US govt seeks to recover $1.2M in FICA refund check allegedly erroneously issued

The U.S. government has filed a counterclaim against a defunct garment manufacturer to recover $1.2 million in a tax refund check that the Internal Revenue Service allegedly erroneously issued to the factory in 2009.

The U.S. government, through the U.S. Department of Justice’s Tax Division, asserted that Concorde Garment Manufacturing Corp. is indebted to the government in the amount of $1,181,265.71 plus interest as provided by law from the date of the erroneous refund on Dec. 28, 2009.

In the U.S. government’s counterclaim against Concorde filed on Saturday, DOJ asked the U.S. District Court for the NMI to also award the U.S. its court costs.

DOJ said the refund check was erroneous, because, among other things, the claim for refund was without legal basis and should not have been allowed.

The U.S., through IRS, collected Federal Insurance Contributions Act (FICA) tax in the CNMI on employers and “wages” of employees for “employment.”

DOJ said that, in 2008, Concorde filed its refund claim for FICA taxes for the quarters ending March 31, 2006, June 30, 2006, Sept. 30, 2006, and Dec. 31, 2006.

DOJ said in the claims for refund, Concorde stated “employer erroneously paid payroll taxes for some of its employees that are exempt from payroll taxes” because its temporary contract workers who worked lawfully in the CNMI were not subject to FICA taxes and therefore Concorde was entitled to a refund.”

Concorde added that “total amount of improper payroll taxes paid equals $964,967.58.”

DOJ said IRS then erroneously issued to Concorde a refund check in the amount of $1,181, 265.71 (which included interest).

In July 2011, Concorde and numerous Chinese nationals formerly employed by Concorde and its affiliated companies, filed a lawsuit against the U.S. government to recover wrongfully assessed FICA taxes that were erroneously paid to the U.S. for tax years 2004 to 2007.

The plaintiffs, through counsels Steven P. Pixley and Colin M. Thompson, said that, on Dec. 15, 2008, Concorde received $1,157,359.71 representing a partial refund of FICA taxes.

Pixley and Thompson said the U.S. commenced collection proceedings against Concorde to recover this refund after April 15, 2010, including the implementation of illegal levy proceedings.

“Notwithstanding the partial FICA refund payment, the Defendant (U.S.) has not issued a formal denial relating to the plaintiffs’ refund claims,” the lawyers said.

The lawyers asserted that the imposition of FICA tax liability on employees and employers in the CNMI is without legal authority and that the FICA tax collected from plaintiffs should be refunded.

Last year, 12 other former garment factories and Tinian Dynasty Hotel & Casino also sued the U.S. government to recover allegedly wrongfully assessed Social Security and Medicare taxes (FICA) that were erroneously paid between 2002 to 2007.