC will hold the government to its duty to show proof and raise an effective defense to protect your rights.