DEPARTMENT OF JUSTICE SUES
TO STOP EMPLOYMENT TAX VIOLATIONS

Employers in California and Colorado Allegedly Stopped Withholding Federal Taxes From Their Employees’ Wages

WASHINGTON, D.C. - Late today, the United States Department of Justice filed three lawsuits to enjoin employers from failing to withhold payroll taxes. The suits are against

• Walter “Al” Thompson, owner of Cencal Sales Co., d/b/a Cencal Aviation Products, a Shasta Lake, California business;
• James O. and Sandra L. Molen, who operate Touch of Class Florist, a Chico, California business; and
• Colorado Mufflers, Inc., a Northglenn, Colorado corporation.

“Employers who refuse to withhold and pay federal employment taxes hurt not only their employees but the public at large,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “Stopping this unlawful practice is a high priority for the Justice Department.”

Today’s court filings assert that the three employers are refusing to withhold federal taxes from their employees’ paychecks and pay federal employment taxes based on an argument that courts have repeatedly rejected. Known as the “Section 861 argument,” after the tax code section it misinterprets, the argument claims that all income from sources within the United States is not subject to federal income taxes. Labeling the argument as “frivolous,” a number of federal courts have recently enjoined people who promote it and penalized taxpayers who assert it in court cases. Information on some of these court cases can be found at:

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