Brookneal Lumber Mill Owner Pleads Guilty to Tax Fraud

A Brookneal, Virginia lumber mill owner who failed to pay employee taxes to the Internal Revenue Service pleaded guilty last week to one count of willful failure to collect or pay over taxes.

According to court documents, James Edward Adams, 65, took over the day-to-day operation of his family’s lumber mill, Adams Lumber Company, in 2011. In 2012, Adams Lumber was referred to the IRS for failure to pay payroll taxes and a trust fund recovery penalty was imposed.

From 2012 to 2022, Adams incorporated additional lumber and flooring entities, including Adams Wood, Halifax Forest, Halifax Flooring Products, Halifax Lumber Products, and Timber Trucking (collectively, the “Companies”), and exercised control over the Companies’ business and financial affairs.

Even though Adams withheld employment and trust fund taxes from his employees, he failed to pay over the vast majority of these monies to the IRS for tax years 2014 through 2021, resulting in an outstanding balance of $598,800.

The Federal Insurance Contribution Act (“FICA”) requires employers to withhold Medicare and Social Security taxes from their employees’ wages while the Internal Revenue Code requires employers to withhold federal income taxes from their employees’ wages.  Employers are required to hold these taxes (“trust fund taxes”) in trust for the United States and to pay them over to the IRS on behalf of their employees.

In addition to trust fund taxes, employers are separately required to make contributions under FICA in amounts matching the amounts withheld from their employees’ pay for those purposes.  These taxes paid by the employer, combined with the trust fund taxes withheld from the employees, are collectively known as “employment taxes.”

At sentencing, Adams faces up to five years in prison and up to $250,000 in fines.

United States Attorney Christopher R. Kavanaugh made the announcement today.

The Internal Revenue Service investigated the case.

Assistant U.S. Attorneys Charlene R. Day and Jason Scheff are prosecuting the case.

Source: U.S. Attorney’s Office, Western District of Virginia