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

WASHINGTON, D.C. - The Justice Department announced today that the U.S. District Court for the Eastern District of California ordered a Shasta Lake, California business to resume withholding federal taxes from its employees’ wages.

According to court papers the Justice Department filed in the case, Cencal Aviation Products - owned by Walter “Al” Thompson - had refused to withhold federal taxes from its employees’ paychecks or to pay federal employment taxes based on the so-called “Section 861 argument.”

The argument falsely claims that income from sources within the United States is not subject to federal income taxes. Courts have repeatedly rejected this frivolous argument, which is named for the tax code section it misinterprets. Today’s court order, known as a “preliminary injunction,” will remain in effect indefinitely.

“Employers are obligated by law to withhold and pay federal employment taxes,” said Eileen J. O’Connor, Assistant Attorney General for the Justice Department’s Tax Division. “Employers who fail to withhold taxes are harming not only their companies and their employees, but also the American public at large.”

The Department of Justice filed suit against Cencal Aviation, as well as another California business in Chico, in July 2003. Copies of the complaints against these employers may be found at <http://www.usdoj.gov/tax/ThompsonComplaint.pdf> and <http://www.usdoj.gov/tax/MolenComplaint.pdf>.

A number of federal courts have enjoined promoters of the Section 861 argument.

Information on some of these court cases can be found at:

<http://www.usdoj.gov/tax/03_tax_267.htm>

<http://www.usdoj.gov/tax/03_tax_128.htm>

<http://www.usdoj.gov/tax/03_tax_036.htm>

<http://www.usdoj.gov/tax/03_tax_015.htm>

<http://www.usdoj.gov/opa/pr/2002/February/02_tax_055.htm>

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