The Interplay of Restitution as Condition of Supervised Release and § 6201(a)(4) Restitution Based Assessment (1/19/20)

For many (perhaps most) federal crimes (certainly those in Title 18), the court "may order, in addition to or, in the case of a misdemeanor, in lieu of any other penalty authorized by law, that the defendant make restitution to any victim of such offense, or if the victim is deceased, to the victim’s estate."  18 USC 3663(a)(1)(A).  Restitution is mandatory in some cases, including tax cases with counts of conviction under Title 18 (such as conspiracy).  § 3663A. In tax crimes cases, the IRS is considered a victim for whom restitution may be imposed.  However, this mandatory or even permissive restitution does not apply to the Title 26 tax crimes.  Accordingly, for tax crimes, restitution may be imposed only if (i) "agreed to by the parties in a plea agreement" (18 USC 3663(a)(3)) or as a condition for supervised release or probation (18 USC. §§ 3563(b), 3583(d)).

DOJ CTM 44.00 Restitution in Criminal Tax Cases (Last Edited August 2018), here, has a good bullet-point summary of key restitution points in tax cases (some redundant from the opening paragraph to this blog):

• Restitution is statutory; district courts have no inherent power to order restitution absent statutory authorization.
• Restitution is limited to the actual loss caused by the count(s) of conviction, unless the defendant agrees to pay more.
• For Title 18 tax offenses, restitution as an independent part of the sentence is mandatory pursuant to 18 U.S.C. § 3663A.
• For Title 26 tax offenses, restitution may be ordered as an independent part of the sentence if the defendant agrees to pay restitution in a plea agreement (18 U.S.C. § 3663(a)(3)).
• For Title 26 cases in which the defendant has not agreed to pay restitution, restitution may be ordered as a condition of supervised release or probation (18 U.S.C. §§ 3563(b), 3583(d)).
• Prosecutors should seek prejudgment Title 26 interest in restitution in order to fully compensate the IRS.
• Use the Tax Division’s form plea language whenever possible (available at § 44.09, infra) 

CTM 44.01 Background provides:

Accordingly, in tax cases, the applicable statutes provide the following: (1) for tax offenses prosecuted under Title 18, restitution is mandatory and is ordered as an independent part of the sentence; and (2) for tax offenses prosecuted under Title 26, restitution is discretionary and is ordered as a condition of supervised release, but the defendant can agree to (and plea agreements should provide for) restitution ordered as an independent part of the sentence.  

Section 209 of the Mandatory Victims Restitution Act mandates that when negotiating plea agreements, prosecutors must give consideration “to  requesting that the defendant provide full restitution to all victims of all charges contained in the indictment or information, without regard to the counts to which the defendant actually plead[s].” Pub. L. No. 104-132 § 209; 18 U.S.C. § 3551 note; see also Attorney General Guidelines for Victim and Witness Assistance, Art. V(D) (May 2012); Principles of Federal Prosecution, USAM §§ 9-16.320. To assist prosecutors with this statutory and Department requirement, standard language for the restitution portion of plea agreements in tax cases is included in § 44.09, infra. 

Readers of this blog know that § 6201(a)(4)(A), here, requires the IRS to assess the amount of resitutition "for failure to pay any tax imposed under this title in the same manner as if such amount were such tax."

I focus this blog on the interplay of restitution as a condition of supervised release in Title 26 criminal cases and § 6201(a)(4)(A)'s mandate for assessment.  The impetus for this blog is PMTA 2018-19 (8/23/18), here.  I find that, although that PMTA was in my research "pile," I had not focused on it before.  The PMTA concludes bottom-line that

Where a restitution-based assessment is based upon restitution ordered solely as a condition of supervised release or probation, reducing the assessment to judgment will not extend collectability beyond the termination of supervised release or probation. Accordingly, the Service should not refer a restitution-based assessment to the Department of Justice for the commencement of a collection enforcement suit where the restitution was ordered solely as a condition of supervised release or probation.

Readers can read the PMTA for the detail, but I step through the discussion in the Background, Law and Analysis that I focus on here.

1.  Historically, the IRS has had the ability to refer unpaid tax assessments to DOJ Tax to institute collection suits.  This often is done toward the end of the assessment collection period in order for DOJ Tax to obtain a judgment which can then be enforced as a judgment (thereby effectively extending the collection period for the assessment).  See § 6502 (flush language): "If a timely proceeding in court for the collection of a tax is commenced, the period during which such tax may be collected by levy shall be extended ... "

2.  Restitution (including for tax) is judicially enforceable "as a judgment without the need to refer the matter to the Department of Justice."  The period that the restitution may be enforced is 20 years.  Thus, "Referral to the Department of Justice of an amount of restitution assessed or assessable under section 6201(a)(4) would appear to be redundant as a practical matter because the Department of Justice already has the legal authority to judicially collect restitution under Titles 18 and 28."

3.  But, as restitution alone, the restitution for taxes cannot be enforced through the IRS's standard tax collection tools (such as lien and levy).  That is one of the reasons for § 6201(a)(4)(A) requiring the IRS to assess tax restitution (and precluding the taxpayer from contesting tax restitution so assessed).

4.  Restitution solely as a condition of supervised release or probation may only be enforced during the period of supervised release--that is, between the time the supervised release or probation period commences and the supervised release or probation period ends).  Let's use an example.  Assume the defendant in a Title 26 tax conviction is sentenced to 24 months and 3 years of supervised release following the period of incarceration (which might be reduced for good time credit).  The restitution may be enforced only during the period of the supervised release.  Since § 6201(a)(4)(A) assessment authority derives from restitution, its enforcement period has the same limitations--that is, that restitution based assessment (RBA) should be made only at the time of the supervisory release and should be abated (with liens released) at the end of the supervisory period.  For this reason, the PMTA summarizes these points (pp. 2-3):

(1) The Service can only make an assessment of an amount of restitution once the condition of restitution has begun. The assessment of an amount of restitution will have to wait until the taxpayer is released from prison for those [*3] cases where restitution is ordered solely as a condition of supervised release, or until the taxpayer begins his or her term of probation where restitution is ordered solely as a condition of probation.
(2) The Service can only administratively collect an amount of restitution ordered solely as a condition of either supervised release or probation during the actual period of either supervised release or probation, regardless of the general 10-year collection period of section 6502.

JAT Comments:

1.  This strikes me as odd.  I understand how the conclusion is reached.  As a matter  of statutory interpretation it is probably correct. But still odd because it leaves hanging the tax liability if not collected otherwise (including by use of IRS collection tools based on the RBA during the supervised release period).

2.  If the tax is not collected in that "window" what does the IRS do?  The taxpayer still owes the tax (at least if the statute of limitations on assessment is open which it usually is because restitution almost certainly relates to fraud).  I suppose that in cases requiring a notice of deficiency, the IRS could issue a notice of deficiency to make a duplicate assessment.  Indeed, it might want to do that anyway if it thinks the taxpayer owes more than the amount of restitution.

3.  If the IRS did that before the period of supervised release and either the taxpayer did not petition for redetermination or the Tax Court case went to decision, the assessment would seem to have to be a duplicate assessment for at least some of the restitution tax in the RBA under § 6201(a)(4)(A) to be made at the beginning of the supervisory release period and released at the end of that period.  I think the possibility of duplicate assessments (a regular IRS assessment and an RBA assessment for the same tax liability) in analogous circumstances has been dealt with (as I recall permitting both assessments but only one collection with credits for payments to both assessments) but could not quickly put my hands on the authority; if I do later (either on my own or through comments or messages from  readers), I will supplement this blog entry.)

Addendum 1/19/20 11:00pm:  supplementing paragraph 3 immediately above.  I found the discussion of duplicate assessments I ruminated about in paragraph 3.  The notice of deficiency after an RBA must include the tax that is in the RBA and the resulting deficiency determined in a Tax Court proceeding must include the amount in the RBA.  Thus, when the resulting regular tax assessment is made, the regular tax assessment will include an amount duplicative of the amount in the RBA.  But the IRS can only collect once.  See Restitution Permits Double Assessments But Only One Collection (Federal Tax Crimes Blog 5/21/17), here; see also Restitution Based Assessment--Some Issues of Interest (Federal Tax Crimes Blog 8/3/19; 8/7/19), here.  So, in order to deal with the problem of RBA for restitution imposed as a condition of supervised release, the IRS can proceed through regular deficiency procedures, make the regular assessment and have the IRS tools of collection available both during the regular period for collecting assessments and during any periodof extension by reducing those assessments to judgment.