25.26.1. Criminal Restitution and Restitution-Based Assessments

(1) In a criminal tax case, a court can require a defendant to pay the losses incurred by the government. The amount of the restitution ordered by the court is calculated from evidence submitted at trial, or from information contained in the plea agreement, and presented to the court at sentencing.

(2) Public Law No. 111-237 amended IRC 6201, Assessment Authority, to provide that the IRS shall assess and collect the amount of restitution ordered in a tax case for failure to pay any tax imposed under the Internal Revenue Code in the same manner as if such amount were such tax. IRC 6201(a)(4), Certain Orders of Criminal Restitution, requires criminal restitution ordered after August 16, 2010 to be assessed as if it were a civil tax. Whether criminal restitution can be assessed as a tax under IRC 6201(a)(4) depends on whether the restitution ordered derived from a failure to pay any tax imposed by Title 26. Restitution ordered for a criminal violation of IRC 7201, Attempt Evade or Defeat Tax, IRC 7202, Willful Failure to Collect or Pay Over Tax, IRC 7203, Failure to File or Failure to Pay, IRC 7206(1), False Return, as well as several other criminal tax violations under the Internal Revenue Code and Title 18 may meet the requirement necessary to be assessed as a tax. The applicability of IRC 6201(a)(4) will be determined by Criminal Investigation (CI) with input from Criminal Tax Counsel and will be reflected on Form 14104, Notification of Court Ordered Criminal Restitution Payable to IRS.

(3) Public Law No. 111-237 also amended IRC 6213(b), Exceptions To Restrictions on Assessments, to provide that a notice of assessment of restitution is not a notice of deficiency and may not be petitioned to Tax Court and IRC 6501(c), Exceptions, to provide a proceeding in court for the collection of such amount may be begun without assessment, at any time.

(4) The United States Tax Court opinion, Klein v. Commissioner, 149 T.C. No. 15 filed on October 3, 2017, held that "IRC 6201(a)(4) does not authorize the IRS to add underpayment interest or Failure to Pay penalty to a Title 18 restitution award, and may not assess or correct from taxpayer’s underpayment interest or additions to a tax without first determining their civil tax liabilities."

(5) Under section 18 USC section 3363(a)(3), restitution may be ordered as part of the sentence (including in criminal cases) pursuant to a plea agreement. In the Fifth Circuit case, United States v. Westbrooks, 58 F. 3d 317, 328 (5th Cir. 2017), the court held that restitution ordered solely as a condition of either supervised release or probation is only enforceable beginning with the first day of the period (the first day of supervised release following a prison term or the first day of probation, respectively) and ending with the last day of that conditional period as directed by the sentencing court. The amount of restitution ordered solely as condition of supervised release or probation will not be assessed until the taxpayer is under the supervision of a Probation Officer (supervised release or probation).

(1) The Director, Field Examination, is the executive responsible for Technical Services for Exam. The Area Director, South Atlantic Area, is responsible for the Criminal Restitution Program for Exam.

(2) TS centralized restitution assessment group has been designated to make all of the assessable restitution based-assessments. This group will receive all criminal investigation (CI) closing packages which consist of Form 14104, Notification of Court Ordered Criminal Restitution Payable to IRS, Form 13308, Criminal Investigation Closing Report and the Judgement and Commitment Order (J&C) which include court ordered restitution payable to the IRS that are assessable per IRC 6201(a)(4), Assessment Authority. These tasks will be accomplished by tax examiners (TE) and centralized criminal restitution coordinators (CRC) in this TS group.

(3) The group manager of the centralized criminal restitution site will monitor the group’s inventory to ensure all procedures are followed per IRM 4.8.6, Criminal Restitution and Restitution Based-Assessment. TS territory group managers that work RBA cases are responsible to ensure their fraud coordinators follow criminal restitution procedures outlined in IRM 4.8.11.7, Special Features For Civil Resolution Cases with Restitution Based-Assessment and IRM 4.8.6.3, Roles and Responsibilities of the Local Technical Services Fraud Coordinators.

(1) The following table lists the acronyms used throughout this IRM section.

(1) The following table list related resources throughout this IRM.

(1) Criminal Investigation (CI) assist in providing evidence to the courts for the amount of the restitution to be assessed as taxes. The evidence presented to the courts depends upon the court proceeding. The amount of restitution may be presented in the following circumstances:

(2) CI is required to close its case and notify the IRS civil functions of the amount of restitution ordered no later than 30 days after the case has reached final adjudication. The court issues and files a Judgment and Commitment Order (J&C) shortly after the sentencing hearing in court. When final adjudication takes place:

1. The amount of restitution as specified should list the type of tax, and tax year or period that was included in the calculation of the amount of restitution.

2. The special agent should specify the amount of restitution attributable to tax, interest, and penalties for each tax period or year.

   Note: The amounts for interest and penalties should only be included when these amounts are included in the amount of restitution ordered by the court.

   Note: The special agent will specifically identify any case where restitution is ordered solely as a condition of supervised release or probation. The amount of restitution ordered by the court will not be assessed until the taxpayer is not incarcerated but is under the supervision of a Probation Officer. See Westbrooks Outline dated 5/18/2020 issued by IRS Counsel.

3. For all return preparer project (RPP) cases, the amount of restitution is ordinarily based upon the erroneous tax refunds claimed by the clients of the return preparer. The amount of restitution may be calculated by using a specific group of clients and/or an additional amount computed by extrapolating the pattern of erroneous tax refunds to the total population of the preparer's clients. Therefore, in all RPP cases, the special agent must attach a list of all clients whose tax liability was used to determine the amount of restitution ordered by the court. The clients must be identified by name and social security number. The clients’ liability for each year must be shown separately. The amount of restitution that is based upon the erroneous refunds claimed by the clients is not necessarily assessed on the individual tax returns of the return preparer for each of the respective years.

4. In questionable return project (QRP) cases, where refunds are fraudulently obtained through the use of stolen, misappropriated, or fictitious identities that do not involve a "real" taxpayer or an actual liability, and are not traceable to a tax imposed under Title 26 on the defendant, restitution ordered cannot be assessed as a tax. For all QRP cases, the amount of restitution is based upon the total amount of tax refunds falsely claimed. These false claims include fictitious tax returns consisting of stolen or fabricated identities and returns filed by the defendant and/or other co-conspirators using their true identity.

5. For QRP cases, where the amount of restitution ordered by the court is attributable to tax returns filed by the defendant and/or co-conspirators using their own true identity, the amount of restitution is considered a tax imposed under Title 26. Therefore, this amount can be assessed as if it was a tax under IRC 6201(a)(4), Assessment Authority, and should be specified when notifying the civil functions.

Note: CI makes the determination of QRP based on how they are first made aware of the case. However, during the investigation, it turns out some cases identified by CI as QRP are really RPP, which have restitution based on a tax return(s) filed for others with their knowledge or concurrence without being treated as a co-conspirator. These situations needed to be treated as RPP cases in Technical Services following RPP processing procedures.

6. In some cases, a reasonable allocation of restitution may be necessary when specifying the amount of restitution. This would be applicable where restitution is not directly determined from a specific document and the special agent needs to determine a reasonable allocation of restitution applicable to each tax year or period. For example, the restitution amount is set by agreement between an AUSA and a defendant and the amount of taxes due is somewhere between the amounts determined by the IRS and the amount otherwise shown on the J&C.

(3) CI notifies the IRS civil functions 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 IRS.

(4) When restitution is ordered by the court, CI is required to send both Form 13308 and Form 14104 to the following civil functions:

1. Territory Manager, Technical Services

2. Collection Advisory Probation Liaison

3. SB/SE Technical Services at *SBSE TECH Svs Criminal Restitution

4. Kansas City Restitution Unit at *W&I Criminal Restitution

Note: Restitution cases designated as a return preparer project (RPP) investigations should also be sent to the following functions:

Territory Manager, Planning and Special Programs (PSP) Return Preparer Office at *Preparer

(1) All closed CI investigations are routed to SBSE Examination Technical Services (TS) via a closing package within 30 days of closure by CI for appropriate civil examination disposition. For those investigations with court ordered criminal restitution payable to the IRS, a civil audit may be conducted. See IRM 4.8.11.6, Special Features for Civil Resolution Cases with Tax-Related Conditions of Probation.

(1) Each related account may have a liability for different amounts, and each related account may reflect different penalty and/or interest suspension periods. Consequently, MFT 31 accounts are established (TS establishes the account) to separate assessment modules based on the underlying tax liability.

(2) When duplicate assessments have been identified against an individual or responsible party, the duplicate assessment can only be collected once from those individuals or responsible parties.

(3) Campus Collections responsibilities include the following:

1. Processing RBA transcripts.

2. Cross-referencing all payments and credits to the related duplicate assessment(s), penalties, and interest for all MFT(s) and tax period(s).

3. Responding directly to taxpayers, their representatives, or both on inquiries regarding these accounts.

4. Inputs linkages on RBA and Civil modules.

(1) Collection Advisory has designated points of contacts that serve as liaisons to coordinate and monitor condition of probation (COP) cases to ensure timely exchange of information.

(2) The advisory probation liaison (APL) performs the following tasks:

1. Monitors the conditions of probation.

2. Reports noncompliance with the conditions to the Department of Justice.

3. Requests collection investigations by Field area revenue officers (ROs).

4. Coordinates civil and criminal aspects of cases.

(3) Issues and procedures relating to Field Collection involvement during the criminal investigation of open collection cases are listed in IRM 5.1.5, Balancing Civil and Criminal Cases. It also includes procedures for conditions of probation monitoring and for restitution on cases adjudicated prior to August 17, 2010.

(1) Collection Field Area RO groups investigate balance due and delinquent return cases received systemically or requested by the APL.

(2) ROs may make collectability determinations in restitution cases or may take administrative actions to collect the assessed restitution or other amounts owed by the taxpayer.

(3) Field Collection procedures for working probation and restitution cases are found in IRM 5.1.5.