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COURT ORDERS CALIFORNIA EMPLOYER TO WITHHOLD
FEDERAL TAXES FROM EMPLOYEES’ WAGES

California Florists Had Stopped Withholding Federal Taxes

WASHINGTON, D.C. – The Justice Department today announced that the U.S. District Court for the Eastern District of California in Sacramento today ordered two Chico florists to resume withholding federal taxes from their employees’ wages. 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 courts have repeatedly rejected. The “Section 861 argument,” named after the tax code section it misinterprets, falsely claims that income received from sources within the United States is not subject to federal income taxes.

“The court’s order makes it clear that employers are legally obligated to withhold and pay federal taxes on wages they pay their employees,” said 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. A hearing is scheduled in federal district court in Sacramento on December 16, 2003 involving the government’s request for a similar order against Cencal Aviation and its owner Walter “Al” Thompson. Copies of the complaints against the two California employers may be found at www.usdoj.gov/tax/ThompsonComplaint.pdf and www.usdoj.gov/tax/MolenComplaint.pdf.

More information about the Justice Department’s Tax Division can be found at www.usdoj.gov/tax.