Former President of Townsend Controls Inc. Sentenced to Prison for Failing to Pay Over $3.3 Million in Federal Employment Taxes and Interest
A Burbank, Washington, businesswoman was sentenced yesterday to serve more than three years in prison following her February 2015 conviction of 10 counts of failing to pay over federal employment taxes to the Internal Revenue Service (IRS) after a five-day jury trial in U.S. District Court for the Eastern District of Washington, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Michael C. Ormsby of the Eastern District of Washington.
Maria Elizabeth Townsend, 39, was sentenced by U.S. District Court Judge Thomas O. Rice to serve 40 months in prison to be followed by three years of supervised release, and ordered to pay $3,327,124.49 in restitution to the IRS for employment taxes due and owing plus interest for her 10 counts that she was convicted of in the indictment, a $1,000 special assessment and $8,048.49 in prosecution costs. At the conclusion of yesterday’s sentencing hearing, Judge Rice remanded Townsend to the custody of the U.S. Marshals Service.
“Holding business owners accountable who willfully evade their employment tax obligations to line their own pockets is among the Tax Division’s highest priorities,” said Acting Assistant Attorney General Ciraolo. “These offenders, who not only steal from the United States, but also take advantage of honest competitors, will be prosecuted to the fullest extent of the law, and like Ms. Townsend, will face incarceration and substantial financial penalties.”
“The sentence imposed in this case reflects the seriousness of ‘white collar’ crime and that those accused of failing to pay over payroll taxes deducted from their employee’s pay checks to the IRS will be fairly and justly held accountable for their criminal conduct,” said U.S. Attorney Ormsby. “This case is yet another example of the commitment of the U.S. Attorney’s Office to prosecute aggressively fraud cases in the Eastern District of Washington. IRS-Criminal Investigation is commended for its tireless efforts in thoroughly investigating this case.”
“Employers who do not withhold employment taxes are not only cheating the government, they are cheating their own employees and creating financial problems for them,” said Chief Richard Weber of IRS-Criminal Investigation. “Ms. Townsend chose to ignore her duty to timely file and pay employment taxes and now has to pay the consequences. Investigating employment tax crimes remains one of IRS-CI’s highest priorities, keeping the playing field level for all businesses in the United States who obey the law and pay their taxes.”
According to information disclosed in court documents and at trial, Townsend was the president and majority shareholder of Townsend Controls Inc. (TCI), a Pascoelectrical contractor. Over time, TCI grew from a small company of 15 employees to more than 150 employees by 2008. The majority of TCI’s employees were members of Local 112 of the International Brotherhood of Electrical Workers Union (Local Union 112). Townsend was responsible for TCI’s operations and finances, and was required to file the Employer’s Quarterly Federal Tax Returns (IRS Forms 941) and pay over to the IRS the company’s federal income, social security and Medicare taxes, known as Federal Insurance Contribution Act (FICA) taxes, that were withheld from the wages of TCI’s employees. For 16 tax quarters, between Oct. 1, 2005, and Sept. 30, 2009, Townsend withheld $3,361,246 in federal employment taxes from the wages of Local Union 112 TCI employees, as well as TCI’s non-union employees, and failed to pay over those taxes due and owing to the IRS. In addition to failing to pay over the taxes due and owing, Townsend also did not file any Forms W-2 for her employees for 2007 and 2008 with the Social Security Administration.
Between April 2007 and September 2009, rather than pay the accumulating employment taxes due to the IRS, Townsend authorized the disbursement of more than $31 million in TCI funds to pay vendors and other business and personal expenses. Specifically, using TCI’s funds, Townsend paid TCI’s vendors and employees; paid a dividend of approximately $200,000 to one of her partners who co-signed a business loan; disbursed $300,000 towards the payment of her joint personal income tax obligations; disbursed more than $260,000 in funds to family members; and spent $22,000 to construct a pool at her residence, $30,000 to purchase a boat, $30,000 to purchase a Cadillac Escalade, $42,982 to purchase a Jeep Commander, $14,850 to purchase a timeshare at Walt Disney World and to fund various physical improvements to TCI’s headquarters.
During court proceedings, a psychiatrist for Townsend testified that she was suffering from multiple psychiatric disorders that paralyzed her when it came to being able to pay over the quarterly employment taxes to the IRS, despite receiving quarterly notices from the IRS that taxes were due and owing. At sentencing, Judge Rice credited the testimony of the psychiatrist who testified for the government and commented that in every other aspect of her life, Townsend was functioning, which included paying the company’s state tax obligations.
Acting Assistant Attorney General Ciraolo and U.S. Attorney Ormsby commended the special agents of IRS-Criminal Investigation, who investigated the case, and Assistant U.S. Attorney George J.C. Jacobs III of the Eastern the District of Washington and Trial Attorney Lisa L. Bellamy of the Tax Division, who are prosecuting the case.