Source: http://federaltaxcrimes.blogspot.com/2017/10/tax-court-holds-that-restitution.html
Timestamp: 2018-03-22 04:10:55
Document Index: 296279644

Matched Legal Cases: ['§ 6201', '§ 6201', '§ 6201', '§ 6201', '§ 6201', '§ 6201']

Federal Tax Crimes: Tax Court Holds that Restitution Assessments under § 6201(a)(4) Do Not Permit Tax Interest and Additions (10/8/17)
But that was not the precise point of the Klein opinion. The question in Klein was whether the IRS could assert underpayment interest or additions to tax without auditing and asserting the tax liability upon which to base the interest and additions. The IRS claimed that the assessment authority in § 6201(a)(4) gave it the authority to assert tax interest and additions. Bottom line, the Court said that § 6201(a)(4) permits the assessment of the tax restitution "as if such amount were such tax." It is not the tax but is treated as a tax to permit the assessment of the restitution amount. The assessment does not permit the IRS to assess interest or additions to the tax as if it were really a tax assessment.
Basically, if the IRS wants to assess interest and additions, it has to audit the years, determine a deficiency (which does not take into account the restitution assessed under § 6201(a)(4)). See Restitution Permits Double Assessments But Only One Collection (Federal Tax Crimes Blog 5/21/17), here.
But, of course, if the IRS were to do the audit and make the tax determination, it would be required to give the taxpayers the benefit of the unclaimed deductions if they proved them. Then the resulting deficiency assessment would be out of whack with the tax restitution amount assessed under § 6201(a)(4) and might permit the taxpayers to seek some ex post facto relief from the sentencing court (e.g., by lowering the tax restitution, thus creating an overpayment somewhere on the IRS's books that would have to be refunded). In this regard, the Tax Court noted that, at sentencing when the taxpayers complained that the restitution amount was too large:
During the sentencing hearing the District Court indicated that it would consider modifying the restitution order if petitioners' 2003-2006 Federal tax liabilities were determined to be less than $562,179.
Perhaps more disturbing, the Court notes the following (bold-face supplied by JAT):
In June 2012 petitioners filed amended individual returns for 2003-2006 showing aggregate additional tax due of $106,578. On August 31, 2012, the date their restitution payment was due, they moved the District Court to vacate their sentences under 28 U.S.C. sec. 2255, urging that the tax-loss calculation underlying their sentences was erroneous. In support of that contention, they pointed to IRS spreadsheets, of which they had recently become aware, indicating that they could be entitled to substantial additional deductions against their 2003-2006 income, which the Government had failed to take into account when calculating the $562,179 tax loss. If all proper deductions were allowed, petitioners contended, the tax loss for 2003-2006 would be only $106,578, i.e., the aggregate additional tax liabilities shown on their recently filed amended returns.
I think the Court was not very careful in failing to distinguish in this paragraph between the tax loss -- a Guidelines calculation concept -- and the restitution amount. It could be that, for any number of reasons, a tax loss calculation could be much large than the underlying actual tax loss to the Government (e.g., unclaimed deductions unrelated to the income inclusion on which the tax loss is based). The Court makes similar confusing statements later which in the section titled "C. Tax Loss vs. Civil Tax Liability," beginning on p. 29. Bottom-line, tax loss and tax restitution are two different concepts.
Basically, if the allegations are true (that's a big if), the Government submitted a tax restitution amount that it knew or should have known was excessive.
And, then the IRS's subsequent failure to conduct an audit which, again assuming the allegations of unclaimed deductions are true, would have shown the restitution to be excessive. In this regard, the taxpayers did file amended returns claiming those deductions, so the IRS should have had at least a hint that something was amiss. And, not only did the IRS not do that audit, it sought to bootstrap interest and additions to tax based on the calculation that there was every indication was excessive. Not a pretty picture if those allegations are true.
So, the Tax Court gave a partial fix. It could not do anything about the restitution amount assessed under § 6201(a)(4), but it damn sure could preclude the IRS bootstrapping additional suspect amounts based on that suspect restitution amount.
1. For lovers of the subjunctive mood, which the court says "Clauses of this type are commonly used to express a counterfactual hypothesis," please read the entire opinion.
2. The Court rejected the IRS's reliance on self-serving IRM instructions: "These IRM provisions, while long on instructions, are short on analysis. It is well established that IRM provisions do not bind the courts."
3. I haven't chased this down, but the Court refers to the restitution as a Title 18 restitution. Apparently, in the plea agreement, the taxpayers did not agree either to the tax loss amount or the restitution amount. Since there is no Title 18 restitution for Title 26 crimes, presumably the court imposed restitution for some other benefit granted the defendants. But, I just have not chased that down and likely will not.
Prior relevant blog entries in reverse chronological order:
Compromises of Nonrestitution Assessments with Restitution Assessments Unpaid (Federal Tax Crimes Blog 1/24/17), here.
Posted by Jack Townsend at 7:52 PM