More on the Relationship Between Tax Liability and Tax Restitution Assessed as a Tax (10/25/13)

Tax Notes Today had a new IRS publication, a Program Manager Technical Assistance, today on the issue of restitution assessed under Section 6201(a)(4)(A), here.  That section as I have noted before (see blogs collected below) authorizes the IRS to assess as a tax the amount rewarded as restitution in a criminal tax case.  This new PMTA 2013-002 (1/13/13), reproduced at 2013 TNT 206-17 addresses the effect of an NOL carryback to a tax year for which restitution has been assessed.  The conclusion the PMTA reaches is:

NOL carrybacks or carryovers to, or other deductions in, a tax period for which an amount of restitution was ordered and assessed pursuant to section 6201(a)(4)(A) reduce a taxpayer's civil tax liability for that tax period. Such deductions, however, do not in any way affect the Service's assessment or collection of the amount of restitution itself. Regardless of the amount of civil tax liability for that period, the Service must collect the entire amount ordered as restitution under section 6201(a)(4)(A).

The reasoning is, in steps:

1.  Section 6201(a)(4)(A) provides in material part (emphasis supplied):

The Secretary shall assess and collect the amount of restitution under an order pursuant to section 3556 of title 18, United States Code, for failure to pay any tax imposed under this title in the same manner as if such amount were such tax.

2.  "Criminal restitution and civil tax liability are separate and distinct."  This may be a difficult proposition to grasp immediately, so I quote; the entire paragraph backing up that opening sentence:

Criminal restitution and civil tax liability are separate and distinct. Section 6201(a)(4)(A) recognizes the distinction in requiring the Secretary to collect the amount of restitution ordered pursuant to 18 U.S.C. § 3556 in the same manner "as if such amount were such tax." The distinction between criminal restitution and tax liability is perhaps most starkly presented when a return preparer convicted of aiding and assisting in the preparation of the false returns, in violation of 26 U.S.C. § 7206(2), is ordered to pay restitution calculated with reference of the tax owed by his clients, a tax for which the return preparer is not civilly liable. The distinction is further illustrated by the fact that the amount of restitution ordered may differ depending on how the criminal case is resolved. Restitution determined under the Mandatory Victim Restitution Act of 1996, Pub. L. No.1 04-132, § 204(a), 111 Stat. 1227 (1996) (codified as amended at 18 U.S.C. § 3663(A)), applies to certain tax cases and directs that the amount of restitution is generally the amount of property taken from the victim (an actual loss to the government in a tax case) under 18 U.S.C. § 3663A(b)(1)(A) and (B), whereas restitution ordered pursuant to a plea agreement may be "to the extent agreed to by the parties in a plea agreement" for any amount greater or less than the loss attributable to the criminal offense. 18 U.S.C. § 3663(a)(3). See, e.g., Sloan, 505 F.3d at 695; Cooper, 498 F.3d at 1158. Restitution ordered in a criminal case may vary depending on how the case was ultimately resolved,independent -- at least in part -- of the defendant's actual tax liability for the tax period at issue.

This seems to be the gravamen of the PMTA's conclusion.  The two are just different.  The restitution based assessment may or may not be the tax due for the period, although, at least in my mind, when restitution is assessed it should be the unpaid tax for the period (setting aside the effects of any carryovers).

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

Can Restitution Be Reduced by Payments on the Tax Liability Subject to Restitution? (10/26/13)

I wrote yesterday on restitution.  See More on the Relationship Between Tax Liability and Tax Restitution Assessed as a Tax (Federal Tax Crimes Blog 10/25/13), here.  Today I carry that discussion a little farther based on a recent case.  I ask this question.  What if a preparer is ordered to pay restitution for the tax due for returns the perparer prepared and the taxpayers thereafter pay some or all of their liabilities?  Q&A 10 of CC-2011-018 (8/26/11), here, answers a different question but it offers reasoning for developing the issue.  Q&A 10 is:

Question 10: If the amount of criminal restitution ordered and the subsequent restitution-based assessment is determined to be excessive by a subsequent examination, can the Service abate any portion of the assessment? 

Answer 10: If the Service determines, pursuant to examination, that the restitution amount ordered is excessive, the Service should contact the Justice Department's Tax Division or the proper U.S. Attorney's Office and request a modification of the restitution order. When the restitution order is amended, the Service may abate the related assessment under section 6404 to bring it in line with the amount in the amended order. Although the taxpayer is not precluded from seeking abatement under section 6404 before the restitution order is modified (notwithstanding the restrictions of section 6404(b)), a valid and meritorious section 6404 request by the taxpayer still requires the taxpayer or the Service (through the Justice Department) to seek modification of the restitution order in order to reduce the amount because the Service is bound by the actual terms of the restitution order in making an assessment under section 6201(a)(4)(A).

Q&A 10 is then modified by CC-2013-012 (7/31/13), here, which reasons:

The treatment of a restitution-based assessment as separate and distinct from an actual determination of tax liability for the same tax period requires clarification and revision of Question and Answer 10 in Chief Counsel Notice CC-2011-018, The Assessment and Collection of Criminal Restitution. The answer to question 10 in that document addressed the situation where restitution ordered "is excessive" compared to the amount of tax liability determined by civil examination for the same tax periods. By using the term "excessive," Question 10 erroneously assumed that the amount of restitution is directly related to, comparable with, or an aspect of tax liability as determined by the Service's examination. On the other hand, Question and Answer 10 properly concluded that the Service may only abate a restitution-based assessment to bring it in line with an amended restitution order from the sentencing court. Regardless of whether the civil examination for the same tax period covered by the restitution order results in deficiency determination greater or lesser than the amount of restitution, the Service shall assess and collect the full amount of restitution ordered.

TIGTA Report on Criminal Restitution Assessment Procedures (6/17/21)

TIGTA has issued a report titled Criminal Restitution Assessment Procedures Need Improvement (TIGTA Report No. 2021-30-033 6/7/21), here.  For those interested in criminal restitution for taxes, this is excellent reading, discussing both the law related to the restitution procedures for taxes and the IRS’s procedural implementation.

The Report Highlights are:

Why TIGTA Did This Audit 

The Firearms Excise Tax Improvement Act of 2010 authorized the IRS to assess criminal restitution ordered after August 16, 2010, so that the IRS could collect the amount as if it were a tax. Prior to this change in the law, the IRS accepted payments of restitution but could not assess the amount of restitution ordered or use its administrative collection tools to collect the restitution. Only the Department of Justice could collect the amount of restitution.

This audit was initiated to determine if defendants convicted of tax-related crimes are held responsible for the payments of the associated taxes. 

Impact on Taxpayers 

The ultimate goal of every criminal prosecution is not merely to obtain a conviction but also to obtain a sentence sufficient to discourage similar criminal violations by other taxpayers. It is important that the IRS have effective procedures to ensure that the defendants are held responsible for their crimes and the maximum amount of criminal restitution is collected. 

What TIGTA Found

Restitution Based Assessment--Some Issues of Interest (8/3/19; 8/7/19)

Readers of this blog will likely be interested in a recent post on Procedurally Taxing Blog:  Keith Fogg, Interest and Penalties on Restitution-Based Assessments (Procedurally Taxing Blog 7/31/19).  Highly recommended.  The context is the relationship between restitution as ordered by the court in a criminal case and the restitution based assessment that the IRS is mandated to make, particularly as related to interest on the restitution.

After some emailing with Keith, I thought I would add some related material and comments that readers of this blog might find interesting or useful.

1.  The amount of the restitution can include an interest factor from the date of the loss through the date of the restitution order by judgment in the criminal case.  The DOJ Criminal Tax Manual thus says:  "Prosecutors should seek prejudgment Title 26 interest in restitution in order to fully compensate the IRS."  DOJ CTM 44.00 RESTITUTION IN CRIMINAL TAX CASES (last edited January 2019), here.

The U.S. Attorneys Manual (now called Justice Manual after renaming in 2018) had a template in the Tax Resource Manual that would include interest under 6601 and/or 6621 in the restitution order as of the date of sentencing.

• https://www.justice.gov/archives/usam/tax-resource-manual-20-optional-restitution-paragraphs
• https://www.justice.gov/archives/usam/tax-resource-manual-21-proposed-restitution-order

The Tax Resource Manual seems to have dropped off the current Manual (called the Justice Manual), although the prior Tax Resource Manual is still available per the links above.  (Perhaps it will be added back later.)  So, diligent US Attorneys should be aware of it.  And, of course, DOJ Tax CES attorneys should be aware of the CTM provision.  And, since the IRS makes the calculations, the IRS agents should be aware of as well.  (By contrast, interest is not included on tax loss for Sentencing Guidelines purposes except in the case of evasion of payment, when interest was included in the amount the defendant sought to evade.)

My understanding, though, is that courts sometimes (perhaps even often) do not include interest in restitution.  (See discussion of recent case in paragraph 3 below.)

2.  I have just updated the text and a footnote in the working draft of my Federal Tax Procedure Book (will be published on SSRN by mid-August 2019) dealing with some of the nuance.  Here is a cut and paste of the text and the key text amd footnote:

New Statute for Civil Effect of Restitution in Tax Cases (2/11/11)

Tax crimes afficionados know that restitution is not available for a Title 26 tax crime of conviction but is available if the crime of conviction, although related to tax, is under Title 18 (often the Klein conspiracy or even a conspiracy to commit a tax offense). The exceptions for Title 26 crimes of conviction permit restitution: (i) if the defendant agrees to restitution in a plea agreement; or (ii) if the court imposes restitution as a condition of some benefit given the defendant (e.g., probation). Even when permitted, restitution has been just an order of the court which is not self-executing and requires some collection efforts by the Government unless the defendant pays voluntarily which most defendants will pay before sentencing if they can in order to get the extra juice in for the judge's sentencing discretion.

Tax crimes afficionados also know that the reason restitution is not generally available for tax crimes under Title 26 is that the IRS has elaborate civil mechanisms to collect taxes, which is after all (at least in the criminal amount) the basis for restitution in criminal tax cases (whether under Title 26 or Title 18). From a civil perspective, most taxes involved in tax crimes are subject to the notice of deficiency requirement, permitting a taxpayer to contest in the Tax Court before the IRS actually assesses the tax and can deploy its collection mechanisms. Since the notice of deficiency is generally issued after the criminal tax case is finally closed, the notice of deficiency and Tax Court procedures with the prohibition on assessment often meant that the taxes reflected in the order of restitution were not assessed for years and the collection mechanisms in the Code were postponed for years.

Congress recently enacted a statute to make collection restitution for unpaid tax more efficient. Section 3(a) of P.L. 111-237, effective for restitution orders entered after August 16, 2010, amends Title 26 as follows (§ references are to Title 26 as amended):

Court Reverses TOP Offset Against Social Security Payments That Exceed Court's Restitution Schedule for Payments (7/21/21; 8/2/21)

In United States v. Taylor, No. CrimAction 06-658-03, 2021 U.S. Dist. LEXIS 134638 (E.D. Pa. July 20, 2021), CL here, the Court found that the Treasury Offset Program (“TOP”) collection, via offset, of criminal restitution from Social Security Benefits was not permitted under the Court’s schedule for restitution ($100 per year) and ordered return of the collections in excess of the Court’s restitution schedule.

Key points of the holding:

1. In January 2008, Taylor was convicted of the defraud / Klein conspiracy In ordering restitution in the earlier criminal case, the Court determined restitution was $3,300,000 but that Taylor could pay not more than $100 per year and scheduled that she pay that amount per year.  

2. Taylor thereafter began receiving Social Security monthly payments.

3. The Federal Government has a Treasury Offset Program (“TOP”) permitting the Government to collect against debts a person owes to the Government by offsetting payments the Government owes to the debtor.  The Court’s discussion of the TOP program is good, so I quote it (Slip Op. pp. 5-6; cleaned up):

TOP is a federal program authorized by the Debt Collection Act of 1982, as amended by the Debt Collection Improvement Act of 1996, which permits the Treasury Department to collect delinquent debts owed to federal agencies. See 31 U.S.C. § 3716. Under TOP Congress has subjected to offset all funds payable by the United States,’ § 3701(a)(1), to an individual who owes certain delinquent federal debts. The contours of TOP program have been described in the following terms: 

The practice of withholding federal payment in satisfaction of a debt is known as an administrative offset.” The Debt Collection Improvement Act of 1982, 31 U.S.C. §§ 3701 et seq., authorizes the Treasury Department “to collect non-tax debts by withholding funds paid out by other federal agencies.” Pursuant to the TOP, any federal agency with a claim against the debtor, after notifying the debtor that the debt is subject to administrative offset and providing an opportunity to dispute the debt or make arrangements to pay it, may collect the debt by administrative offset. In order to do so, the creditor agency must certify to Treasury that the debt is eligible for collection by offset and that all due process protections have been met. If properly certified, the Treasury Department must administratively offset the debt. 

Under TOP, Social Security benefits are eligible for offset pursuant to the Debt [*6] Collection Improvement Act. n6  
   n6 An offset to a person’s Social Security benefits, however, cannot exceed 15% of the monthly covered benefit payment. 31 C.F.R. § 285.4(e).

Obama Legislative Proposal - Assessment of Restitution as Tax

I have previously blogged here a very brief summary of the President's tax related legislative agenda, presented in which is known as the "Greenbook" and is available here. I now discuss in more detail some of the proposals. Today, I discuss the following proposal (pp. 97-98 of the Greenbook):

ALLOW ASSESSMENT OF CRIMINAL RESTITUTION AS TAX

Current Law

In criminal tax cases, a District Court may issue an order requiring the defendant to pay restitution of existing tax liabilities. The District Court has authority to order restitution under the criminal provisions of Title 18, not the Internal Revenue Code (Code). Because the assessment procedures under the Code apply only to taxes imposed by the Code, those procedures do not apply to restitution orders issued under Title 18, even if the restitution order relates to an existing tax liability.

Reasons for Change

Because court-ordered restitution in criminal tax cases cannot be assessed as a tax, the IRS cannot use its existing assessment systems to collect and enforce the restitution obligation. This leads to unnecessary duplication of efforts, delays, and confusion in the administration of court-ordered restitution.

Proposal

The proposal would allow the IRS and the Treasury Department to immediately assess, without issuing a statutory notice of deficiency, and collect as a tax debt court-ordered restitution. The taxpayer would not be able to collaterally attack the amount of restitution ordered by the court, but would retain the ability to challenge the method of collection.

The proposal would be effective after December 31, 2010.

By way of background, and as noted in the cryptic statement of current law, restitution is not statutorily authorized for convictions of pure tax offenses. The reason is that the IRS has assessment and collection mechanisms for collecting taxes that are deemed quite effective for collecting taxes and hence Congress did not deem it appropriate to overlay the separate system for collecting restitution. Notwithstanding this general notion that restitution is not available in tax cases, many tax crimes are charged along with Title 18 offenses for which restitution is allowed. Thus, for example, the indictment in tax crimes often includes a defraud / Klein conspiracy (18 U.S.C. § 371) charge that is a separate crime under Title 18 and thus permits the Court to impose restitution. More importantly, the Department of Justice Tax Division requires that plea agreements contain a restitution provision for tax and some of the penalties regardless of whether, absent the plea agreement, the sentencing court could impose restitution. (For the DOJ Tax CTM discussion of Restitution in tax cases, see here., which among other things provides that the prosecutor cannot word the restitution agreement as a compromise of the underlying civil tax liability.) As best I understand DOJ Tax's policy decision to require restitution in tax cases, it is not to end-run the congressional judgment to not allow restitution in tax cases, but to force some monetary resolution in the criminal case in advance of the IRS using its collection enforcement tools.

Usually, the IRS is unable to marshall its collection enforcement tools right away because, most of the taxes involved in criminal cases, require a predicate notice of deficiency and then permit prepayment administrative review and litigation before the IRS can assess the tax. Assessment is the predicate act required to using the IRS enforcement tools. The proposal allows the immediate assessment of the amount of the restitution without any other applicable statutory or administrative predicates. Thus, the restitution amount can be assessed without a notice of deficiency and the remedies / delay opportunities it affords.

Of course, in many cases where restitution is agreed upon as part of the plea bargain, the defendant will have the incentive to fully pay the restitution amount in order to obtain sentencing benefits. The proposal thus affects only restitution amounts that are not paid at or before sentencing.

Finally, the proposal does not address the defendant upon whom restitution is not imposed. In tax cases, this could occur where the only crime(s) of conviction are tax crimes and the defendant does not agree to restitution or accept some benefit having a condition of restitution. The IRS will then have to issue a notice of deficiency for those taxes where one is required (income and estate and gift tax) and await the taxpayer's pursuit of administrative or judicial remedies before assessing. This will be true even if the sentencing court determines a tax loss number in the sentencing phase. (On a related topic, I have previously discussed here the application of collateral estoppel on the basis of events at the sentencing.)

Compromises of Nonrestitution Assessments with Restitution Assessments Unpaid (1/24/17)

This blog entry will principally serve as a reminder to readers on the subject of tax assessments related to tax restitution awarded at sentencing in criminal cases. Readers recall that in 2010 Congress enacted several Code provisions the net effect of which is (i) to permit the IRS to assess immediately any restitution in a criminal case awarded for unpaid taxes and (ii) prohibit the person (usually a taxpayer) from contesting the amount of the tax restitution assessment.  (At the bottom of this blog entry, I list the Code Sections involved and various blog entries on the subject.)

I call readers attention to a very good article, Robert Horwitz, The Tax Court Issues a Reminder that You Cannot Compromise Criminal Tax Restitution (Tax Litigator Blog 1/15/16), here, which discusses Rebuck v. Commissioner, T.C. Memo. 2016-3, here.  Rebuck and 10 other co-defendants were convicted of tax conspiracy under 18 U.S.C. § 371, here, for promoting offshore and domestic trust packages falsely representing that the trusts permitted taxpayers to avoid paying tax.  The sentencing court imposed tax restitution of $16,339,199, jointly and severally, on the 11 convicted defendants.  The restitution amount appears to be for then outstanding unpaid taxes avoided by taxpayers purchasing the trust schemes. (I make this assumption since it would be odd to have joint and several liabilities for the defendants' own personal income taxes.)  After the restitution award, the outstanding restitution amount would be reduced as payments against those liabilities were made either by the taxpayers themselves or by the defendants.  (It may be that the IRS did not seek payment from the taxpayers, either because their statutes had closed or for other reasons.)  The IRS then assessed the tax restitution amount against Rebuck and presumably against the other co-defendants.

In 2009, the IRS assessed against Rebuck civil penalties under § 6700, in the aggregate amount of $130,000.  Rebuck and  the IRS subsequently entered an installment agreement to pay these § 6700 penalties.

Rebuck was also assessed his own income taxes for a number of years, including some of the same years involved in the tax restitution assessment (which, to remind readers, was for other persons' income tax liabilities).  Rebuck then commenced a CDP appeal with regard to his income taxes, but asked that the § 6700 penalty assessments subject to the installment agreement be considered along with his own income tax assessments in an offer in compromise based on doubt as to collectibility.   Rebuck did not ask relief in the CDP proceeding for the tax restitution assessments, apparently because relief for those assessments comes, if at all, from the sentencing court.  During the CDP process, the § 6700 penalty installment agreement was reversed for default.  The IRS rejected the offer in compromise based on the IRS's position that such offers were not available for the same years in which there is unpaid tax restitution assessments.  The IRS did suggest that, without resolving the unpaid restitution, the IRS could enter a Partial Payment Installment Agreement ("PPIA") with respect to the income tax and § 6700 penalties for $540 per month.  Rebuck declined.

The taxpayer raised two issues:

(1) whether the IRS abused its discretion in rejecting petitioner’s OIC because it did not include full payment of petitioner’s criminal tax restitution; and (2) whether the Appeals officer abused his discretion in proposing to petitioner a PPIA of $540 per month.

The only issue I address in this blog entry is the first issue.  The Court's analysis of the first issue is short, so I quote it in full (one footnote omitted):

Tax Court Opinion with Cryptic Comment on Excessive Restitution Based Assessments (6/24/21; 6/28/21)

In Ervin v. Commissioner, T.C. Memo. 2021-75, TC here see fn * at end of blog, the Court (Judge Lauber) nicely sets up the issues and holdings in the opening paragraphs (footnote omitted):

Petitioner failed to file Federal income tax returns for 2000-2009 and was convicted of tax crimes for 2004-2006. In June 2012 he was sentenced to imprisonment and ordered to pay restitution of $1,436,508, the amount of the Government's estimated tax loss. After petitioner was remanded to custody, the Internal Revenue Service (IRS or respondent) completed a civil examination [*2] of his 2002-2007 tax years. In 2014 it sent him notices of deficiency determining deficiencies for those years based on the tax loss figures used in the sentencing. The IRS also determined additions to tax under sections 6651(a)(1), 6651(a)(2), 6651(f), and 6654.1 Petitioner timely petitioned this Court in January 2015 and (about a year later) fully satisfied his restitution obligation.

Respondent has moved for summary judgment. Petitioner does not dispute the deficiencies. But because he has fully paid the deficiencies by virtue of his restitution payments, which were credited against his tax liabilities, he insists that he should not be liable for any additions to tax. Because the additions to tax accrued before the restitution was ordered or paid, we find that petitioner is liable for these amounts, subject to certain concessions by respondent. We will therefore grant respondent's motion for summary judgment to the extent set forth in this opinion.

Something in the opinion caught my eye, so I thought I would post without definitive discussion but as an alert for persons interested in the arcana of restitution based assessments ("RBA") under § 6201(a)(4)(A).  The Court says (p. 12 n. 3) cryptically):

   n2 If petitioner's restitution payments exceed the deficiencies we have determined for 2002-2007, those payments may be available for credit against other unpaid tax liabilities he may have, including the additions to tax discussed in the text.

Tax Court Holds that Restitution Assessments under § 6201(a)(4) Do Not Permit Tax Interest and Additions (10/8/17)

Readers of this blog will likely recall that Congress adopted a statutory scheme to permit the IRS to assess tax restitution imposed in a criminal case without having to go through the predicate notice of deficiency and thereby expeditiously deploy the tax collection mechanisms (levy, etc.) dependent upon an assessment.  I collect a number of the more relevant blog entries on the subject at the end of this blog entry.

In Klein v. Commissioner, 149 T.C. ___, No. 15 (10/3/17), here, the Court held the § 6201(a)(4) "does not authorize R to add underpayment interest or failure-to-pay additions to tax to a title 18 restitution award, and R may not assess or collect from Ps underpayment interest or additions to tax without first determining their civil tax liabilities."

The relevant facts are simply stated and in some respects disturbing for reasons I will discuss later.  The taxpayers pled to tax perjury, § 7206(1), for 2006.  At sentencing, for the Guidelines tax loss calculation, the Government submitted a calculation indicating a tax loss of $562,179 (including the tax loss for the year of the plea, 2006, and the relevant conduct years, 2003-2005).  The taxpayers objected because, they asserted at sentencing, the calculations did not allow unclaimed deductions that would have significantly reduced the tax loss.  The Court adopted the Government's calculations for tax loss purposes to determine the base offense level and thus the final offense level.  For Sentencing Guidelines calculations, the Court adopted the conviction year and relevant conduct years for a tax loss of $562,179, but for the wife included only the year of conviction tax loss (2006).  But, the Court then ordered the taxpayers to pay, jointly and severally, restitution to the IRS of $562,179 based on the tax loss for the year of conviction and the relevant conduct years.

The assumption I think the sentencing court made was that tax loss for the Guidelines calculation and the tax loss for purposes of restitution are the same thing.  They are not the same concepts.  The numbers will sometimes be the same, but not necessarily.  For example, although not applicable in the case, the tax loss can include the intended tax loss whether or not a tax loss actually resulted.  More pertinent, the tax loss can omit unclaimed deductions otherwise permissible but the restitution amount should not because unclaimed deductions, if proved, means that the IRS did not suffer loss of the taxes covered by the unclaimed deductions.  Therefore, the Court should not simply adopt the tax loss calculation as the restitution amount where the defendant is asserting unclaimed deduction that may not be available in calculating the tax loss.  See Restitution Less than Tax Loss Based on Burden of Proof for Unclaimed Deductions; and Application of Section 3553(a) / Booker (Federal Tax Crimes Blog 1/19/14), here.

The problem as I discuss in some of the blog entries cataloged at the end of this blog entry is that simply adopting the tax loss may result in tax restitution exceeding the actual tax loss to the IRS.  And, once the restitution order becomes final, the IRS can assess and is unable to do anything about it even if it knows that the restitution assessment is excessive.  In other words, if indeed, the defendants in Klein had unclaimed deductions that would materially lower the actual tax loss to the IRS, they were screwed by the entry of the restitution order in the amount of $562,179.  (To avoid this injustice, I have previously argued that the tax restitution amount should be the lowest possible amount of the possible tax liability, with the IRS then making up any difference through its civil audit deficiency procedures.  See What Can Be Done If Tax Restitution Exceeds the Tax Due (Federal Tax Crimes Blog 9/2/13), here.

Daugerdas Re-Appears on the Tax Scene - This Time in a CDP Proceeding for Restitution Based Assessment (8/12/21)

In Daugerdas v. Commissioner (T.C. Dkt.7350-20L Order Dated 8/11/21), here, the Tax Court (Judge Goeke) in addressed some issues arising in a CDP proceeding arising from a lien filing related to a restitution-based assessment (“RBA”) under § 6201(a)(4) for tax loss arising from Title 18 crimes of conviction.  Long-term readers of this blog may recognize the petition, Paul M. Daugerdas.  A link to posts mentioning Daugerdas is here (sorted by relevance but can be sorted in reverse chronological order).

I find the order confusing so I will try to work through the order adding some of my own nuance (at the risk of further confusion).  I caution readers that I am confused about some of the Order and may be missing the point in some of my comments.  Nevertheless here is my best shot at working through the order.  I find it very difficult to summarize in fewer words in a meaningful way.

Judge Goeke summarizes Daugerdas’ relevant trajectory as follows (Order 1-2):

            For more than a decade beginning in the early 1990s, petitioner, a former tax attorney, designed, sold, and implemented fraudulent tax shelters to his clients to enabled them  to evade tax. In October 2013 he was convicted in the U.S. District Court for the Southern District of New York on mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States. United States v. Daugerdas, 837 F.2d 212, 218 (2nd Cir. 2016). He was acquitted of tax evasion for his personal income tax. At a sentencing hearing on June 25, 2014, the District Court sentenced petitioner to 180 months incarceration, 3 years of supervised release, restitution of $371,006,397, and preliminary forfeiture of $164,737,500 of petitioner’s assets.

Petitioner agreed to the restitution calculations submitted by the Government, and the District Court adopted those calculations. At the sentencing hearing, the District Court stated that the restitution pursuant to the Mandatory Victims Restitution Act (MVRA) and named the IRS as petitioner’s victim. It did not address a payment schedule or expressly state whether payment was due immediately. Addressing how to portion the restitution among petitioner and his co-defendants, it stated that petitioner is “responsible for the full amount of restitution” and made him jointly and severally liable with his co-defendants for $258.6 million of the restitution. The Court noted that petitioner had criminal proceeds of $97 million, i.e., tax shelter fees.

The IRS then made a § 6201(a)(4) assessment.  That provision is:

(4) Certain orders of criminal restitution
(A)In general. The Secretary shall assess and collect the amount of restitution under an order pursuant to section 3556 of title 18, United States Code, for failure to pay any tax imposed under this title in the same manner as if such amount were such tax.
(B)Time of assessment. An assessment of an amount of restitution under an order described in subparagraph (A) shall not be made before all appeals of such order are concluded and the right to make all such appeals has expired.
(C)Restriction on challenge of assessment. The amount of such restitution may not be challenged by the person against whom assessed on the basis of the existence or amount of the underlying tax liability in any proceeding authorized under this title (including in any suit or proceeding in court permitted under section 7422).

To repeat, the crimes of conviction were:  “mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States.”  Restitution law divides the tax loss universe into tax loss related to Title 26 crimes (which includes tax evasion and obstruction of the administration of the internal revenue laws) and tax loss related to crimes under other Code provisions, principally Title 18 (which includes mail fraud and conspiracy).  Restitution for tax loss for Title 26 crimes is not generally available; restitution for tax loss for Title 18 crimes is generally available.  I say generally not available for Title 26 crimes, but a court can impose restitution for Title 26 tax crimes: (i) as a condition of supervised release after the defendant serves his incarceration period (see Order p. 8); or (ii) by consent of the defendant (which is a common condition in cases resolved by plea agreement, but there is no indication that Daugerdas consented here).  Judge Goeke discusses the supervised release that the sentencing court ordered (Order p. 8) but fails to tie it to the restitution ordered by the sentencing court.  In other words, from the factual recounting in the Order, the restitution did not include restitution for the tax crimes of conviction but only for the Title 18 crimes of conviction, so even if the court had imposed (which it does not seem to have done) restitution as a condition of supervised release, the need to tie restitution to tax crimes of conviction would seem unnecessary and nonsensical.  (The Order is not clear on this point, so I am taking a bit of a leap to conclude that the restitution related only to Title 18 crimes of conviction.)

Conference Comments on Restitution Based Assessment for Taxes (12/18/16)

I have just read the following article:  Nathan J. Richman, Restitution-Based Assessments Limit Judicial Control of Sentence (Tax Notes Today 11/22/16), no link available.  The article reports events at the New England IRS Representation Conference on 11/18/16.  Those interested in the subject should obtain the article and review it, particularly if they represent convicted defendants subject to restitution awards for tax liabilities of third parties.  I link at the bottom of this blog entry my prior postings on the statute for assessing tax restitution.

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. 

* * * * 

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  .)

The Rub Between Restitution Assessed as a Tax and a Deficiency (12/18/14)

In Muncy v. Commissioner, T.C. Memo. 2014-251, here, the Tax Court addressed the procedures with respect to the new immediate assessment of restitution orders.  I cite prior blog entries below with more detail about these new statutory procedures.  Suffice it to say that the problem at which the new immediate assessment procedures are addressed may be illustrated as follows:

Assume a criminal tax crime sentencing where the judge is authorized by plea agreement to order tax restitution of $100,000.  At least in theory, that ought to be the criminal tax number provable by a preponderance of the evidence.  (Sometimes called in other settings, the tax deficiency, tax due and owing and tax evaded; in a criminal sentencing it might often be the same as the tax loss driving the guidelines calculations, but may not be the same.)  Assume further that the real civil tax liability for the years of conviction and thus years of restitution is $200,000.  The extra $100,000 is the amount which the Government did not prove was tax evaded and thus could / should not be in the order of restitution.  (OK, I know that in plea agreements the Government might negotiate for higher tax restitution than it might otherwise be able to prove at sentencing, but stick with me on this.)

Under the old procedure, the sentencing court would order restitution.  The IRS would then issue a notice of deficiency for $200,000.  That is the deficiency amount, although $100,000 of that aggregate deficiency is the same liability as for restitution.  Since the IRS must proceed for the entire amount by notice of deficiency, the prohibitions in assessment for the entire amount apply and, until the IRS assesses after those prohibitions expire or are waived by the taxpayer, the IRS cannot use the IRS collection tools.  Of course, the taxpayer does have an order of restitution, so the Government can use restitution collection tools -- not as efficient as IRS collection tools.

The new legislation (see blog entries below) permit the IRS to assess the amount of the tax restitution immediately without the necessity of a notice of deficiency and the delays attendant to the prohibition on assessment in Section 6213.

So, assume these new procedures apply to this example.  The IRS can immediately assess $100,000.  That means that the unassessed liability (the civil liability remaining after consideration of the assessed restitution) is $100,000.  The IRS still has to go through its deficiency notice procedures.  But, the issue in Muncy is what the amount is that the IRS should assert in the deficiency notice.  Keep in mind that, as compelled by the new statutory procedure, the IRS has already assessed the $100,000 representing the tax restitution.  Hence, from a liability standpoint, the only amount unassessed is the remaining $100,000 (the civil liability unassessed).

In Muncy, after going through various statutory interpretation contortions, the Tax Court held (as I understand it), that the deficiency is still $200,000 (including the $100,000 already assessed under the new procedures).  So, once the Tax Court approves that deficiency amount, the IRS will assess the entire $200,000 which will be in addition to the $100,000 assessed under the new procedures.  So the aggregate assessed liability is $300,000 when, in fact, the real liability is $200,000.  (I suppose that the IRS could credit the amount already assessed and have a new assessment of $100,000 which is $100,000 less than the deficiency determined by the Tax Court.

6th Circuit Holds Excessive Restitution Cannot Be Reduced thus Denying IRS Authority to Reduce Excessive Restitution-Based Assessment (5/23/23)

In United States v. Asker,  2023 FED App. 0223N, 2023 U.S. App. LEXIS 11662, 2023 WL 3370440  (6th Cir. 2023) (Nonpublished) (CA6 here and GS here), the court held that where the restitution for tax loss ordered by the sentencing court for tax crimes was allegedly higher than the actual tax due, the district court had no authority to reduce the amount. At sentencing, there was confusion among the players as to the actual tax loss for restitution purposes.* In trying to determine the amount in the confusion, the court has this Q&A with counsel:

          During sentencing, however, the court asked what would happen if it were later determined he owed less than $2.5 million in taxes:

Court: You don’t anticipate that what is owed will be more than 2.5?

Government: It is hard to say at this point. It is going to depend—

Court: What if it is? Do you anticipate that 2.5 precludes your client from paying back the rest?

Asker’s Counsel: I wouldn’t think that if it comes out—I would not think that this Court’s restitution award would be conclusive on the IRS. In fact, if there was some civil basis to seek additional penalties or interests, the IRS could do that.

I suppose if it turns out the number is less, we may probably come back and apply to the Court for some relief from the restitution amount.

Government: That is correct, Your Honor.

Court: I just—my concern is that if it turns out to be more, I think that is owed.

Asker’s Counsel: Yes, Ma’am. We don’t disagree with that.

Court: Okay.

The sentencing court assessed $2.5 million in restitution.

In due course, the IRS made a restitution-based assessment ("RBA") for $2.5 million. The IRS has no authority to reduce the RBA.

After Asker's criminal appeal affirmed the judgment, Asker filed amended returns showing a $1.1 million aggregate tax liabilities, which the Government did not contest because it decided not to allocate resources to an audit of the amended returns.  

Asker then moved the district court to reduce the restitution award which would then permit the IRS to reduce the RBA.

The sentencing  court sat on the motion for 3 years and then denied it based on the Government's argument that it had no authority to grant the motion.

The Court of Appeals affirmed.

The New Provision for Tax Restitution and Ex Post Facto (1/20/14)

In United States v. Crim, 2014 U.S. App. LEXIS 1039 (3d Cir. 2014), here, the Third Circuit rejected as premature the defendant's claim that the order of tax restitution violated the Constitution's Ex Post Facto prohibition because, in his case, the order for restitution would invoke the new procedures for immediate tax assessment which were not in existence when the conduct of the convicted offense occurred.  In the nonprecedential decision, the Third Circuit summarily rejects the argument as premature at the sentencing phase.

Crim claims his sentence violated the Ex Post Facto Clause of the United States Constitution, which states: "No bill of attainder or ex post facto Law shall be passed." U.S. Const. art. I, § 9, cl. 3. This Clause proscribes laws that change a punishment and inflict a greater punishment than the standards in effect when the crime was committed. Peugh v. United States, 133 S.Ct. 2072, 2077-78 (2013) (quoting Calder v. Bull, 3 U.S. 386, 390 (1798)). 

After Crim's conviction, Congress passed the Firearm Excise Tax Improvement Act of 2010. Among other things, the law authorizes the IRS to use its administrative powers to collect on criminal restitution when the Government is the victim by treating the criminal restitution as a tax. See 26 U.S.C. § 6201(a)(4). Before 2010, the IRS could receive restitution payments like any other victim entitled to criminal restitution but it lacked the authority to actively collect restitution. Because the IRS lacked this authority when Crim participated in the conspiracy, he claims this subsection is an unconstitutional ex post facto law as applied to him. 

Crim's argument is best described as contingent and premature, touching as it does on an enforcement mechanism that the IRS has not yet employed to collect the restitution Crim owes to the United States. If the IRS chooses to use this power against Crim, he may challenge its legality at that time. Nothing in the restitution order before us implicates the IRS's collection authority under 26 U.S.C. § 6201(a)(4).

Restitution would implicate the Ex Post Facto clause only if it were criminal punishment.  And, if it were criminal punishment, logically, under Apprendi v. New Jersey, 530 U.S. 466 (2000), here, the factual bases for restitution would need to be determined by a jury beyond a reasonable doubt rather than by the judge by a preponderance of the evidence.

I previously blogged on the underlying issue of whether restitution is criminal punishment.  See Is Restitution a Criminal Penalty Requiring the Jury to Speak? (Federal Tax Crimes Blog 12/6/12), here, discussing United States v. Wolfe, 701 F.3d 1206 (7th Cir. 2012), here.  The issue was whether the jury was required to determine restitution.  Wolfe, adopting then then minority view, held that restitution was not criminal punishment and thus the judge rather than the jury could determine restitution.  See also DOJ Tax CTM 44.01, here (not citing Wolfe, but noting the split in Circuits).  For more recent cases citing Wolfe, see United States v. Shmuckler, 911 F. Supp. 2d 362, 370 (ED Va. 2012); and United States v. Bengis, 2013 U.S. Dist. LEXIS 83992, p. 22 fn. 40 (SDNY 2013) (citing Wolfe and United States v. Pfaff, 619 F.3d 172, 175 (2d Cir. 2010)).

Problems with Restitution Based Assessment in Excess of Amount Due (2/3/18)

In Choi v. United States, 2018 U.S. Dist. LEXIS 14393 (D. Md. 2018), here, the Court rejected an attempt by a defendant convicted of tax evasion to reduce the amount of restitution based on a subsequent resolution of the underlying liability with IRS Appeals that, on its face to me at least, indicates that the restitution amount was grossly overstated.  There is a lot to unpack there.  At the outset, I offer the following additional documents that I pulled from Pacer:

• The defendant's memorandum in support of the 28 USC § 2255 motion, here, whereby the defendant sought to invoke the Court's authority to reduce the restitution award and the resulting tax assessment under § 6201(a)(4).
• The U.S. Response, here, and Exhibit 1, here, to the Response (a Memo from Appeals)
• The docket entries as of yesterday, here.  Note that there are many extensions for the U.S. response, as the views of IRS CI and IRS Appeals were sought (this is noted in the U.S. response linked above).

The basic problem is that, once the criminal judgment becomes final, there appears to be no way to reduce the restitution award even if it exceeds the subsequently determined real loss to the victim (here the IRS).  Bottom line, that is what the Choi court held, although in any event the procedural device Choi used - the 28 USC § 2255 motion was not the proper procedure in any event.

The basic facts as narrated by the Court are (I eliminate the record references for easier readability):

On March 30, 2012, Petitioner Choi pled guilty in this Court to one count of tax evasion in violation of 26 U.S.C. § 7201. In his plea agreement, he agreed that the corporate tax returns that he filed for his business, Frankford Garden Liquors, for the years 2006 through 2009 "each understate the amount of the corporation's taxable gross receipts by more than $300,000." Further, he acknowledged that he understated his corporation's income to evade paying taxes. The plea agreement, however, did not state an agreed amount of taxes due and owing as a result of Choi's undereporting. Rather, the plea agreement laid out the Internal Revenue Service's (IRS) calculation of the taxes due and owing for the years 2006 through 2009. By the time of Choi's sentencing, however, both parties told this Court that they agreed to the IRS's calculation of tax loss and the imposition of a restitution order in the amount of $739,253.98 representing the taxes he owed for the years 2006 through 2009. This Court subsequently sentenced Choi to eighteen months incarceration, six months home detention, and three years supervised release. Additionally, this Court ordered a payment of $100.00 in special assessment, a $20,000.00 fine, and $739,253.98 in resitution. 

After his sentencing, Choi challenged the amount of taxes owed by his company in a civil action with the IRS Office of Appeals. In December of 2013, Petitioner was released from prison after serving his eighteen month term. Around January of 2016, Choi negotiated a settlement through the IRS Office of Appeals for total amount of $132,991.00.1

Conflicting Statutes of Limitations for Regular Tax Assessments and Restitution-Based Assessments (4/27/25)

In United States v. Brown (W.D. WA Case No. 24-cv-05021 Dkt. No. 38 Order dated 4/21/25), GS here and CL here, the Court upheld the validity of a restitution-based assessment (“RBA”) against Brown that was for the same tax that had been previously assessed against Brown. (For prior Blogs on RBAs on the Federal Tax Crimes Blog, see here, and on the Federal Tax Procedure Blog, here.) For clarity, I will differentiate the two assessments by calling the first-in-time assessment, the regular assessment and the second-in-time assessment the RBA. The reason that was even an issue was because Brown never fully paid the regular assessment and the 10-year statute of limitations to collect any balance on the regular assessment (by reducing to judgment) had expired. Brown claimed that, since the statute of limitations on the regular assessment had expired, thus preventing the IRS from claiming on that regular assessment, the IRS could not end-run the regular assessment statute of limitations based on the RBA assessment. At least that is how I understand Brown’s claim that the court rejected, thus permitting the government to reduce the RBA to judgment and use the RBA extended statute of limitations to collect (including further extending the statute of limitations).

I think the court properly gives a good textual reading of the applicable statutory provisions. I am concerned that the decision may not be consistent with the purpose or intent of the statute. (For a textualist, purpose or intent may not matter.) Although I have not filtered back through the legislative history, my understanding of the purpose of the RBA was to avoid requiring the IRS to jump through assessment hoops for tax ordered as restitution. In other words, it was to permit the IRS to make an immediate assessment where it had not assessed before. (Stated otherwise, it was not to give the IRS two independent assessments to collect. The Code provisions do not say that, but that is my understanding of the need for an RBA. If the tax later subject to restitution had already been assessed, there would be no need for an RBA. And the IRS could deal with an expiring statute of limitations on the regular assessment by simply reducing the regular assessment to judgment, thereby refreshing the statute of limitations.

It is true that § 6501 says that § 6501(c)(1) says: “In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.” But, at a minimum, that would only apply where there was no regular assessment and presumably no RBA. Where there is a regular assessment, one might argue through inference that the regular assessment statute and its limitation period should apply.

Restitution in Tax Cases (9/22/12)

In United States v. Wirth, 2012 U.S. Dist. LEXIS 134429 (2012), here [will supplement with the link when my assistant pulls it down], the District Court determined restitution of $6,457,500.00 after the defendant pled guilty to one count of defraud / Klein conspiracy under 18 U.S.C. Section 371.  The opinion is straight-forward and blazes no new trails.  I post it only to remind students of the following points and then I include my Federal Tax Crimes text discussion of restitution in tax cases:

1. Although restitution is normally not allowed for a tax crime of conviction under Title 26, it is allowed for a tax crime convicted under Title 18 -- here the defraud / Klein conspiracy to impair or impede the lawful functions of the IRS.
2. I am surprised that the parties did not resolve this issue in the plea agreement.  I think the Government is now trying to do that in plea agreements.  (See excerpted provisions of my text below.)  Perhaps the parties were just too far apart and could not resolve it.  And, of course, when the case is fully worked over civilly, I suppose that the actual tax due could be determined to be less than the amount of the restitution.  I suppose there might be some way to correct the restitution awarded if that were to occur.  However, based on my limited anecdotal experience, I think that the Government's calculations of tax loss / restitution are generally so conservative that a lesser civil tax number later is very rare.  Indeed, since tax loss / restitution should include only the tax amount attributable to fraud, the defendant may conceptually owe more tax dollars after audit if the IRS wants to chase that down further.
3. There is no indication of whether the defendant can pay the restitution / tax, so the issue in the long term may be moot.
4. Like the tax loss for sentencing, the Government must prove the amount of restitution by a preponderance of the evidence.  Here is the "money" analysis by the Court:

Court Amends Restitution to Reduce Restitution for Amounts For Years Other Than Years for Counts of Conviction (1/20/21)

In United States v. Christensen, 2021 U.S. Dist. LEXIS 9306 (D. Ariz 2021), TN here and CL here, Christensen had been convicted on 9 tax counts (evasion for 7 years and failure to file for 2) but acquitted on 5 counts of tax perjury.  The court ordered $1,603,533 restitution.  Christensen appealed and the convictions were affirmed.  Christensen subsequently filed to vacate his conviction under 28 U.S.C. § 2255, alleging ineffective assistance of counsel.  The district court denied the petition and request for certificate of appealability.  The Ninth Circuit denied Christensen’s request for a certificate of appealability.  During the post-trial proceedings (appeal and § 2255 proceeding), Christensen did not contest the amount of the restitution. 

After completing his period of incarceration, the Government sought to collect the restitution through writs of garnishment permitted to collect restitution.  (For some reason, the restitution apparently had not been assessed under § 6201; in any event, the Government acted under the garnishment collection procedures rather than the tax assessment collection procedures)

Christensen filed a writ for error coram nobis arguing attacking the restitution.

The Court first held that the writ of coram nobis was an appropriate remedy for Christensen.  The writ of coram nobis is rarely used, so I will not go into the details for the Court’s holding that it was an appropriate remedy.  (For procedure enthusiasts, the holding is interesting because FRCP 60(e) by its text abolishes the writ, but courts have held that the writ survives under the All Writs Act (28 U.S.C. § 1651(a)) for some purposes; those enthusiasts should review the opinion.)

The Court then rejected Christensen’s broadside argument against the government’s attempt to collect by garnishment based on restitution rather than on assessment of the tax.  Of course, the Government can collect restitution under general collection tools available for restitution.  The additional tool in § 6201(a)(4) permitting assessment of tax restitution (with resulting IRS collection tools) is not required for the use of the general restitution collection tools.  The Court also rejected certain related arguments.

The Court then turned to Christensen’s good argument -- called the "successful Argument -- related to restitution.  (Slip Op. 13-15.)  In the original restitution order, the Court quantified the restitution based on the tax loss.  The problem is that the tax loss can properly include loss for years other than the years of conviction whereas restitution can include loss only for the years of conviction.  The Court accordingly reduced the restitution amount to $579,706 from the original amount of $1,603,533.  The Court also added to that amount prejudgment interest of $202,816.19, thus raising total restitution to $782,522.19.

On making the critical distinction between tax loss and restitution, see On Restitution, Count of Conviction and Tax Loss (Federal Tax Crimes Blog 10/24/13), here.

JAT Comments:

Of course, the IRS can still assess tax, penalty (probably civil fraud) and interest for the years other than the years of conviction if the IRS can prove fraud for those years by clear and convincing evidence.  To do that, the IRS will have to jump through the required hoops (notice of deficiency, etc.).  Whether the IRS wants to jump through those hoops with the amount of restitution it has sustained of course depends upon Christensen's financial condition and future prospects.