Key points from the article are:
1. It is very important for defense counsel to focus on the tax restitution award because the restitution amount will be assess and cannot be contested.
2. Restitution based assessment ("RBA") is relatively straightforward as to an individual with respect to his personal tax liability (such as 1040). However, complexities are encountered where tax restitution is imposed with respect to a third party's tax liability (such as restitution from a convicted return preparer for his clients' liabilities) and upon more than one person is subject to restitution for the same tax. The complexities and the difficulties encountered make it important for the defense attorney to be prepared to exploit these complexities and difficulties in seeking as low restitution as possible. Where the defendant is not otherwise personally responsible for the taxes, eliminating them from the restitution calculation has a major benefit for the defendant. I offer this from the article primarily because most of the comments are by Judge Marvin Garbis, a federal district judge in Baltimore and former DOJ Tax attorney.
According to Garbis, the defense's job is "to make the amount determination as complicated as possible." The goal is to encourage the sentencing judge to leave the specific calculation of the tax loss to the civil tax collection process, he said, adding that the tax loss range for calculating the sentencing guideline range under the U.S. Sentencing Commission Guidelines Manual is distinct from the exact amount of the tax loss for restitution or collection purposes.
Garbis agreed with Agostino on the difficulty faced by convicted tax return preparers whose former clients are no longer willing to cooperate. He added that the tax return preparer restitution orders become complicated because of the need to account for payments by the underlying taxpayers and the allocation of payments between different parts of the debt. Excessive complexity justifies skipping restitution, he said.
There is also the question of benefit accruing to the underlying taxpayers when the convicted tax return preparer ends up paying the understatement through the restitution order, said Garbis, who also pointed to the issue of any refunds the underlying taxpayers may have received or had withheld in the interim. "I say it's totally unworkable," he added.
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Restitution orders against a party other than the taxpayer arise in other contexts, Ciraolo said. She pointed to the restitution order that was part of the deferred prosecution agreement reached between the U.S. government and private Swiss bank Julius Baer & Co. Ltd. (Prior coverage .)One issue that comes to mind is whether the underlying taxpayer has some type of income -- probably cancellation of indebtedness -- from the satisfaction of his or her tax liabilities by the convicted defendant paying the RBA. My own limited anecdotal experience is that the IRS is pretty much totally uninterested in pursuing that issue even when the taxpayers' liabilities paid as restitution by a convicted defendant are individually quite large (such as restitution agreed to by a tax shelter promoter).
3. Any tax the IRS believes to be due from the defendant with respect to his own tax liability that is not included in the restitution order can be assessed under normal assessment procedures, including the deficiency procedures for the types of tax requiring a notice of deficiency.
4. The article refers to the IRM 25.26.1 Criminal Restitution and Restitution-Based Assessments, here, which practitioners should review, particularly in the case of restitution for a third party's liabilities. Some key points mentioned in the IRM are: (i) the restitution and the RBA represent separate liabilities, although the underlying amount can be collected only once; and (ii) the RBA is subject to the failure to pay penalty after assessment under Section 6651(a)(3) and to interest on the assessment under Section 6601.
My prior principal blog entries on this subject are (in reverse chronological order):
- Can Restitution Be Reduced by Payments on the Tax Liability Subject to Restitution? (Federal Tax Crimes Blog 10/26/13), here.
- More on the Relationship Between Tax Liability and Tax Restitution Assessed as a Tax (Federal Tax Crimes Blog 10/25/13), here;
- What Can Be Done If Tax Restitution Exceeds the Tax Due (Federal Tax Crimes Blog 9/2/13); here;
- Tax Restitution and Doubt As to Amount (Federal Tax Crimes Blog 7/10/13), here;
- New Statute for Civil Effect of Restitution in Tax Cases (Federal Tax Crimes Blog 2/11/11), here.