IRS Can Use Lien and Levy Powers to Collect Criminal Restitution Amounts

(Parker Tax Publishing May 2019)

Deciding two issues of first impression, the Tax Court held that (1) the IRS has independent authority to collect administratively amounts of criminal restitution assessed under Code Sec. 6201(a)(4), and (2) a payment schedule included in an order for criminal restitution that is due immediately does not limit the IRS's authority to collect administratively unpaid amounts of such restitution. The Tax Court found no authority for the taxpayer's contention that the IRS needed a court order to levy and file liens on the taxpayer's property to collect the restitution amount, and found that unless a sentencing court expressly declines to order restitution payable immediately, its restitution judgment imposes an immediate obligation to pay. Carpenter v. Comm'r, 152 T.C. No. 12 (2019).

Background

Randy Alan Carpenter pleaded guilty to two counts of violating Code Sec. 7206(1) by willfully making and subscribing to a false federal income tax return in 2005 and 2006. In April 2014, a district court sentenced Carpenter to 27 months in prison followed by one year of supervised release. As a separate component of the sentence, the district court ordered Carpenter to pay restitution to the IRS in the amount of $507,995.

As part of his supervised release, the district court ordered Carpenter to file tax returns and to cooperate with the IRS in paying his outstanding taxes. Carpenter was ordered to pay all outstanding taxes, interest and penalties as an additional condition of his supervised release. The district court also ordered that the restitution amount was due and payable immediately and that if Carpenter could not pay the entire restitution amount, he must pay $100 per month beginning 60 days after his release from prison. At no point did the district court state that the $100 monthly installment was the maximum amount that Carpenter must pay per month.

Carpenter was released from prison in May 2016 and began his term of supervised release. Carpenter complied with the district court's payment schedule. As a result, the district court modified the conditions of his supervised release to allow his supervision to expire in May 2017 with an outstanding balance of approximately $501,546 remaining due on his restitution obligation.

In January 2016, the IRS made restitution-based assessments (RBAs) against Carpenter under Code Sec. 6201(a)(4) for 2005 and 2006 in an amount equal to the amount of restitution ordered by the district court. The IRS also mailed Carpenter a notice and demand for the unpaid restitution. In May 2016, the IRS sent Carpenter a Letter 1058, Final Notice of Intent to Levy (FNIL), stating the he owed approximately $759,380, representing the total amount of the FBAs plus interest and penalties. In June 2016, the IRS filed a notice of federal tax lien (NFTL) against Carpenter. Carpenter responded by submitting a request for a collection due process (CDP) hearing. After an IRS Appeals officer conducted a CDP hearing with Carpenter, the Appeals office sustained both the FNIL and the filing of the NFTL. Carpenter challenged the Appeals office's decision in the Tax Court.

Under 18 U.S.C. Sec. 3556, a sentencing court is authorized to order restitution as part of a criminal defendant's sentence. Code Sec. 6201(a)(4) provides that the IRS "shall assess and collect the amount of restitution under an order pursuant to" 18 U.S.C. Sec. 3556 for failure to pay tax in the same manner as if the restitution amount were such tax. Carpenter argued that Code Sec. 6201(a)(4) does not authorize the IRS to file an NFTL independently or to levy on property to collect criminal restitution amounts. He also contended that the IRS must seek a further court order from the sentencing court before administratively collecting amounts in excess of the sentencing court's original schedule of monthly restitution payments.

Analysis

The Tax Court held that Code Sec. 6201(a)(4) grants the IRS independent authority to administratively collect amounts of criminal restitution. The court also held that a payment schedule included in a criminal restitution order that is due immediately does not limit the IRS's authority to administratively collect unpaid restitution amounts.

The court found that none of the restitution-related provisions of title 18 require the IRS to seek a court order before collecting criminal restitution. In the court's view, nothing in the text or legislative history of Code Sec. 6201(a)(4) indicated that Congress intended to limit or otherwise subordinate the IRS's authority to assess and collect criminal restitution when it is due to the provisions of title 18. The court determined that Code Sec. 6201(a)(4) refers to 18 U.S.C. Sec. 3556 as a means to direct the IRS to the amount of criminal restitution that must be assessed and collected.

Next, the Tax Court reviewed the decisions of courts that regularly impose restitution in sentencing defendants and concluded that, absent a court expressly declining to order restitution payable immediately, a restitution judgment imposes an immediate obligation. The court found that, when a district court includes a payment schedule, as it did in this case, the schedule does not limit the amounts the government may collect from the defendant. In the court's view, at no point did the district court expressly decline to impose an immediately payable restitution obligation on Carpenter.

Observation: Following the Tax Court's decision in Klein v. Comm'r, 149 T.C. 341 (2017), holding that the IRS may not add interest and penalties to an assessment for criminal restitution, the IRS conceded and abated the interest and penalties it had assessed in this case.

For a discussion of the criminal penalties for false and fraudulent tax returns, see Parker Tax ¶277,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com