Tax Court Holds that IRS on Restitution Based Assessment Is Not Subject to Restitution Schedule Ordered by Sentencing Court (4/20/19)

In Carpenter v. Commissioner, 152 T.C. ___, No. 12 (2019), here, the Tax Court held (according to the syllabus):

P pleaded guilty to violating I.R.C. sec. 7206(1) by willfully filing false returns for 2005 and 2006. At sentencing, the District Court ordered P to pay restitution to the IRS, ordered that restitution was due immediately, and set a schedule of payments. The District Court also ordered that P pay all outstanding tax as an additional condition of his supervised release. Though P made each scheduled payment, he did not pay the full restitution amount. 

R assessed against P the full amount of restitution ordered in reliance on I.R.C. sec. 6201(a)(4). When P did not pay the assessed amount R began collection action. Before the first payment was due under the schedule set by the District Court, R sent a final notice of intent to levy and filed a notice of Federal tax lien. Following a CDP hearing IRS Appeals sustained the proposed collection actions. P contends that I.R.C. sec. 6201(a)(4) does not grant R independent administrative authority to collect amounts of criminal restitution. P also contends a schedule of restitution payments limits the amount R may administratively collect absent a further order by the sentencing court.  

Held: I.R.C. sec. 6201(a)(4) grants R independent authority to collect administratively amounts of criminal restitution assessed under that section.  

Held, further, a payment schedule included in an order for criminal restitution that is due immediately does not limit R’s authority to collect administratively unpaid amounts of such restitution. 

Held, further, Appeals did not abuse its discretion in sustaining the collection actions at issue. 

The following excerpt is important:

Petitioner failed to take advantage of the opportunities made available to him through the CDP hearing. During the CDP hearing petitioner was free to propose an installment agreement whereby he would potentially end up paying a relatively small amount per month. He might even have convinced the officer that he could in fact afford to pay no more than the $100 per month set forth in the sentencing court’s order. (Petitioner is not limited to the CDP hearing and may propose an installment payment agreement anytime. See sec. 6159). In order to secure a collection alternative like this, however, petitioner needed to do three things: (1) make an actual proposal of a collection alternative, (2) submit financial information establishing that this was all he could afford to pay, and (3) become current in his tax filing obligations. Petitioner did none of these things.  

Instead of making the required factual showings, petitioner took the extreme legal position that the IRS simply could not collect from him. That was a mistake. Petitioner, like any other taxpayer in a CDP case, must affirmatively establish what is his limited ability to pay. He cannot rely on the sentencing court’s payment plan to establish that for Federal income tax purposes. In rejecting his position, we are not ruling that the IRS can always levy to collect 100% of the restitution regardless of the taxpayer’s financial circumstances.