Restitution Permits Double Assessments But Only One Collection (5/21/17)

In Muncy v. Commissioner, T.C. Memo. 2017-83, here, the Court updated its prior opinion in Muncy v. Commissioner, T.C. Memo 2014-251, because of a reversal and remand in Muncy v. Commissioner, 637 Fed. Appx. 276 (8th Cir. 2016).  Now that's a lot of commotion, and I don't intend here to get into the twists and turns.  Suffice it to say that the issue on remand was whether the IRS had shown that the person issuing the notice of deficiency had the proper delegated authority to do so.  For purposes of this blog (and my interest), the more important part of the current opinion was what it  repeats from its prior opinion that I had not previously paid sufficient attention to.  And, what I discuss here is all in the most recent opinion linked above, so I do not provide links to the prior opinions.

In high-level summary, the taxpayer had been convicted for tax crimes (which ones are not important here), with a punishment including restitution for tax.  The IRS summarily assessed the restitution as permitted by § 6201(a)(4) and §6213(b)(5), which avoids the necessity for a notice of deficiency and prevents the taxpayer form contesting the assessment.  Then, determining that the taxpayer owed more tax for the periods than reflected in the restitution award that had been assessed (this is not uncommon since the restitution amount is often less than the total tax deficiency), the IRS issued the taxpayer a notice of deficiency.  In issuing the notice of deficiency, however, the IRS reduced the amount of the deficiency by the restitution assessed, so that the amount of deficiency in the notice was for the net amount.  The taxpayer petitioned the Tax Court for redetermination.  The IRS moved to increase the deficiency to eliminate the reduction for the restitution assessment.

The problem with which the Court grappled, at bottom, was whether so increasing the deficiency amount to include the amount already assessed would permit the IRS to assess the increased amount if "redetermined" by the Court and thus have two assessments that, in part, are for the same tax liability.  Bottom line, without getting into the technical maze the Court navigated, the Court held that the deficiency was the gross amount rather than the net amount.  That will mean that the amount determined in the Tax Court's decision document that is then assessed will be doubled up, but the Court said (bold-face supplied by JAT):

This leaves us with the question of whether respondent should reduce his deficiency determinations by amounts of restitution previously ordered by the District Court. The restitution statute expressly contemplates that a civil claim may be brought after the criminal prosecution by providing that the amount paid under a restitution order "shall be reduced by any amount later recovered as compensatory damages for the same loss by the victim in * * * any Federal civil proceeding". 18 U.S.C. 3664(j)(2)(A) (2012). The reverse applies as well: Any amount paid to the IRS as restitution for taxes owed must be deducted from any civil judgment the IRS obtains to collect the same tax deficiency. United States v. Tucker, 217 F.3d 960, 962 (8th Cir. 2000). Accordingly, a civil judgment must be entered before the IRS reduces a taxpayer's tax liability by amounts of restitution paid.

So, bottom-line, the defendant will not have to pay twice for the same tax amounts due.