Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_03-cv-01531/USCOURTS-caed-2_03-cv-01531-1/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7402 IRS: Petition to Enforce IRS Summons

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

SACRAMENTO DIVISION

UNITED STATES OF AMERICA, )

)

Plaintiff, )

)

v. ) Civil No. 03-1531 DFL GGH

)

JAMES O. MOLEN & SANDRA L. MOLEN, )

d/b/a TOUCH OF CLASS FLORIST, )

)

Defendants. )

ORDER OF PERMANENT INJUNCTION

Upon motion by plaintiff, the United States of America, the court makes the following

findings of fact and conclusions of law and enters this permanent injunction:

Findings of Fact

Based on the evidence and the parties’ arguments, the court finds as follows:

1. Defendants James O. Molen and Sandra L. Molen, doing business as Touch of Class

Florist, routinely employ several people and pay them wages and other compensation. 

2. As employers, the Molens must file quarterly IRS Form 941 federal employment tax

returns reporting employee wages and their employment tax liability, file yearly IRS Form 940

federal unemployment tax returns reporting unemployment tax liability, and must withhold

income and FICA (Federal Income Contribution Act) taxes from employees’ wages and pay

those taxes to the IRS.

3. The Molens are failing to report any liability for federal FICA taxes on their quarterly

IRS Forms 941. The Molens are failing to withhold and pay over FICA taxes owed. The Molens

are not fully reporting or paying over their unemployment tax liabilities.

4. The Molens have submitted false amended Forms 941 for all four quarters of 2004 and

2005, incorrectly reporting that they have paid no wages subject to social security or medicare

taxes. 

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 The $142,458.96 includes the Molens’ Form 941 liability of $133,224.95 for the years 2000 through 1

2004, including interest and penalties accruing through May 8, 2006, see IRS Transcripts (Doc. 97, 4th Delao

Decl., Ex. 4), the Molens’ Form 941 liability of $3,720.89 for 2005 and the first two quarters of 2006,

including interest and penalties accruing through September 4, 2006, see IRS Transcripts (Doc. 111,

Supplemental Br. in Supp. of Summ. J., Ex. 3), and the Molens’ Form 940 liability of $5,513.12 for 2000

through 2005, including interest and penalties accruing through September 4, 2006, see IRS Transcripts

(Docs. 97 and 111). The total liability includes the $30,698.03 erroneous refund the IRS issued in 2000 after

the Molens filed false amended IRS Forms 941 for the years 1997 through 1999. 

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5. The Molens are not submitting their required IRS Forms 940 and 941 by the required

deadlines. The Molens are not making timely Form 941 tax deposits.

6. The Molens provide their employees false IRS Forms W-2 and fail to report social

security and Medicare wages and taxes. 

7. The Molens’ base their refusal to meet these legal obligations on the patently

frivolous arguments that: (1) the compensation they pay employees do not constitute wages; and

(2) federal courts cannot enforce federal tax laws outside of the District of Columbia. Both

arguments have been rejected by numerous courts. See, e.g., United States v. Cooper, 170 F.3d

691, 691 (7th Cir. 1999) (finding “no longer merely frivolous” but “frivolous squared” arguments

by tax protesters that “only residents of Washington, D.C., and other federal enclaves are subject

to the federal tax laws because they alone are citizens of the United States and that wages are not

income because they are compensation for working rather than a pure economic rent”); United

States v. Collins, 920 F.2d 619, 629 (10th Cir. 199) (finding “silly” and “frivolous” defendant’s

argument that the United States District Court for the Western District of Oklahoma did not have

jurisdiction to enforce federal tax laws and that federal jurisdiction only extended to the District

of Columbia, United States territorial possessions, and ceded territories).

8. The Molens have accrued a total outstanding employment tax liability of

$142,458.96.1

9. The “International Bill of Exchange” that the Molens submitted to the IRS in July

2005 in purported payment of taxes does not constitute valid legal tender and does not decrease

the Molens’ tax liability as they claimed.

Conclusions of Law

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The court finds that the Molens are interfering with the administration of the internal

revenue laws. They are currently violating numerous internal revenue laws by: a) failing to

withhold Social Security and Medicare taxes, which together constitute FICA taxes, from their

employees’ wages as required by I.R.C. § 3102, b) failing to pay the employer’s share of FICA

taxes as required by I.R.C. § 3111, c) failing to fully pay FUTA (Federal Unemployment Tax

Act) taxes due pursuant to I.R.C. § 3301, d) failing to file accurate IRS Forms 941 and 940 as

required by I.R.C. § 6011, e) and failing to file accurate W-2 wage and tax information

statements for each employee and to issue each employee a copy of his or her statement as

required by I.R.C. § 6041. They have violated I.R.C. § 3402 in past years by failing to withhold

income taxes from employees’ wages. The United States has suffered harm from the Molens’

continuously accruing tax debt, and is likely to suffer irreparable harm if the Molens are not

enjoined now. Further, the Molens’ employees are also harmed and placed at risk by the Molens’

failures to comply with the tax laws and their legal obligations as employers. Accordingly, the

court finds that a permanent injunction under I.R.C. § 7402(a) is necessary and appropriate for

the enforcement of the internal revenue laws. The Molens’ misconduct also harms their

employees.

Order

A. The court ORDERS that the Molens (individually and doing business as Touch of

Class Florist or under any other business name or using any other entity) and their

representatives, agents, servants, employees, attorneys, and anyone in active concert or

participation with them, are enjoined from failing to timely withhold and pay over to the IRS all

FICA taxes required by law, including taxes for social security and medicare, pursuant to I.R.C.

§§ 3102 and 3111.

B. The court ORDERS that the Molens (individually and doing business as Touch of

Class Florist or under any other business name or using any other entity) and their

representatives, agents, servants, employees, attorneys, and anyone in active concert or

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participation with them, are enjoined from failing to timely pay to the IRS all FUTA taxes

required by law, pursuant to I.R.C. § 3301.

C. The court ORDERS that the Molens (individually and doing business as Touch of

Class Florist or under any other business name or using any other entity) and their

representatives, agents, servants, employees, attorneys, and anyone in active concert or

participation with them, are enjoined from failing to file accurate and timely IRS Forms 941 and

940 returns reporting applicable social security and medicare wages and taxes, as required by

law, pursuant to I.R.C. § 6011.

D. The court ORDERS that the Molens (individually and doing business as Touch of

Class Florist or under any other business name or using any other entity) and their

representatives, agents, servants, employees, attorneys, and anyone in active concert or

participation with them, are enjoined from failing to file accurate Form W-2 wage and tax

information statements for each employee, including accurate social security and medicare

wages, and to issue each employee an accurate copy of his or her statement as required by I.R.C.

§ 6041. 

E. The court ORDERS that the Molens file timely federal employment and

unemployment tax returns, IRS Forms 940 and 941, with the IRS and, for a period of two years, 

send copies of such returns to counsel for the United States at the same time that they file the

originals.

F. The court ORDERS that, along with their quarterly Forms 941, the Molens send an

updated list of current employees, their addresses, and their social security numbers to the IRS

office at 1395 Ridgewood Drive, Suite 200, Chico, California 95973. If there is no change in the

identity of their employees in any quarter, the Molens shall submit a statement so stating. 

G. The court ORDERS that the Molens provide all current and future employees, and

anyone else who provides service for compensation at Touch of Class Florist, IRS Forms W-4 to

elect the amount of income and FICA taxes withheld from their wages. The Molens are

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ORDERED to comply with any proper elections made on the IRS Forms W-4 when withholding

income and FICA tax from employee wages or compensation.

H. The court ORDERS that, effective immediately, within five days of each Touch of

Class payroll the Molens make all required employment tax deposits with their bank.

I. The court ORDERS that the Molens comply with the IRS summons issued to them on

June 27, 2005, and otherwise provide all requested documents and testimony regarding their

current income, assets, and liabilities for the IRS to prepare a collection information statement. 

The Molens are specifically ORDERED to provide documents and testimony regarding James

Orbin Molen LTD., James Orbin Molen Limited Partnership, or any other entity in which they

have any interest. 

J. The Molens are ORDERED to meet with IRS revenue officer Charles Delao, or

another designated representative of the IRS, within thirty (30) days of this order to produce the

documents and testimony described above. If the Molens are unable to travel to the IRS office in

Chico, California, they must appear and make their records available at another convenient

location.

K. The court retains jurisdiction over defendants and this action for the purpose of

enforcing this Permanent Injunction. 

L. This injunction shall remain in effect for a period of five years. The five-year period

is without prejudice to the Government’s right to move to extend the period or to seek another

injunction.

IT IS SO ORDERED.

Dated: 10/11/2006

DAVID F. LEVI

United States District Judge

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