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Payroll management is one of the most complicated aspects of running a business. In particular, withholding, accounting for and paying employment taxes is an extremely arduous task. Brown, PC represents some of the biggest global corporations that often have multiple brands and complicated business structures with millions of dollars in payroll expenses. As a result, our clients are often targets of criminal investigations for failure to pay employment taxes.

Our founding attorney, Lawrence Brown, is a former DOJ Tax Division trial lawyer who regularly prosecuted tax withholding cases.  He applies the unique insight he gained in this position to defend clients that face enormous fines and possible imprisonment. The Fort Worth payroll tax attorneys at Brown, PC offer 25 years of collective experience and a history of success in putting accused taxpayers in the best possible position.

Penalties Imposed for §7202 Violations

Tax regulations place the burden on employers and businesses to collect appropriate taxes and to turn that money over to the government. Failure to do so is not just a civil violation, it may also lead to criminal charges. Conviction for failure to collect or pay taxes can result in up to five years’ incarceration, fines of up to $250,000 for an individual and $500,000 for an organization, along with as other penalties and interests. Additionally, the alternative fine provision can further enhance penalties to twice the gross gain or loss.

When is Failure to Collect and Pay Taxes Criminally Charged?

26 U.S.C. §7202 governs the criminality of willful failure to meet a statutory duty to collect, account for and pay taxes that have been imposed on another person, such as an employee or a customer. Often a §7202 charge accompanies other tax-related charges, including §7201 tax evasion, §7206(1) false returns, §7212(a) obstruction and §371 conspiracy to defraud. Key elements of the §7202 violation are:

  • Duty of the defendant to collect, account for or pay the taxes
  • Failure to perform this duty
  • Willfulness of the failure

The prosecution must prove each element beyond a reasonable doubt. Brown, PC holds the prosecution to its duty and demands charges be dropped or the client acquitted if the evidence does not meet this high standard of proof. 

Collect and Pay Over Employment Taxes

Employers are obligated to withhold taxes from employees’ gross wages, including income tax, Social Security tax, Medicare tax and federal unemployment tax. Income taxes are imposed directly on employees under the U.S. Code based upon their earnings. Social Security and Medicare tax are each imposed upon employers and employees separately under authority of the Federal Insurance Contributions Act, referred to as FICA. Employers are solely responsible for federal unemployment tax, as governed by the Federal Unemployment Tax Act (FUTA).

An employer that fails to withhold the proper amount of taxes from its employees is not off the hook. On the contrary, the employer is responsible for paying the government the amount it should have withheld. Only those amounts that are “collect and pay over taxes” fall under the prevue of §7202, meaning income taxes and the portion of FICA attributed to the employee. Failure to pay the employer-imposed taxes may, however, be prosecuted under a different statute.

As use of independent contractors, as opposed to employees, has grown increasingly popular, cases in which businesses have been found liable for misclassification have also increased. Accidental misclassification is not a crime, but knowingly misidentifying employees as independent contractors may give rise to criminal liability. Moreover, an employer that is cleared of criminal liability may nonetheless be required to pay the taxes it failed to withhold, which can add up to extraordinary costs if multiple employees were misclassified over the course of months or years. Because each Fort Worth payroll tax attorney at our firm has extensive experience in civil and criminal tax matters, we are able to aggressively defend our clients in the criminal courts while limiting tax liability in the civil case.

Determining Who is Responsible Under the Tax Code

Only a person with actual responsibility for collecting, accounting for and paying the employment taxes can be charged with this crime. A person with authority to exercise significant control over the business’s financial affairs is deemed to have responsibility. Because §7202 refers to “any” responsible person, cases typically involve multiple defendants, not just the person who is primarily responsible for tax matters in the company. 

It is important to note that §7202 refers to the person with responsibility, but the term “person” is interpreted as “an individual, a trust, estate, partnership, association, company or corporation.” Section 7203 expands the definition of person to include corporate officers, partnership employees and others who have the duty to perform the tasks of collecting, accounting for and paying taxes. The government considers a variety of factors when determining a person’s responsibility to collect, account for and pay taxes, including:

  • Duties outlined in the corporate or partnership by-laws
  • Authority to sign checks or to make decisions about payment of creditors
  • Whose signature appears on the employer’s federal tax returns
  • Who is identified as officers, directors and owners of the company
  • Who is responsible for hiring and firing employees
  • Who is in charge of the employer’s financial affairs

Our attorneys often take the tactic that our client is the wrong person to be charged. This approach is especially important in circumstances in which the government charges multiple people within the company.


A responsible person may negligently fail to collect, account for or pay taxes. The element of willfulness transforms that person’s failures to meet these duties into a criminal act. If the acts were voluntary and intentional this is enough to meet the criteria of willfulness; the person need not have a bad motive.

The government may build its case upon circumstantial evidence, such as prioritizing other creditors over the IRS. A company that innocently pays its bills upon negligently failing to collect enough taxes, properly account for the taxes or pay the correct amount to the IRS may thus be ensnared in a criminal investigation. Our attorneys attack the government’s evidence of willfulness to successfully demonstrate that honest mistakes do not constitute a crime.

Representing Professional Employer Organizations

Brown, PC regularly represents Professional Employer Organizations (PEOs) in civil and criminal tax matters. PEOs provide valuable payroll services to businesses, but the structure of these organizations can complicate tax liability issues. As of March 2014, both the PEO and its client may be held liable for the client’s unpaid employment taxes. Our firm untangles the issues to minimize liability to our client.

Consult With an Aggressive Fort Worth Payroll Tax Attorney When Faced With Employment Tax Violations

Criminal charges can put your business, finances and freedom at stake. Retain a Fort Worth payroll tax attorney who is at the top of the field. Brown, PC delivers an aggressive defense to protect your individual rights and the rights of your company.

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