A taxpayer’s sentence to imprisonment for 22 months, plus 36 months of
supervised release, has been upheld on appeal. In United States v. Blanchard,
6th Cir., No. 09-1284, 8/30/10, the U.S. Court of Appeals for the 6th Circuit
upheld Richard Blanchard’s felony conviction on 15 counts of failure to account
for and pay over withheld income tax and FICA tax. Blanchard’s conviction on
three counts of making and causing the making of a false claim for a tax refund
was also upheld, but the Appeals Court vacated the District Court’s order that
he pay $195,852 in restitution, and remanded it for reconsideration by the
The District Court convicted Blanchard of violating Section 7202 of the
Internal Revenue Code, which provides that “any person required under this title
[26 of the U.S. Code, a/k/a the Internal Revenue Code] 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 be guilty of a felony. On
appeal, Blanchard argued that he could not be guilty of willfully failing to pay
over the tax, because he did not have the money to pay the taxes.
Following the U.S. Supreme Court’s decision in United States v. Pomponio,
429 U.S. 10 (1976), which held that “willfulness” “simply means a voluntary,
intentional violation of a known legal duty,” the Appeals Court held that
Blanchard’s inability to pay the taxes when due bears on the willfulness of his
act, but it is not an element of the offence under 26 U.S.C. § 7202.
Blanchard claimed refunds for income taxes in the amount of $11,639, which
were based on the income taxes that should have been withheld from his paycheck
and paid over to the government. Blanchard argued that when he claimed the
refunds, he was unaware that employment tax returns were not filed and that
employment taxes had not been fully paid. The jury did not believe him, and
convicted him of violating 18 U.S.C. § 287, which makes it a crime to file a
false claim against the United States.
On appeal, Blanchard argued that evidence presented at trial demonstrated
that R. Blanchard Construction Company, his employer, paid him only net wages.
As a result, he claimed he was entitled to a credit on this tax return, whether
or not he knew the company (which he owned and controlled) never paid over the
withheld taxes to the IRS, because, “[o]nce net wages are paid to an employee,
the taxes withheld are credited to the employee regardless of whether they are
paid by the employer, so that the IRS has recourse only against their employer
for their payment.” Slodov v. United States, 436 U.S. 238, 243 (1978).
After analyzing the relevant case law, the Appeals Court found that the funds
due the IRS were not “actually withheld” from Blanchard’s wages, “and so he
cannot escape liability on this basis.”
As part of Blanchard’s sentence, the District Court imposed restitution in
the amount of $195,852.60 (the amount the company failed to pay in employment
taxes), pursuant to 18 U.S.C. §§ 3663 and 3663A, which stipulates that
restitution is required for victims of offenses under Title 18 of the U.S. Code.
Blanchard’s liability for the amount of employment taxes the company failed to
pay was based on the Internal Revenue Code, which is Title 26 of the U.S. Code.
Only his penalty for filing false refund claims was based on Title 18 of the
U.S. Code. The Appeals Court held, therefore, that 18 U.S.C. §§ 3663 and 3663A
do not apply to amounts attributable to Blanchard’s failure to account for and
pay over taxes under 26 U.S.C. § 7202.
The Appeals Court went on to say, however, that the District Court also may
impose restitution as a condition of supervised release. Such restitution would
not be limited to the $11,639 that Blanchard claimed in refunds.
The Blanchard case reiterates the seriousness with which the federal
government is treating failures to pay over payroll taxes. The threshold for
demonstrating a willful failure to do so is sufficiently low that many taxpayers
failing to pay over payroll taxes have significant exposure to criminal
prosecution. For previous articles on this subject, see
Failure to Pay Over
Payroll Taxes Could Land You in Jail and
Failure to Pay Over Payroll Taxes Could
Land You in Jail - The Sequel.