Ignorance Excuses Tax Lapses

The Illinois Review Board recommends that charges of dishonesty be dismissed

The Administrator charged Respondent with engaging in dishonesty based upon his treatment of a portion of his employees’ wages as non-taxable expenses, which resulted in his tax returns and wage statements underreporting employee compensation.

Following a hearing, the Hearing Board found that Respondent had committed some of the charged misconduct, and recommended that he be suspended from the practice of law for 60 days, with the suspension stayed in its entirety by a one-year period of probation.

The story on failure to pay taxes on wages

Respondent testified that he did not intend to evade his obligation to pay taxes on his employees’ wages, and that he had little understanding of the specific types of withholding required from employees’ wages. He testified that he knew that, as an employer, he had to pay some amount to the state and federal governments for a portion of the withholding from an employee’s paycheck, and understood that he had some responsibility for payments that were not coming out of his employees’ pay, but did not have a plan for how he was going to pay his taxes on the non-payroll amounts that were paid to Ms. Smith, Ms. Buhle, and Ms. Styx. He testified that he assumed that, at the end of the year, Ms. Heap and Mr. Zabel “would gather it up and figure it out,” but that he did not “actually think about it.”

The Administrator sought a two-year suspension but got bupkis

Other than the statements in Respondent’s answer, the Hearing Board identified no other evidence to show that Respondent knew that the tax and wage documents contained false information, or that he understood the accounting and tax implications of his decisions. To the contrary, the evidence established that Respondent did not know how his decision to accede to Ms. Smith’s request affected his pay records, and did not know that the records prepared by Ms. Heap over-stated expense reimbursement and understated his employees’ wages. The evidence showed that Respondent had no involvement in his firm’s record-keeping or in the handling of his firm’s finances, which is how he has conducted his practice since 1985. The evidence showed that he did not know the logistics of how Ms. Heap paid employees, did not have access to her records, and never saw an employer return or wage statement filed on behalf of his office. While that may have been an irresponsible and foolhardy way to run his practice, it does not, in and of itself, establish the scienter necessary to support a dishonesty finding.

Consequently, the Hearing Board’s findings to the contrary, which were based upon the statements in Respondent’s answers that it incorrectly deemed to be judicial admissions, are against the manifest weight of the evidence, because they are not supported by the evidence of record in this matter.

In reaching this conclusion, however, we in no way condone Respondent’s actions, particularly his poor communication with his bookkeeper, carelessness regarding how he paid his employees, and failure to personally review and ensure the accuracy of his tax documents. His choices exhibit exceedingly poor judgment. But as our Court has noted, a lack of good judgment does not necessarily constitute ethical misconduct. See In re Winthrop, 219 Ill. 2d 526, 546, 552, 554, 848 N.E.2d 961 (2006).

(Mike Frisch)