In Greek mythology, King Sisyphus is punished by the gods and forced to roll a huge boulder up a hill only for it to roll down as it nears the top. No matter how much effort Sisyphus puts into attempting to push the boulder over the crest of the hill, it always come tumbling back down. He is doomed to push the boulder up the hill for all eternity. Sometimes collecting payroll taxes can be a “Sisyphean task” for the IRS. At least, that is what the 11th Court of Appeals wrote in a recent decision.
United States v. Askins & Miller Orthopedics, involved a private medical practice which refused to pay payroll taxes. The IRS first tried to negotiate an installment agreement with the medical practice’s business owners, but the business owners would ultimately renege on any agreement. Then the IRS issued a tax levy on property held by the medical practice in various entities, but the business owners would simply shift property to new entities out of reach of the power of the levies. Believing it was out of options, the IRS requested a permanent injunction from the district court to compel the taxpayers to perform and pay their employment taxes now and into the future.
The district court rejected the IRS request because the court argued that the IRS had yet to suffer irreparable harm. The district court reasoned that the IRS could still sue for monetary damages once the taxpayers again failed to pay their employment taxes. This is in spite of the fact that the district court conceded that the taxpayers exhibited a pattern of unlawful conduct likely to persist. In other words, the taxpayers would continue to find ways to not pay their taxes.
The IRS appealed to the 11th Circuit. The 11th Circuit agreed with the IRS that it was facing irreparable harm if the preliminary injunction were not granted. The 11th Circuit analogized the IRS to an involuntary creditor who is not able to simply stop conducting business with taxpayers once they become delinquent. Therefore, it held that sometimes the only remedy for the IRS is to sue to compel a taxpayer to take specific steps to ensure that future payments will be made.
At the heart of the case is that at some point a taxpayer with payroll tax problems must overcome the formidable burden of showing that his or her conduct will not recur. Absent a showing that the taxpayer has modified his or her behavior, the IRS can obtain a preliminary or permanent injunction to essentially prevent the taxpayer from avoiding his or her tax liability. It is surprising that the IRS didn’t file a criminal tax case against the owners. The IRS has made no secret of its intent to bring more criminal employment tax cases. Of course, the existence of the injunction doesn’t prohibit the IRS from bring a criminal indictment. That could in the offing.
You might wonder why the IRS would go through the exercise of attempting to obtain an injunction to compel the taxpayer to do something he is already legally required to do. One reason is that if an injunction is obtained, and the taxpayer continues to pyramid payroll taxes the court could impose jail time. Still it would seem more straight-forward for the IRS to bring a criminal tax case in the first case.
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