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January 12, 2004
Court Orders Employer to Withhold Taxes

The U.S. District Court for the Eastern District of California in Sacramento ordered two Chico florists to resume withholding federal taxes from their employees’ wages, according to the Justice Department.

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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 federal law requires only a few people to pay taxes. The “Section 861 argument,” named after the tax code section, claims that income received from sources within the United States is not subject to federal income taxes. The DOJ notes that courts have repeatedly rejected the argument.

“The court’s order makes it clear that employers are legally obligated to withhold and pay federal taxes on wages they pay their employees,” says 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.

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