Former President of Townsend Controls, Inc. Sentenced to 40 Months Prison and 3 Years Court Supervision for Failing to Pay $3.3 Million in Payroll Taxes
Spokane – Michael C. Ormsby, United States Attorney for the Eastern District of Washington, announced that Maria Elizabeth Townsend, age 39, of Burbank, Washington, was sentenced yesterday following conviction after a five-day jury trial in February 2015 of ten counts of failing to pay over employment taxes to the IRS. United States District Court Judge Thomas O. Rice sentenced Maria Elizabeth Townsend to a 40-month term of imprisonment and a 3-year term of court supervision following release from federal prison. The Court also ordered Mrs. Townsend to pay $3,327,124 in restitution to the IRS and $8,048 in costs of prosecution to the United States, and a $1,000 special penalty assessment. Mrs. Townsend was immediately taken into custody by the U.S. Marshals following sentencing.
According to information disclosed during court proceedings, Townsend was the President and majority shareholder of Townsend Controls, Inc. (TCI), a Pasco, Washington electrical contractor that employed over a hundred employees. The majority of TCI’s employees were members of Local 112 of the International Brotherhood of Electrical Workers (Local 112). For sixteen quarters between 2005 and 2009, Townsend withheld $3,361,246 in employment taxes from the wages of the members of Local Union 112 that TCI employed as well as its other-non-union employees but failed to pay over those taxes to the IRS. Between April 2007 and September 2009, Townsend authorized the disbursement of over $31 million in TCI funds to pay vendors and for other purposes, instead of the IRS for payroll taxes. According to information disclosed during court proceedings, instead of paying the IRS, Townsend paid TCI’s vendors and employees, paid a large (approximately $200,000) dividend to one of her partners, disbursed $300,000 toward 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, and $42,982 to purchase a Jeep Commander.
Townsend filed Forms 941 (Quarterly Employment Tax Returns) with the IRS and paid all the employment taxes that were due from the second quarter of 2002 through the third quarter of 2004. Then, Townsend stopped filing Forms 941 from the fourth quarter of 2004 through the third quarter of 2005. Townsend, however, made periodic deposits of payroll taxes during the fourth quarter of 2004 through the second quarter of 2005. An IRS revenue officer visited TCI’s Pasco, Washington office in December 2005, and met with Townsend to secure the delinquent Forms 941 and the payroll taxes owed for the third quarter of 2005. Within a few days of that visit, the IRS received the delinquent Forms 941 for the fourth quarter of 2004 through the third quarter of 2005, signed by Townsend. The IRS also received full payment for the payroll taxes that were due as reported on the Form 941 for the third quarter of 2005. Townsend did not remit any periodic deposits of payroll taxes for the ten consecutive calendar quarters beginning April 1, 2007, through September 30, 2009, even though she continued to preparer TCI’s weekly payroll using accounting software that generated reports showing the amount of taxes withheld from each employee’s paycheck as well as the total amount of taxes withheld from all the employees. She also did not pay over payroll taxes for the quarters ended December 31, 2005, March 31, 2006, June 30, 2006, September 30, 2006, December 31, 2006 and March 31, 2007. In order to conceal the non-payment of employment taxes from the IRS, Townsend did not timely file TCI’s Forms 941 with the IRS, with the exception of the Form 941 for the tax period ended September 30, 2009. An IRS revenue officer ultimately secured the delinquent quarterly employment tax returns in December 2010 after TCI’s dissolution.
Townsend claimed she was suffering from multiple psychiatric disorders, including Bipolar I Disorder and Obsessive Compulsive Disorder that paralyzed her when it came to being able to paying over the payroll taxes. Townsend also claimed TCI’s electricians were independent contractors, not employees, even though she withheld $3.3 million in taxes from their wages.
Michael C. Ormsby, U.S. Attorney for the Eastern District of Washington, said, “The sentence imposed in this case reflects the seriousness of ‘white collar’ crime and that those accused of failing to pay over payroll taxes to the IRS will be fairly and justly held accountable for their criminal conduct. Ormsby went on to say this is one of the biggest cases of this kind pending in the country and is representative of an important area of emphasis by both Internal Revenue Service and the Department of Justice. This case is yet another example of the commitment of the United States Attorney’s Office to prosecute aggressively fraud cases in the Eastern District of Washington. “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 Internal Revenue Service Criminal Investigation Division is commended for its tireless efforts in thoroughly investigating this case.” IRS Criminal Investigation Special Agent-in-Charge Teri Alexander stated, “Maria Townsend essentially stole not only from the government but from her own employees. IRS Criminal Investigation realizes the detrimental consequences of employment tax evasion. It results in the loss of tax revenue to the United States government and the loss of future Social Security or Medicare benefits for the employees. I want to thank the U.S. Attorney's Office and the Department of Justice, Tax Division, for its dedicated leadership and professionalism in pursuit of justice served today.”
The investigation was conducted by the IRS Criminal Investigation Division. The case was prosecuted by George J.C. Jacobs, III, Assistant United States Attorney for the Eastern District of Washington, and Lisa L. Bellamy, Trial Attorney, U.S. Department of Justice, Tax Division, Criminal Enforcement Section.