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.

Third Circuit Holds That Tax Loss for Tax Crimes Sentencing Calculations is the Intended Loss Rather than Actual Loss (5/10/23)

In United States v. Upshur, 67 F.4th 178 (3rd Cir. 5/8/23), CA3 here and GS here, the Court held that the loss driving the Tax Table at U.S.S.G. § 2T4.1, here, is the intended loss rather than the actual loss to the Treasury.  The holding is driven by the language in the Guideline itself: “the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed).” § 2T1.1(c), here

That only became an issue because the Third Circuit held in United States v. Banks, 55 F.4th 246 (3d Cir. 2022) that, for larceny and related financial crimes in U.S.S.G. § 2B1.1, the “loss” (meaning actual loss) is the measure. Both results were driven by the plain meaning of the respective terms in the Guidelines.

 The case highlights a possible disconnect between the sentencing for the two types of financial crimes. It is not apparent from the Guidelines why there is a difference, but as the plain text of both Guidelines provisions establishes, there is a difference.

The Court also said (Slip Op. 6 n.1):

   n1 Because we conclude that the text of § 2T1.1(c)(1) is unambiguous, we need not go further and examine its “structure, history, and purpose” or determine if the relevant Guidelines Commentary merits Auer deference. See Kisor, 139 S. Ct. at 2415.

Auer deference in the Guidelines context would be Commentary interpretation of the Guidelines (which for deference is treated like a notice and comment regulations).

Tax Crimes Outline for UVA Law Tax Procedure Class (5/2/23)

On March 31, 2023, I taught Tax Crimes session for Jim Malone's Tax Procedure Class at UVA Law School. I prepared an outline that may be useful for others, so I link it here. The outline is from my Federal Tax Procedure Book published annually in early August. The outline is updated with major developments through about March 11, 2023. Keep in mind that the outline is an overview appropriate for one session in a semester class on tax procedure.  It is not definitive on Federal Tax Procedure. For more definitive discussion of tax crimes, I refer readers to Chapter 12: Criminal Penalties and the Investigation Function in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, as updated three times a year. I am the principal author of that Chapter and the updates.