2021 Year in Review – Cases

Despite the ability to access most courts only remotely for much if not all of the year, 2021 still produced a number of important tax procedure decisions.  Perhaps judges could produce more opinions because they did not need to travel or to hold lengthy in-person trials.  This post shows that not all cases are Graev cases.


Supreme Court matters

The Supreme Court handed down a unanimous opinion in CIC Services.  The Court holds that the Anti-Injunction Act does not bar a suit challenging an IRS notice that requires a non-taxpayer to provide information even though the failure to provide the information could result in a penalty.  Posts can be found  here, here, here and here.

The Supreme Court rejected the request for certiorari in Organic Cannabis v. Commissioner seeking a determination that the time period for filing a petition in Tax Court in a deficiency case is a claims processing period rather than a jurisdictional one but granted certiorari in Boechler v. Commissioner regarding the same issue but in the collection due process context.  The Boechler case will be argued before the Supreme Court on January 12, 2022.

Circuit Court matters

Coffey v. Commissioner, –F.3d – (8th Cir. 2021)  – in a case that fractured the Tax Court about as badly as it can be fractured, the Eighth Circuit, after initially projecting harmony and uniformity in its decision, fractured as well, reversing its initial decision which overturned the Tax Court’s fully reviewed opinion.  This action briefly reopened the door on the question of adequate filing of a return for purposes of triggering the statute of limitations, before reinstating the original holding through a new opinion by the panel. That new panel opinion can be found here. 

Taxpayers claimed that they were residents of the US Virgin Islands in 2003 and 2004 and filed returns with the Virgin Islands tax authority.  That taxing authority has a symbiotic relationship with the IRS and sent to the IRS some of the documents it received.  The IRS took the documents it received and concluded that M/M Coffey should have filed a US tax return.  Based on that conclusion, it sent the Coffeys a notice of deficiency.  The Coffeys argued that the notice of deficiency was sent beyond the statute of limitations on assessment since their filing with the US Virgin Islands tax authority also served as a filing with the IRS, starting the normal assessment statute.  The government argued that because the Coffeys did not file a return with the US, no statute of limitations on assessment existed.  After only eight years, the Tax Court sided with the Coffeys.  A mere three years later, the Eighth Circuit reversed in a unanimous three judge panel. 

On February 10, 2021, the Eighth Circuit granted a panel rehearing but denied a rehearing en banc.  Disagreements with the outcome of a circuit court usually result in a request for a rehearing en banc rather than a rehearing with the very panel that entered the decision.  So, this is a bit of an unusual twist in a case with many twists. After the vacating of the original opinion, the same panel issued a new opinion with some minor differences.

The result of the Eighth Circuit’s decision allows the IRS to come in many years later to challenge residence of individuals claiming Virgin Islands residence.  If the Coffeys had succeeded in this case, the procedural issue would have turned into a substantive victory, since the IRS would not have been able to make an assessment against them for the years at issue.

Gregory v. Commissioner, — F.3d – (3rd Cir. 2020) – This case was decided at the very end of 2020 so it is included here as it came out during last year’s end of year review and also because it is a case argued on appeal by the Tax Clinic at Harvard so including it provides another opportunity to showcase the work of the students.  The issue before the Third Circuit was whether the taxpayers’ use of Forms 2848 Power of Attorney and 4868 Request for Extension of Time constituted “clear and concise notice” of a change of address to the IRS pursuant to Treasury Regulation §301.6212-2.  Although filed as a non-precedential opinion, the outcome is a clear example of how the IRS cannot simply ignore the actual knowledge it has of a taxpayer’s address when issuing a Statutory Notice of Deficiency pursuant to I.R.C. §6212(b)(1), even if that taxpayer failed to follow the IRS’ prescribed procedures for changing their address. 

An odd ending to this case occurred when the Third Circuit returned it to the Tax Court.  Rather than simply entering an opinion for the taxpayers, the Court issued an order restoring the case to the general docket.  That order made no sense because the Gregorys unquestionably filed their Tax Court petition late.  This required the filing of a motion to have the court make a determination that the notice of deficiency was invalid, which it eventually did with no opposition from an equally confused government counsel.

In Patrick’s Payroll Services, Inc., v. Commissioner, No. 20-1772 (6th Cir. 2021), the Sixth Circuit upheld the decision of the Tax Court denying the taxpayer the opportunity to litigate the merits of the underlying tax because of a prior opportunity to discuss settlement with Appeals.  Guest blogger Chaim Gordon wrote about this case after the Tax Court’s decision and while the case was pending before the Sixth Circuit.  Chaim pointed out some of the novel arguments the taxpayer was making.  Unfortunately for the taxpayer, the Sixth Circuit was not buying what they were selling.

The 11th Circuit upheld the decision of the Tax Court in Sleeth v. Commissioner, — F.3d — 2021 WL 1049815 (11th Cir. 2021), holding that Ms. Sleeth was not an innocent spouse.  The Sleeth case continues the run of unsuccessful taxpayer appeals of innocent spouse cases following the major structural changes to the law in 1998. The Tax Court found three positive factors and only one negative factor applying the tests of Rev. Proc. 2013-34.  Yet, despite the multitude of factors favoring relief in each case, the Tax Court found that the negative knowledge factor required denial of relief.  This case follows the decision in the Jacobsen case from 2020 in which the Tax Court denied relief to someone with four positive factors for relief and only knowledge as a negative factor.  The pattern developing in these cases suggests that the Tax Court views the knowledge factor as a super factor, despite changes in IRS guidance no longer describing it as such.  Only economic hardship seems capable of overcoming a negative determination on knowledge.  In this post, Carl Smith discussed the Seventh Circuit’s decision in the Jacobsen case.  Both cases were argued on appeal by the Tax Clinic at Harvard.  The clinic also filed an amicus brief in the case of Jones v. Commissioner, TC Memo 2019-139, set to be argued soon before the 9th Circuit.

Lindsay v. U.S. is the latest case to apply the principle that United States v. Boyle essentially stands for the position that taxpayers have a nondelegable duty to be aware of tax deadlines. An agent’s incompetence or willful misconduct will not excuse the taxpayer from delinquency penalties.  Lindsay was incarcerated and executed a POA to Bertelson, an attorney, to manage his affairs, including filing his tax returns.  The attorney assured Lindsay he was doing so for the years 2012-15; instead he failed to file the returns and for good measure embezzled hundreds of thousands of dollars. The actions resulted in Lindsay receiving $705,414.61 in actual damages and $1 million in punitive damages.  Lindsay eventually filed his tax returns and paid over $425,000 in delinquency penalties. He filed a claim for refund; IRS rejected and he filed a suit in district court. The district court, contrary to the magistrate’s recommendation, granted the government’s motion to dismiss, citing Boyle as precluding a claim for relief. Following a timely appeal, the Fifth Circuit affirmed. In so doing, it applied Boyle to Lindsay’s somewhat sympathetic circumstances.

Tax Court

In Ramey v Commissioner, 156 T.C. No. 1 (2021), the Tax Court determined in a precedential opinion that when the IRS issues a notice of decision rather than a notice of determination and the taxpayer has filed the collection due process (CDP) request late, the Court lacks jurisdiction to hear the case.  The taxpayer, a lawyer, represented himself and pegged his arguments to last known address rather than jurisdiction.  Nonetheless, the decision expands the Court’s narrow view of jurisdiction to another setting without addressing the Supreme Court precedent on jurisdiction and its impact on the timing of the filing of documents.

Galloway v Commissioner, TC Memo 2021-24: This case holds that a taxpayer cannot use the CDP process to rehash a previously rejected offer in compromise (OIC).  Mr. Galloway actually submitted two OICs that the IRS rejected.  As an aside, from the description of the OICs in the Court’s opinion, the rejections seemed appropriate strictly from an asset perspective, since he did not want to include the value of a car he owned but allowed his daughter to use. 

The case of Mason v. Commissioner, T.C.M. 2021-64 shows at least one benefit of submitting an offer in compromise (OIC) through a request for a collection due process (CDP) hearing.  As part of his lessons from the Tax Court series, Bryan Camp has written an excellent post both on the case and the history of offers. 

Friendship Creative Printers v. Commissioner, TC Memo 2021-19: This case holds that the taxpayer could raise the merits of delinquency penalties by the backhanded method of challenging the application of payments.  Taxpayer failed to pay employment taxes over an extended period of time and failed to file the necessary returns but at some point made payments on the earliest periods.  In the CDP hearing, taxpayer argued satisfaction of the earliest periods and eventually provided an analysis showing payments equal to the tax paid.

The Court treated this as a challenge to the merits of the delinquency penalties imposed.  Unfortunately, the taxpayer did not designate its payments, which meant that the payments it made were not applied in the manner it expected and argued in the CDP hearing.  Taxpayer also looked at the transcripts without appreciating the impact of accruals not reflected in the assessed portion of the transcript but accruing nonetheless.

Reynolds v. Commissioner, TC Memo 2021-10: This case holds that the IRS can collect on restitution based assessments even when the taxpayer has an agreement with the Department of Justice to make payments on the restitution award.  Taxpayer’s prosecution resulted in a significant restitution order. He agreed to pay DOJ $100 a month or 10% of his income.  At the time of the CDP case he was not working and did not appear to have many prospects for future employment. Citing Carpenter v. Commissioner, 152 T.C. 202 (2019), the Tax Court said that the IRS did have the right to pursue collection from him.  Obviously that right, at least with respect to levy, is tempered by the requirement in IRC 6343 not to levy when it would place someone in financial hardship, but no blanket prohibition existed to stop the IRS from collecting and therefore to stop it from making a CDP determination in support of lien or levy. The case is a good one to read for anyone dealing with a restitution based assessment to show the interplay between DOJ and IRS in the collection of this type of assessment, as well as to show the limitations of restitution based assessments compared to “regular” assessments.

BM Construction v. Commissioner, TC Memo 2021-13: This case involves, inter alia, a business owned by a single individual and the mailing of the CDP notice to the business owner rather than the business.  The Tax Court finds that sending the CDP notice to the individual rather than the business does not create a problem here, since the sole owner of the business would receive the notice were it addressed to the business rather than to him personally.

Shitrit v. Commissioner, T.C. Memo 2021-63, points out the limitations on raising issues other than the revocation of the passport when coming into the Tax Court under the jurisdiction of the passport provision.  Petitioner here tries to persuade the Tax Court to order the issuance of a refund but gets rebuffed due to the Court’s view of the scope of its jurisdiction in this type of case.

The case of Garcia v. Commissioner, 157 T.C. No. 1 (2021) provides clarity and guidance on the Tax Court’s jurisdiction in passport cases as the Court issues a precedential opinion to make clear some of the things that can and cannot happen in a contest regarding the certification of passport revocation.  I did not find the decision surprising.  The Court’s passport jurisdiction is quite limited.  Petitioners will generally be disappointed in the scope of relief available through this new type of Tax Court jurisdiction. 

Other Courts

In Mendu v. United States, No. 1:17-cv-00738 (Ct. Fd. Claims April 7, 2021) the Court of Federal Claims held that FBAR penalties are not taxes for purposes of applying the Flora rule.  In arguing for the imposition of the Flora rule, the taxpayer, in a twist of sides, sought to have the court require that the individual against whom the penalties were imposed fully pay the penalties before being allowed to challenge the penalties in court.  The FBAR penalties are not imposed under title 26 of the United States Code, which most of us shorthand into the Internal Revenue Code, but rather are imposed under Title 31 as part of the Bank Secrecy Act.

The case of In re Bowman, No. 20-11512 (E.D. La. 2021) denies debtor’s motion for summary judgment that Ms. Bowman deserves innocent spouse relief.  On its own, the court reviews the issue of its jurisdiction to hear an innocent spouse issue as part of her chapter 13 bankruptcy case and decides that it has jurisdiction to make such a decision.  The parties did not raise the jurisdiction issue, which is not surprising from the perspective of the plaintiff, but may signal a shift in the government’s position since it had previously opposed the jurisdiction of courts other than the Tax Court to hear innocent spouse cases.

IRS Pronouncements on Representative Capacity, Restitution Assessments and E-Signatures

A few IRS documents, two of which are internal facing and two of which are public facing, deserve mention.  The internal facing documents are copies of advice from Chief Counsel National Office to a field office.  This type of advice is advice that Chief Counsel’s office must make public but that does not bind the agency.  The field attorneys, who might see an issue once in their career, regularly seek advice from the National Office where a subject matter expert might regularly come across the issue.


Representative Capacity

The first advisory opinion appears related to a Tax Court case and the concern of the field attorney whether the person who filed the petition on behalf of an estate has the capacity to do so.  The advice was rendered on August 6, 2021 in CCA 2021080609223250 and provides:

We have reviewed this matter, as well as received the input of our colleagues in Branch 4. Our conclusion is that the best course of action here is to have the * * * appointed by a Florida court as the estate’s personal representative. I am attaching here a CCA that was brought to my attention by Branch 4 with some similarities to the present fact pattern.

As you noted in your initial analysis, the rules of the Tax Court provide that the capacity of a fiduciary or other representative to litigate is determined in accordance with the law of the jurisdiction at issue, in this case Florida. In keeping with PA policy, we defer to your own interpretation of the substance of Florida law. Given your conclusion that there are likely no provisions of Florida law authorizing a trustee to act in this manner, and given Branch 4’s conclusion that when an individual has not been appointed as the personal representative of the estate, Form 56 should be rejected absent authority under local law, attaining personal representative status from the Florida court would be the logical conclusion.

This issue regularly presents itself in estate cases if someone contests the tax liability without first getting appointed as the executor or personal representative of the estate.  The government looks carefully in any case that does not involve an individual bringing the case on their own behalf to make sure that the person instituting the proceeding has the capacity to do so.

Restitution Assessment

We have written several posts on various issues regarding restitution assessments.  The IRS can make an assessment prior to going through the deficiency procedures if the district court handling a criminal tax matter takes certain prescribed acts.  Here the National Office gives advice to the field office on July 21, 2021 in CCA 2021072113061244 that a restitution based assessment should not occur in a case because the district court failed to enter the type of order that would support such an assessment:

This is not an assessable order of restitution under section 6201(a)(4). While the court imposes upon the defendant a duty to pay taxes during the period of supervised release, the court does not specify a sum certain due as restitution to the United States. Courts often impose conditions of supervised release requiring a taxpayer to cooperate with the IRS or pay taxes, but we do not treat these as assessable orders of restitution unless a sum certain is imposed by the court. Here, no such amount is specified either in the court’s judgment, in the transcript of the sentencing hearing, or in any separate order of restitution. There is some discussion in the sentencing hearing transcript about restitution, but no sum certain is ever imposed as restitution against the defendant.

While short, the CCA does provide valuable information regarding the type of order in a criminal case that will not support a restitution based assessment.  This provides another reminder to look closely at the actions of the criminal court in reviewing the IRS administrative actions following prosecution.

Electronic Signatures

The pandemic has become the mother of invention in a number of areas including signatures.  Because of the difficulty and potential danger in requiring actual signatures on many documents, the IRS has created lists of documents on which it will accept electronic signatures.  On November 18, 2021, the IRS updated its list of documents on which it would accept an electronic signature.  The list approves electronic signatures through October 31, 2023 – maybe the IRS knows something about how long the pandemic will last.


Douglas W. O’Donnell
Deputy Commissioner for Services and Enforcement

Temporary Deviation from Handwritten Signature
Requirement for Limited List of Tax Forms

This memorandum revises the memorandum issued on April 15, 2021 (Control Number NHQ-10-0421-0002).

As part of our response to the COVID-19 situation, we have taken steps to protect employees, taxpayers and their representatives by minimizing the need for in-person contact. Taxpayer representatives have expressed concerns with securing handwritten signatures during these times for forms that are required to be filed or maintained on paper. To alleviate these concerns while promoting timely filing, we are implementing a deviation with this memorandum that allows taxpayers and representatives to use electronic or digital signatures1 when signing certain forms that currently require a handwritten signature. The forms to which this flexibility applies can be found in the attachment to this memo. Such forms must be signed and postmarked on August 28, 2020 or later. The attachment may be updated from time to time to either add or remove applicable forms as appropriate.


Form 11-C, Occupational Tax and Registration Return for Wagering;

Form 637, Application for Registration (For Certain Excise Tax Activities);

Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

Form 706-A, U.S. Additional Estate Tax Return;

Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions;

Form 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust;

Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations;

Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts;

Form 706 Schedule R-1, Generation Skipping Transfer Tax;

Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;

Form 730, Monthly Tax Return for Wagers;

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons;

Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;

Form 1120-C, U.S. Income Tax Return for Cooperative Associations;

Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation;

Form 1120-H, U.S. Income Tax Return for Homeowners Associations;

Form 1120-IC DISC, Interest Charge Domestic International Sales — Corporation Return;

Form 1120-L, U.S. Life Insurance Company Income Tax Return;

Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;

Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;

Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;

Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;

Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);

Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship;

Form 1128, Application to Adopt, Change or Retain a Tax Year;

Form 2678, Employer/Payer Appointment of Agent;

Form 3115, Application for Change in Accounting Method;

Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts;

Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner;

Form 4421, Declaration — Executor’s Commissions and Attorney’s Fees;

Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes;

Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues;

Form 8038-G, Information Return for Tax-Exempt Governmental Bonds;

Form 8038-GC; Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales;

Form 8283, Noncash Charitable Contributions;

Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms;

Form 8802, Application for U.S. Residency Certification;

Form 8832, Entity Classification Election;

Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent;

Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement; and Elections made pursuant to Internal Revenue Code section 83(b).


1Electronic and digital signatures appear in many forms when printed and may be created by many different technologies. No specific technology is required for this purpose during this temporary deviation.

I decided that copying the list of documents here was easier than sending you to a link.  It’s interesting what the IRS finds acceptable for an e-signature.  The memorandum does not provide an explanation of the criteria used for making the selection of forms.  This list relates to forms leading to a determination of liability. 

On the same date, the IRS issued a list of forms taxpayers can e-sign that relate to the collection of tax:


Douglas W. O’Donnell
Deputy Commissioner for Services and Enforcement

(1) Approval to accept images of signatures and digital signatures
(2) Approval to receive documents and transmit encrypted documents by email

This memorandum supersedes the April 15, 2021, memorandum (Control Number NHQ-01-0421-0001) to provide additional employee guidance and an extended expiration date.

In response to the COVID-19 situation and stakeholder requests, we are taking steps to protect employees and taxpayers while still delivering on our mission-critical functions. We are maximizing the ability to execute on critical duties in a remote working environment where employees, taxpayers and their representatives are working from alternate locations. In accordance with IRM, When Procedures Deviate from the IRM, this memorandum extends temporary deviations that allow IRS employees (1) to accept images of signatures and digital signatures on documents related to the determination or collection of tax liability and (2) to send or receive documents to or from taxpayers using email with encrypted attachments when no other approved electronic alternative is available. These deviations apply to any statement or form traditionally exchanged between IRS personnel and taxpayers during a compliance interaction outside of standard filing procedures. Refer to Attachment 1, Procedures, for additional guidance.

This memorandum is effective upon issuance through October 31, 2023. The signature and email exceptions permitted under this memorandum do not establish a precedent for acceptable use of alternative signatures or email in other circumstances.

The collection forms impacted by this notice are described as follows:

This guidance covers interactions between IRS employees and taxpayers related to the determination or collection of tax liability (“compliance interactions”). The scope of documents affected include any statement or form traditionally exchanged between IRS personnel and taxpayers during a compliance interaction and outside of standard filing procedures, including but not limited to:

Document CategoryExamples
Extensions of statute of limitations on assessment or collectionForms 872 and 921 series, Forms 900, 952, 977, 2750, 4016, SS-10
Waivers of statutory notices of deficiency and consents to assessmentForms 870, 890, 2504, 4089-B, 4549, 5564-A, 13449
Agreements to specific tax matters or tax liabilities (closing agreements)Forms 866, 906, 14490, 14491, 14492
Prior-year (delinquent) tax returns secured through an examination or collection interaction   Caution: Returns which are not yet due to be filed, including extensions, should be filed in accordance with the instructions for the respective form.Forms 940/941, 1040, 1120, 1065  
Other statements or forms needing the signature of a taxpayer or representative traditionally collected outside of standard filing proceduresForms 433-A/B/D, 2159, 2297, 3363, 4669, 4670, 8626, 12153  
Other statements or documents relevant to development of a case, not limited to IRS forms or signed documents 

Limitation on Offset When the Government Seeks to Collect Restitution

The case of United States v. Taylor, No. 2:06-cr-00658 (E.D. PA 2021) brings out a limitation on the right to offset when the Government is collecting on a court-ordered restitution amount.  Here, the Government, specifically the Department of Justice, gets its hand slapped for levying on the social security of a convicted criminal.  The levy here is the 15% on social security that regularly arises with respect to outstanding federal tax obligations.  There is no indication in the opinion that the IRS made a restitution based assessment in this case or any kind of assessment.  This appears to be a case involving the payment of the court ordered restitution payment and not a derivative liability stemming from the restitution order.  The court does not mention the IRS other than in relation to the crime committed by the petitioner.


Ms. Taylor and others were convicted of conspiracy to defraud the IRS.  The federal district court that sentenced her and then ordered her to pay a restitution judgment of $3.3 million.  The court, however, failed to take into account her financial resources and the Third Circuit vacated the restitution order and remanded the case so that the district court could make an appropriate determination of her ability to pay as well as her culpability.

On remand, the court determined her ability to pay was $100 per year and noted that the government could come back to the court for an increase if her circumstances changed.  This happened in 2012.  Between 2012 and 2019 when Ms. Taylor became eligible for aged-based social security benefits, the government did not return to the court to seek an increase, although it did make a preliminary determination that she could pay $25 a month.

The restitution payments were listed with the Bureau of Fiscal Services as available for offset pursuant to the Treasury Offset Program (TOP) because they were delinquent federal debts.  When the social security payments began, TOP began offsetting 15% of her social security (about $235 a month) and applied the funds taken from her monthly social security check to her outstanding restitution obligation.  She continued to comply with the court order to pay $100 a year.

When Ms. Taylor initially brought the action complaining of the TOP offset, she did so pro se.  The district court appointed Peter Hardy, one of the top white collar criminal defense attorneys in Philadelphia who also taught as an adjunct professor at Villanova when I was there and has guest posted for us in the past (for example, see this terrific post on the crime fraud exception to the attorney client privilege).  Undoubtedly, Ms. Taylor benefited from his appointment.

The court provides some background on the TOP program which we have discussed previously here and here

Ms. Taylor argued that she was in compliance with the restitution order, making the TOP offset inappropriate.  She also argued that her restitution debt was not delinquent, meaning it was not one the government should refer to TOP.  The Government argued that the referral to TOP was appropriate because she had a large outstanding debt.  The court finds that the debt is not delinquent:

“[U]nlike a civil judgment, the restitution order is the product of a ‘specific and detailed [statutory] scheme addressing the issuance . . . of restitution orders arising out of criminal prosecutions.’” Id. at 1204 (quoting United States v. Wyss, 744 F.3d 1214, 1217 (10th Cir. 2014)). Section 3572(d) states that “[a] person sentenced to pay a fine or other monetary penalty, including restitution, shall make such payment immediately, unless, in the interest of justice, the court provides for payment on a date certain or in installments.” 18 U.S.C. § 3572(d)(1). This subsection provides that the full payment of restitution is not due immediately if a court establishes a payment plan for restitution. See Martinez, 812 F.3d at 1205. Thus, “a defendant subject to an installment-based restitution order need only make payments at the intervals and in the amounts specified by the order.” Id. Section 3572 also explicitly defines when a payment of restitution is delinquent or in default. See 18 U.S.C. § 3572(h)-(i). A “payment of restitution is delinquent if a payment is more than 30 days late.” Id. § 3572(h). A “payment of restitution is in default if a payment is delinquent for more than 90 days. Notwithstanding any installment schedule, when a fine or payment of restitution is in default, the entire amount of the fine or restitution is due within 30 days after notification of the default.” Id. § 3572(i). These provisions “would be unnecessary, even meaningless, if the total restitution amount were already owed in full under an installment-based restitution order.” Martinez, 812 F.3d at 1205. It is evident from the structure and language of § 3572 that under an installment-based restitution order, the restitution debt only becomes delinquent when a defendant’s installment payment is more than 30 days late.

The court tells the government that if it wants more from Ms. Taylor it needs to come back to the court and request more.  It cannot simply offset at a time when she has continued to comply with the court’s order.  The court orders the government to stop the offset and to return to her all the money taken through TOP.  Perhaps the government will come looking for her and seek to raise the amount she must pay from $100 a year to a larger number.  Because she became unemployed as a result of the pandemic, this might prove difficult.

It’s unclear if the conspiracy to defraud the IRS could turn into a tax assessment.  If the IRS made a tax assessment of the liability or some part of the liability, it could collect on the tax liability independent of the restitution order and through a tax assessment could potentially levy on her social security.  Ms. Taylor, as part of her defense to the taking of the social security funds, argued that the taking of these funds put her into a difficult financial situation.  If the IRS made a tax assessment, it could not levy, even through TOP, if doing so would create financial hardship as defined by IRC 6343(a)(1)(D).  Convicted tax criminals generally make difficult taxpayers from whom to collect.  Ms. Taylor appears to fit into that category.

TIGTA Report on Restitution

Last week I wrote about a recent Tax Court order regarding restitution.  In that case, the taxpayer fully paid the tax included in the restitution order.  At issue in the case were penalties the IRS proposed against the taxpayers.  I pointed out at the conclusion of that post the significant benefit to the IRS of the ability to assess based on the restitution order because without that ability the IRS might have needed to wait years, until the conclusion of the Tax Court case, before it could assess and begin collection on the underlying tax liability.

A TIGTA report issued on June 7, 2021 suggests that the IRS fumbles the opportunity to make restitution based assessments in a number of criminal cases and that it makes the assessments much slower than the target dates for doing so.  In its response to the TIGTA report, the IRS basically said it agreed with the TIGTA findings and would work to improve the process.  In addition to the findings that the IRS failed to make some restitution assessments and made other assessments much slower than expected, TIGTA also found that the IRS was making assessments of interest and penalties through the restitution assessment process even though it should not.  In short, the report shows the IRS fumbling a very advantageous assessment process Congress handed to it in 2010.


At the outset TIGTA gave some figures on the total amount of restitution ordered and collected.  It also noted that not every restitution order gives the IRS the right to assess:

From FYs 2016 to 2020, the courts ordered defendants to pay over $2.7 billion in criminal restitution to the IRS. During that same period, a total of $844 million in restitution was paid to the IRS, only 31 percent of the amount ordered. Figure 2 lists the amounts of restitution ordered and paid from FYs 2016 to 2020.

Figure 2: Amount of Restitution Ordered and Paid (FYs 2016–2020)
Fiscal YearsRestitution OrderedRestitution Paid18% of Restitution Paid
Source: Information Provided by CI and the SB/SE Division.

The low percentage of restitution paid to the IRS in recent years may not be indicative of the effectiveness of the law change providing for the assessment of restitution. As we previously described, the IRS only has the authority to assess the restitution ordered by the courts if the criminal offense was for a tax-related crime. Since the law change in Calendar Year (CY) 2010, CI devoted significant resources investigating cases for which the IRS did not have the authority to assess any restitution ordered. For instance, the IRS was unable to assess any restitution ordered if defendants were sentenced for crimes involving identity theft because the restitution is attributable to fictitious tax returns. During FYs 2013 through 2017, CI initiated over 4,000 investigations involving identity theft.

TIGTA then analyzed the cases in which the IRS made a restitution based assessment and those where it did not.  It found that the IRS collected almost 50% of the tax when it made a restitution based assessment and a very low percentage when it did not (or could not) make a restitution based assessment.  Based on this data, it seems that the IRS should seek even more expanded authority to make restitution based assessments, assuming it could show Congress that it would appropriately use the power granted to it.  Following the passage of the law allowing restitution based assessments, the IRS developed procedures for identifying the appropriate cases and processing the request for assessment from CI to SBSE.  As mentioned above, the IRS has done a weak job of following the procedures it established:

According to the IRM, CI is required to close its case and notify the civil functions of the amount of restitution ordered no later than 30 calendar days after final adjudication by a court. CI notifies the applicable functions within the SB/SE and W&I Divisions of the amount of restitution ordered by completing Form 13308, Criminal Investigation Closing Report, and Form 14104, Notification of Court Ordered Criminal Restitution Payable to the IRS, (hereafter we will refer to these as “closing documents”) and attaching the Judgment and Commitment Order (J&C). The closing documents sent to the civil functions can also include the plea agreement, indictment, and Special Agent Report.

We conducted testing to determine if the IRS properly assessed restitution when the courts sentenced and ordered 3,435 defendants to pay just over $2.5 billion in restitution to the IRS for tax-related crimes during FYs 2016 through 2019. Our analysis of CIMIS revealed that 418 of the 3,435 cases for which a total of $244 million in restitution was ordered were SIRF cases with no IRS conditions of probation or supervised release. The restitution ordered in these types of cases was not assessable. We compared the remaining 3,017 cases, for which restitution of nearly $2.3 billion was ordered, to Master File data obtained from the DCW. Our testing determined that the IRS made restitution assessments in 1,958 cases where defendants were ordered to pay nearly $1.3 billion in restitution. This left 1,059 cases for which the defendants were ordered to pay nearly $1 billion in restitution that was not assessed. Figure 4 presents the results of this testing to determine if restitution was assessed.

Figure 4: Analysis to Determine If the IRS Assessed Restitution
Restitution Assessment CategoryNumber of DefendantsTotal Restitution Ordered
Restitution Assessed1,958$1,295,060,577
Not Assessed1,059$979,749,303
Source: Analysis of CIMIS and Individual Master File data.

We selected a statistical sample of 140 of the 1,059 unassessed restitution cases and reviewed the associated Form 14104 to determine if CI indicated that the restitution was assessable. Our analysis identified 33 cases for which CI determined that restitution of more than $21.6 million was assessable. For the other 107 cases, among the more prevalent reasons the IRS did not assess the restitution was that CI determined that the restitution was not assessable (94 cases) or the case was currently under appeal (seven cases). We provided information for 33 cases to the SB/SE Division, and it responded that:

– In 19 cases, the restitution of just over $9 million was not assessed because the Technical Services Unit indicated that it did not receive the closing documents from CI. In 12 instances, CI acknowledged that the closing documents were never sent or were not sent timely. In seven instances, CI asserted that the documents were sent. The Technical Services Unit had to request the pertinent information from CI.

– In seven cases, restitution assessments of more than $10.2 million were delayed because of COVID-19. The Technical Services Unit eventually assessed the restitution in all seven cases by December 2020.

– In seven cases, restitution of almost $2.4 million was not assessable. This included * * * 1* * * for which the restitution was ordered solely as a condition of supervised release or probation. In these instances, the Technical Services Unit indicated that it would assess the restitution when the defendant is released from prison.

When we projected the results to the population, we estimate that restitution of $69 million was not assessed in 144 cases because CI did not send the closing documents or the documents could not be located. When forecast over five years, we estimate that a total of $345 million in restitution was not assessed in 720 cases.

By failing to follow its own procedures in CI in making the referral of the case for the restitution based assessment, the IRS appears to be leaving money on the table from individuals it has identified as tax cheats.  These individuals are likely to pay the tax if it keeps them from further time in prison but could become very difficult to pursue thereafter.  Fumbling the handoff from CI back to SBSE for assessment and collection seems most unfortunate after it has spent so many hours developing the criminal case and when the percentage of collection of restitution based assessments is relatively high.

In cases where CI made the handoff to SBSE, problems persisted because SBSE could not make the assessment in a timely fashion.  Speed can matter here because the assets of this group will diminish quickly.

Once CI prepared the closing documents, it took the Technical Services Unit an average of 198 calendar days to assess the restitution. Technical Services Unit personnel told us they face barriers in their efforts to timely assess restitution, including receiving incomplete or late packages from CI and the process of posting the actual assessments, which must pass through other Campus functions to be established. They indicated that they established a process to track restitution assessments to evaluate timeliness, but they agreed with the need to conduct periodic reviews. Figure 5 contains a breakdown of the number of days it took to assess the restitution.

Figure 5: Analysis of Days to Assess Restitution for the 68 Sample Cases
Restitution Assessment CategoryExpected Days to Complete51Average Days to Complete
From the Date of Final Adjudication by a Court Until the Date CI Forwarded the Closing Package to the Technical Services Unit3057
From the Date CI Forwarded the Closing Package Until the Date the Technical Services Unit Assessed Restitution75198
Total Days From the Date the Court Filed the J&C Until the Date the Technical Services Unit Assessed Restitution105255

In addition to these problems, TIGTA found that the IRS was not following the Tax Court decision in Klein v. Commissioner, 149 T.C. No. 15 (2017), which held that the IRS may not assess and collect interest and penalties on restitution ordered for a criminal conviction for failure to pay tax.  TIGTA notes the IRS actions after Klein provide another example of the IRS not protecting taxpayer rights reminiscent of its actions after losing the Rand case.  Rather than proactively abating the interest and penalty it knew was wrong, Chief Counsel’s office advised the IRS to wait and only make the abatement if a taxpayer brought up the issue. Despite this advice, the IRS did decide to identify and abate interest and penalties but so far has done so in only 31 of 676 cases TIGTA identified.  So, if you have a client in this situation, you may need to be proactive to get the penalty removed.

The final part of the report shows that the IRS was not following up on taxpayers meeting the conditions of probation and reporting violations to the probation officer.  This type of monitoring can be critical to success in collection.  From the description it appears that the handoff between CI and SBSE creates some of this problem.  While TIGTA did not make a formal recommendation on this point because it knows that IRS resources are strained, it stated:

The inability to properly monitor the conditions of probation or supervised release could be a contributing factor for why U.S. courts rarely revoked the probation or supervised release for defendants sentenced for tax-related crimes. The courts revoked probation in only 12 of the over 9,000 CI criminal investigations for which a defendant was sentenced for tax-related crimes during FYs 2016 through 2019. Courts will generally not revoke probation unless the failure to comply was willful. Because this can be hard to prove, this remedy is not widely invoked. One Special Agent in Charge we contacted also indicated that the resources of the USAOs are also limited, and * * * 1 * * *.

All in all, the report provides a picture of a program with much promise that is not meeting its potential.  The IRS has had a decade to work out these issues.  It can see from the percentage of dollars collected in cases in which a proper restitution based assessment occurs that the benefits of making this type of assessment are high.  It needs to find a way to reap the maximum benefits from this program and obtain money from the individuals it has determined represent the worst taxpayers.

Imposing Penalties After Restitution Assessment

The recent case of Ervin v. Commissioner, T.C. Memo 2021-75 affirms the ability of the IRS to impose penalties after it makes a restitution assessment.  This case does not create precedent or cover new ground but does provide a reminder of how the restitution based assessments work.  We have previously written about restitution based assessments most of which are collected in this post.  TIGTA issued a report on restitution based assessments earlier this month which I plan to discuss in a future post.


Mr. Ervin and his wife owned a real estate management company in Alabama and apparently received cash payments for many of the properties.  They were indicted in 2011 not only on tax evasion, IRC 7201, but also on title 18 charges of conspiracy to defraud the United States and aiding and abetting.  The conspiracy charge appears to stem from their efforts to avoid reporting of cash deposits by structuring the deposits to keep them under $10,000.  A jury convicted them on most counts, including tax evasion, for the years 2004-2006. 

A couple of things are a little unusual about their criminal case.  First, they were convicted of evasion even though they did not file tax returns from 2000-2009.  Proving evasion based on non-filing can be difficult.  No doubt the structuring aspect of the case was crucial to this proof.  The second thing I found a bit unusual was the ten-year length of their sentence.  As we discussed in the post describing the sentence of former Tax Court Judge Kroupa, sentencing in tax cases primarily turns on the dollars lost to the government.  Here, the IRS could calculate the loss not only over the years of the conviction but the other years of non-filing causing a total of over $1.4 million.  Because they went to trial, the Ervins would not have received any positive points in the sentencing calculation for acceptance of responsibility.  This is a substantial sentence for a financial crime of this type but not necessarily an inappropriate sentence under the guidelines or otherwise.

In addition to the sentence of time in prison, the court ordered restitution to the government of $1,436,508 for the estimated tax loss to the government for the ten years of unfiled returns.  The IRS made restitution based assessments and actually collected the full amount of the liability; however, it did not stop there.  In 2014, it sent petitioner Monty Ervin two notices of deficiency – one for 2002-2004 and one for 2005-2007.  These notices were based on penalties, additions to tax, the IRS felt he owed for these tax years.  The IRS imposed four separate penalties, though not for each period.  The penalties were for failure to file, failure to pay, failure to pay estimated tax and fraudulent failure to file.  The penalties total another several hundred thousand dollars.

From prison Mr. Ervin contested the imposition of the penalties, making two arguments: 1) the IRS could not impose penalties after making the restitution based assessments and 2) the IRS had already determined he could not pay so it should not impose the penalties and make assessments in this situation. 

The Court provided a brief overview of the applicable law which foretells the outcome of the case:

Section 6201(a)(4)(A) provides that “[t]he Secretary shall assess and collect the amount of restitution * * * [ordered by a sentencing court] for failure to pay any tax imposed under this title in the same manner as if such amount were such tax.” The IRS may not make such an assessment until the defendant has exhausted all appeals and the restitution order has become final. See sec. 6201(a)(4)(B). The restrictions on assessment imposed by section 6213 do not apply to restitution-based assessments. See sec. 6213(b)(5). The IRS therefore is not required to send the taxpayer a notice of deficiency before making an assessment of this kind.

[*9] In Klein v. Commissioner, 149 T.C. 341, 362 (2017), we held that “additions to tax do not arise on amounts assessed under section 6201(a)(4).” That is because a defendant’s restitution obligation “is not a civil tax liability,” id. at 361, or a “tax required to be shown on a return,” ibid. (quoting section 6651(a)(3)). Rather, restitution is assessed “in the same manner as if such amount were such tax.” Sec. 6201(a)(4)(A) (emphasis added). But we explained that the IRS was not thereby disabled from collecting such sums. “If the IRS wishes to collect * * * additions to tax, it is free to commence a civil examination of * * * [the taxpayer’s] returns at any time.” Klein, 149 T.C. at 362.

The IRS properly followed that procedure here. It made the assessment after the restitution order became final. It subsequently commenced a civil examination of petitioner’s individual liabilities for 2002-2007 and prepared SFRs, allocating him a portion of the relevant income and deductions. See supra ap. 4-5. It then calculated additions to tax based on the deficiencies so determined.

While the Court’s explanation of the law signals the ability of the IRS to follow a restitution based assessment with proposed penalty assessments, the Court analyzed each proposed penalty to determine if the imposition of the penalty appropriately matched the facts of the case.  After finding that the IRS appropriately applied the penalties, the Court granted summary judgment.

Petitioner may never pay this amount, as collection from someone coming off of 10 years of incarceration will be extremely difficult, but the legal principle here follows from prior determinations of the manner in which restitution based assessments work.  The design seeks to allow the IRS to make an assessment of the core amount of the tax determined in the criminal proceeding without having to wait many years for the end of the tax merits process to come to a conclusion.  The way this case played out demonstrates the benefit to the IRS of the restitution based assessment.  The criminal case essentially ended with the sentencing in June of 2012.  Now it is nine years later before the Tax Court case ends.  Prior to the restitution based assessment provisions, the IRS would have had to sit on its hands regarding collection until the end of the Tax Court case which would have allowed it to assess.  By making the restitution based assessment shortly after the end of the criminal case, the IRS stands a much better chance of collecting, and here it appears to have collected all of the tax.  The delay caused by the deficiency process and six years in the Tax Court may make its chances to collect the penalty portion of the case difficult, but the core of the liability in this case was recovered.  That’s a victory for the process.

Restitution Based Assessments

We note that the Practical Tax Lawyer (“PTL”) is looking for authors.  PTL gives the general practice and small firm lawyer short, practical “how-to” or “intro to” sorts of articles on tax.  PTL especially welcome articles that help practitioners think about how to deal with recent changes in the law, regulations, or IRS litigating position that might affect a tax practice.  So any articles on navigating the various COVID issues would be terrific!  The articles might be on procedural issues dealing with the COVID-impaired IRS, such as filing, amending returns, dealing with multiple tax years or strange notices.  Or articles could be on substantive COVID provisions like the PPP loans, EIP payments, etc.  PTL articles tend to be short (1,800 to 5,000 words) but longer articles are welcome too.  This is a great opportunity for anyone who wants to dip their toes into writing, or perhaps expand a blog post into a short article that would reach a broader audience that loyal PT readers.  If interested, contact Bryan Camp at bryan.camp@ttu.edu who will then connect you to the PTL editor, Dara Lovitz.  There’s no money in it, unfortunately.  Just pride of authorship, and creation of reputation. 

We have written about restitution based assessments before on several occasions some of which are found, here, here and here.  Tax Notes recently published a series of internal Chief Counsel email advisory opinions on these assessments that collectively are worth mention.  The emails focus on a case, United States v. Westbrooks, 858 F.3d 317 (5th Cir. 2017) which we have not previously blogged.  I will spend some time on the case and then on the emails addressing issues raised by Westbrooks.


Tammy Westbrooks had two tax preparation businesses, one in North Carolina and one in Texas.  She was indicted for overstating expenses of the businesses and convicted of corruptly endeavoring to obstruct the administration of the tax code in violation of IRC 7212(a) as well as three counts of filing false tax returns in violation of IRC 7206(1).  Upon conviction the court imposed a sentence of 40 months and it also ordered her to pay $273,460 in restitution to the IRS in quarterly installments of $25 or half of prison earnings, whichever is greater, while incarcerated, and in the monthly amount of $400 or ten percent of gross earnings, whichever is greater, during the year of supervised release that would follow her prison term.

She appealed the conviction on the obstruction count and the restitution order.  The Fifth Circuit upheld the conviction but modified the restitution order.  Most of the opinion concerns her arguments regarding the appropriateness of the conviction on obstruction, but I will only discuss the restitution aspect of the opinion.  With respect to the restitution order she argued:

the district court’s order of restitution was not authorized because: (1) the court imposed restitution as part of her sentence under a general restitution statute, which is not permitted for Title 26 offenses; and (2) even if the court imposed restitution as a condition of supervised release, which is permitted for Title 26 offenses, it was not authorized to do so because she did not agree to restitution in a plea bargain.

The Fifth Circuit found that 

Neither the Victim and Witness Protection Act, 18 U.S.C. § 3663, nor the Mandatory Victim Restitution Act, 18 U.S.C. § 3663A, allow restitution for a tax code offense under Title 26 (as opposed to offenses described in the general criminal code of Title 18). But several statutes, read together, allow district courts to order restitution for tax offenses as a condition of supervised release….  Courts’ broad authority to order restitution as a condition of supervised release in tax cases is recognized in the Sentencing Guidelines and generally in the federal courts. See U.S.S.G. § 5E1.1(a)(2) ; United States v. Batson, 608 F.3d 630, 635 (9th Cir. 2010)

The court concluded that the judgment wrongly required her to make restitution payments while still in prison.  It decided that the best means of fixing the error was to modify the judgment to only require restitution after her release. She argued that because this was a tax offense, the district court did not have authority to require restitution during supervised release but the Fifth Circuit disagreed.

Next, she argued that the amount of the restitution was too high and the tax loss calculation, which would impact her sentence under the guidelines, was improperly calculated.  The Fifth Circuit noted that restitution is limited to the loss caused by the conviction. It also noted that this issue is one where it reviewed the amount of the restitution order for abuse of discretion, putting a tall barrier to success before her.  The court looked at the trial court record and determined that the amount of the restitution award was not clearly erroneous.  For purposes of this discussion the main takeaway from this restitution issue is the high bar a defendant faces to reduce the decision of the trial court.  The more important restitution issue in the case is the limitation of the time during which the defendant must pay the restitution.

With this background, there was four advisory opinions recently published although issued over the course of the past year.

In CCA_2020090314343344 which was written on September 3, 2020, the advice provided was

The restitution in this case is assessable and is not subject to the Westbrooks limitations on assessment and collection. The judgment lists the restitution as a criminal monetary penalty as well as a condition of supervised release. Normally, where restitution is listed as a criminal monetary penalty, it is imposed as an independent part of the sentence. In addition, the plea agreement provides for the defendant to pay restitution.

In CCA_2020100911062544 which was written on October 9, 2020, the advice provided was

This is not a Westbrooks case. The activity for which the defendant was convicted under Title 18 (* * *) embraces conduct for all of the years for which restitution was ordered, and offense for which the defendant was convicted is described in 18 USC 3663A(c)(1). Restitution was therefore mandatory under the Mandatory Victims Restitution Act and the court thus had the power to impose it as an independent portion of the sentence. The court did so, as shown on p. * * * of the judgment.

In CCA_2020100914392144 which was also written on October 9, 2020, the advice provided was

This is not a Westbrooks case because restitution was imposed as an independent part of the sentence pursuant to a plea agreement. However, the government is only one of the victims of the crime in count * * *. Where there are victims other than the government, the government is only paid after the other victims have been paid. Accordingly, the government cannot collect on the restitution-based assessment until the non-government victims have been paid.

In CCA_2020111810055044 which was written on November 18, 2020, the advice provided was

The IRS is obliged only to assess and collect restitution during the period of supervised release. This is technically not a Westbrooks case because the district court had authority to impose restitution independently. However, the district court did not do so in this case. The judgment describes the restitution imposed solely as a condition of supervised release and not under the portion that describes the rest of the sentence. We also confirmed from the Department of Justice that the government’s understanding was that restitution was imposed solely as a condition of supervised release. Accordingly, for the reasons stated in PMTA 2018-19, the IRS is obliged to only assess and collect restitution during the period of supervised release.

The advisory opinions reflect that the IRS is paying careful attention to the restitution orders and its ability to pursue collection under those orders.  This suggests that if you are representing someone who has been the subject of a restitution based assessment you should also pay careful attention to the restitution order and how the timing of that order works.  As discussed in the prior posts there are limitations on restitution based assessments.  The provision allowing these assessments gives the IRS the opportunity to assess shortly after a criminal conviction or plea eliminating the need for the IRS to go through what could be a very lengthy deficiency assessment process prior to assessment.  The quickness provided by this assessment provides a significant benefit to the IRS and fills a gap in time created by the deficiency assessment process; however, the restitution assessment comes with some limitations on the IRS’s normal collection powers.

Restitution Based Assessment Upheld

In Engle v. Commissioner, T.C. Memo 2020-69 the Tax Court faced question of timing regarding the restitution ordered with respect to Mr. Engle.  We have written before about restitution based assessments (RBAs) including a post last month that collected earlier posts on the subject.   RBAs arrived on the scene a decade ago as part of the Firearms Excise Tax Improvement Act of 2010 (FETIA).  The Court indicates that the government made some concessions on interest and penalties based on its decision in Klein v. Commissioner, 149 T.C. 341 (2017) and, probably, on the IRS notice on this subject discussed in this post.

Having cleared out the interest and penalty issues, the parties were able to submit the case fully stipulated since the dispute in the case involved a purely legal issue.  Petitioner brought a CDP case because the IRS filed a notice of federal tax lien.  Since the assessment occurred without the taxpayer having the opportunity to contest the liability, he is able to obtain a hearing in the Tax Court on the merits of his claim. 

In 2004 Mr. Engle pled guilty to tax evasion under IRC 7201 for the year 1998.  The information brought by the U.S. Attorney’s office alleged that he evaded his taxes for 16 years between 1984 and 2002.  I must say that at this point in reading the opinion I was totally confused, because RBA only applies to restitution orders issued after the passage of FETIA, and it was not passed until six years after his guilty plea.  So, I read on hoping for enlightenment and I found it.


For reasons not explained in the opinion it took two years before the sentencing hearing.  Maybe this should not surprise me having seen lots of news lately about the amount of time between the guilty plea of General Flynn and his sentencing but still the sentencing in most tax cases moves much quicker than this.  When the court sentenced Mr. Engle, it gave him four years of probation, including 18 months of home detention.  The court did not make a finding regarding the exact amount of tax loss the case involved.  It ordered that the exact amount of restitution would be determined by the IRS.  It ordered him to pay the IRS $25,000 immediately and $100,000 within 90 days.

The Government appealed the sentencing and on January 13, 2010, the 4th Circuit vacated the entire sentence and remanded the case for resentencing stating:

Under these circumstances, we cannot determine whether the sentence is reasonable without a fuller explanation of the reasoning behind the district court’s view that a term of imprisonment as recommended by the Guidelines was not warranted and why restitution alone would provide adequate deterrence in this case.  Because the district court’s explanation of its decision to vary significantly from the Guidelines’ sentencing recommendation is insufficient to permit meaningful appellate review, we must vacate the sentence and remand for new sentencing further proceedings.

The 4th Circuit also pointed to Mr. Engle’s failure to make any significant payment on his taxes during the four-year period before he was sentenced and advised the district court to reconsider the issue of restitution should it again conclude that restitution was not required.

In May, 2011 the district court held a hearing to resentence Mr. Engle.  Out of an abundance of caution to avoid getting reversed again, the court sentenced him to 60 months of incarceration with 14 months of supervised release thereafter.  While the original sentence seems out of line on the light side, this one seems to go a bit overboard but I don’t know all of the facts.  It also ordered him to pay restitution in the amount of $620,549.  No one appealed this amended judgment.

Now, a restitution order after the passage of FETIA exists, and the IRS made a RBA for most of the years between 1984 and 2001 totaling the exact amount of the restitution order.  In 2016 the IRS filed a notice of federal tax lien, which led to this CDP case in Tax Court.

In order to avoid the RBA Mr. Engle argued that the 2008 restitution order was not vacated or voided by the 4th Circuit’s decision, and the circuit court decision focused on the amount of time he was sentenced and not restitution.  Therefore, the IRS should not have made an RBA because the 2008 restitution order predates the passage of FETIA.  The Tax Court looks at the 4th Circuit’s decision and decides that it included a reversal of the restitution order as well as the sentencing order.  It pointed to the language in a footnote of the opinion discussed above in support of its conclusion.  Therefore, it concluded that the IRS appropriately made RBA based on the 2011 order.  The outcome here is not surprising even if the facts show a surprisingly slow imposition of sentencing.

Probably not too many cases still exist with this fact pattern. where the original restitution order predated FETIA and gets overturned on appeal and reentered after the passage of FETIA.  Here, the government succeeded in overturning the original order.  Much more common would be the taxpayer appealing the original order.  It’s possible a taxpayer could win their appeal only to have a new restitution order entered after the passage of FETIA, allowing the IRS to make an RBA.  Of course, the making of the RBA works well for the IRS, but the IRS can still use its normal assessment means if it cannot make an RBA and regularly does so if the restitution order does not equal the amount the IRS believes the taxpayer owes.

We are still relatively early in the life of RBAs.  Many original fact patterns will emerge.  RBAs allow the IRS to assess and start collecting on a liability much earlier than it could otherwise do.  The ability to collect early could make a significant difference in the collection outcome or could make no difference at all.  I have not seen a study on the effectiveness of RBAs in bringing into the treasury more money than the IRS collected under the system that existed prior to RBAs.  Such a study would allow us to really gage the effectiveness of this relatively new assessment tool.

Litigation of Tax Liability After Restitution Order

It has now been a decade since Congress began allowing the IRS to make restitution based assessments.  This area of the law is still in the growing phase.  We have blogged about issues regarding restitution based assessments here, here, here, here, here and here if you want more background on this.  The Saltzman-Book treatise also covers this topic extensively at ¶ 10.01[2][e] (addressing assessments generally) and ¶ 12.05[14][e][vi] (addressing criminal penalties) along with a stand-alone chapter on restitution based assessments at ¶ 12.06[5][a].

The recent case of Le v. Commissioner, T.C. Memo 2020-17 brings us back to the issues presented in a deficiency case following a restitution based assessment.  As is essentially required in these cases one of the petitioners, here the husband, Dung T. Le, was criminally prosecuted giving rise to a restitution order.  He was convicted of tax evasion under IRC 7201 pursuant to a plea agreement for the year 2006.  The prosecution occurred for the years 2004, 2005 and 2006 following an indictment on March 20, 2013. 

Because the criminal investigation process is slow, because the IRS defers civil action until the completion of the criminal aspects of the case conclude and because this case took four years to resolve in the Tax Court we discuss a case today involving years prior to the birth of around 30% of the world’s population.  The length of a case going through the criminal tax process provides the greatest reason for allowing assessment of some of the tax following the restitution phase of the criminal case.  As we will see, however, that assessment marks the beginning rather than the end of the assessment process in a case such as this.


In connection with Petitioner Le’s plea agreement, he also agreed to pay restitution of $33,332 for 2006.  He paid that amount.  After he paid the restitution, the IRS finished the examination of the couple’s returns it had begun prior to the criminal case.  The examination resulted in a notice of deficiency for 2004, 2005 and 2006 in the amounts of $31,944, $44,178 and $40,706, respectively.  The IRS also asserted fraud penalties for each of the years.

Petitioner Le argued that the doctrine of collateral estoppel barred respondent from relitigating his 2006 liability since the criminal court determined the amount of his liability in the restitution order.  He loses this argument which came as no surprise.  The Court held that the order for criminal restitution did not comprise an essential part of the criminal conviction and was not an element of the conviction.  The Court also pointed out that the law is well settled that a restitution order has no effect on the authority of the IRS to determine a taxpayer’s correct civil tax liability citing Morse v. Commissioner, 419 F.3d 829, 833-835 (8th Cir. 2005).

After swatting away the argument that the restitution order in any way stopped the IRS from pursuing the correct liability in a follow up civil proceeding, the Court then marched through all of the reasons that he owed the additional tax.  That the taxpayer wanted to go through this after declining to go through it for criminal tax purposes surprises me but apparently he thought a sufficient chance existed that the IRS would not put on its proof to cause the creation of an opinion detailing the many ways in which he cheated on his federal taxes.  The Court also had little trouble finding that Mr. Le deserved to have the fraud penalty apply.

So, this case shows in a simple, straightforward manner the ability of the IRS to pursue civil assessment of additional taxes after making a restitution based assessment.  It offers very little, if anything, new.

Two other aspects of the case deserve quick mention.  First, the Court finds that Mr. Le’s wife does not owe the accuracy related penalty.  The fact that the IRS asserted the accuracy related penalty against Mrs. Tran also surprises me since I would have expected the government to know better.  Aside from hoping that the IRS attorneys read our blog posts explaining that if it cannot prove fraud against the spouse the Court can impose no lesser included penalties against her, because doing so would create an impermissible stacking of penalties as set out in Said v. Commissioner, T.C. Memo 2003-148, aff’d 112 F. App’x 608 (9th Cir. 2004), I hope that government attorneys know the law.  Seems like someone should have caught this argument unless the IRS seeks to change the law in which case perhaps we will see an appeal.  This is the second opinion within six months in which the IRS attorneys have made an argument that appears contrary to both the regulation, Treas. Reg. 1.6662-2(c), and the IRM, IRM No Stacking Provision (12-13-2016).  Either the review of the IRS attorneys is lax or a change in position is afoot.

Second, the case contains an order sealing part of the record.  The order is unusual and its language caused me to read this passage a few times: “Pursuant to the Court’s Order dated July 10, 2018, portions of the exhibits were not properly redacted in accordance with Tax Court Rule 27(a), and the exhibits were not marked in accordance with Tax Court Rule 91(b).”  After reading the prior order, I came to understand this language as an odd way to refer back to an earlier order requiring redaction. 

Next the Court determines that since the material was not properly redacted, it is going to seal it.  It appears the Court sealed the record sua sponte.  Nothing in the order makes clear how the sealing of the record here meets the criteria for sealing discussed eloquently in a post by Sean Akins.  In its order dated July 10, 2018, the Court pointed out to the parties that they failed to properly redact documents in the stipulation in accordance with the Tax Court rules.  I am troubled that the remedy for failing to properly redact material in a stipulation, in which both parties were represented by counsel, would be to deny the public the right to the material in order to prevent the public from seeing material the parties were required to redact rather than to order the parties a second time to redact the material properly and resubmit it. 

It is quite possible that I am missing something in the order or outside of the order that drives the decision, but the order itself leaves me quite puzzled.  I doubt that any non-party cares what was in the stipulated documents, but if a non-party did care, it seems to me that non-party should have a right to see the documents following appropriate procedures without having to go through the lengthy and difficult process to unseal the record.  Counsel to the parties in this case could have been sanctioned for failing to follow the redaction rules and the prior specific order of the Court. The sanction instead falls on the person with a lawful right to see the records of the case.