Failure to Comply

Willful disregard of payroll tax reporting rules can be costly.

The founder of a parachurch ministry was charged in a 58-count indictment for willfully failing to withhold and deposit federal income taxes and FICA taxes for employees of his ministry, structuring cash withdrawals to avoid financial reporting requirements, and obstructing the administration of tax laws. He was convicted on all charges and received a prison sentence of 10 years. The court also ordered a forfeiture of all property attributable to the reporting crimes.

On appeal, the founder insisted that he had not willfully failed to withhold or pay federal payroll taxes since he did not know of the specific statutes that required him to collect and pay withholding taxes.

A federal appeals court rejected this argument, and affirmed his conviction. The court observed that a conviction for willfully failing to collect or withhold payroll taxes only requires that the defendant knew of the “duty purportedly imposed by the tax laws, not that he knew which specific provision created that duty. When a defendant knows of facts constituting an offense, he has acted with the requisite willfulness to violate the law.”

The court concluded:

The government proved that [the founder] knew the tax laws required the collection and payment of withholding taxes, but he refused to comply. Employees of [his parachurch ministry] testified that he disputed the authority of the Internal Revenue Service based on the separation of the church and state, debated the interpretation and application of the withholding requirements, and intentionally characterized [his ministry] as a ‘church’ and his employees as ‘missionaries’ to avoid tax obligations. He had opined to [an attorney] that he was ‘smarter’ than other church officials who had forfeited property after they refused to collect or pay withholding taxes. Although he argued at trial that he was ignorant of the law and the Internal Revenue Service failed to identify a law that required him to collect and pay withholding taxes, the jury was entitled to find that he knew about and deliberately violated the tax laws. 305 Fed.Appx. 615 (11th Cir. 2008).

This article first appeared in Church Finance Today, November 2009.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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