Restitution Based Assessment Upheld

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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.


  1. Good post, Keith.

    We quote the Engle case in the Saltzman Treaties: ¶ 12.05[14][e][i] The tax system in the sentencing equation.

    Now, you say that after remand, the re-sentencing to 60 months was “a bit overboard but I don’t know all the facts.” But, the Fourth Circuit had signaled that some significant sentence was more appropriate than the original sentence. First, the Fourth Circuit, after quoting Sentencing Guidelines introductory comment articulating the reason for sentences for for tax offenses, said echoing the Guidelines:

    Given the nature and number of tax evasion offenses as compared to the relatively infrequent prosecution of those offenses, we believe that the Commission’s focus on incarceration as a means of third-party deterrence is wise. The vast majority of such crimes go unpunished, if not undetected. Without a real possibility of imprisonment, there would be little incentive for a wavering would-be evader to choose the straight-and-narrow over the wayward path.

    Second, the Fourth Circuit laid out the damning facts:

    This case is a “mine-run” tax-evasion case only in the most generous (to Engle) understanding of that phrase. Engle evaded his tax responsibilities for sixteen years, altered tax returns prepared by his accountants, directed that income to him be paid to shell corporations in an effort to avoid withholding and reporting requirements, and lied to the IRS about the existence of these corporate accounts. Yet, with facts that could perhaps be viewed as warranting an above-Guidelines sentence, the district court imposed a significantly below-Guidelines sentence, based on views that are at odds with the clearly expressed policy views of the Sentencing Commission. The district court did not acknowledge the policy statements, and there is nothing in the statements made by the court during sentencing that offer any insight into why the court believed that a prison term was not required. There is no explanation of why the court believed that allowing Engle to continue to work and travel was consistent with the seriousness of his offense or that it would provide adequate deterrence for other would-be tax evaders. Moreover, as noted above, for more than four years after pleading guilty to tax evasion, Engle continued to work and travel, yet he paid nothing towards his tax debt. It was not until two weeks before the second sentencing hearing that Engle made the first payment (of less than $ 500), and even that nominal payment was spurred on by an inquiry from the IRS. The absence of any payments during a time when there is the greatest incentive for a defendant to be on his best behavior raises questions about the district court’s belief that restitution would provide sufficient deterrence to Engle himself.

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