The U.S. District Court for the Eastern District of California in Sacramento
ordered two Chico florists to resume withholding federal taxes from their employees’
wages, according to the Justice Department.
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Get Your Report Now!James O. Molen and his wife Sandra L. Molen, who operate Touch of Class Florist,
had refused to withhold federal taxes from their employees’ paychecks or
to pay federal-employment taxes based on an argument that federal law requires
only a few people to pay taxes. The “Section 861 argument,” named
after the tax code section, claims that income received from sources within
the United States is not subject to federal income taxes. The DOJ notes that
courts have repeatedly rejected the argument.
“The court’s order makes it clear that employers are legally obligated
to withhold and pay federal taxes on wages they pay their employees,” says
Eileen J. O’Connor, assistant attorney general for the Justice Department’s
Tax Division. “Those who fail to do so hurt their employees and the tax
paying public at large.”
The court required the defendants to take several corrective actions, including
filing timely employment tax returns with the Internal Revenue Service, making
employment tax deposits within three days of each business payroll, filing corrected
tax returns, posting the court’s order on their business premises, and
notifying current and former employees of the injunction.
The Justice Department filed suit against the defendants and another California
business, Shasta Lake-based Cencal Aviation Products in July 2003.