FTP Book Clean Up - Restitution-Based Assessments (RBAs) (7/8/26)

In working on my 2026 editions of my Federal Tax Procedure Book for publication on SSRN in early August, I am trying to eliminate bloat accreted over the years from the text and the footnotes (particularly the footnotes). I conceive the text (as opposed to footnotes) to be directed to students of tax procedure for whom I provide the Student Edition without footnotes. I hope to shorten the text, but the major changes will be in footnotes. I feel that some of the eliminations I make in the footnotes have good discussions, so I will be posting on the Federal Tax Procedure Blog some of the eliminations (doing some clean-up).

I start today with a footnote on “restitution-based assessments” (“RBAs) under §§ 6201(a)(4) & 6213(b)(5). The discussion of RBAs is in the text discussing exceptions to the prohibitions on assessment arising from the general requirement in income and estate and gift tax cases that the IRS first issue a notice of deficiency. One of the exceptions is “restitution for tax in a criminal tax case which may be assessed despite the  prohibition (“restitution-based assessment, or “RBA”).” I eliminate from the footnote the discussion after citing the statute sections for the RBA, §§ 6201(a)(4) & 6213(b)(5). The eliminations are (as I have cleaned them):

Certain points about RBAs:

1. First, normally, tax restitution is not available for Title 26 offenses. However, courts may impose tax restitution for Title 18 convictions, such as the ubiquitous Klein / defraud conspiracy under 18 U.S.C. §  371(a). See Daugerdas v. Commissioner, 171 F. 4th 924 (7th Cir. 2026) (holding that §  6201(a)(4)(A) authorizes the IRS to assess and collect tax restitution ordered in Title 18 convictions and the IRS collection measures do not have to be consistent with the restitution order for deferred payment of restitution).

2. In tax cases, in pleading guilty to a Title 26 offense, a defendant often agrees to “contractual” restitution in the plea agreement that the sentencing court then incorporates as a restitution order in the criminal judgment. Or, in imposing sentence for Title 26 offenses, a court may impose restitution as a condition for some benefit (such as supervised release for some period rather than incarceration).

3. The net effect of these statutory changes to the Code is that (i) the IRS can immediately assess the tax restitution as if it were a tax (the assessment acronymed RBA) and (ii) deploy the IRS collection tools for tax assessments. Carpenter v. Commissioner, 152 T.C. 202 (2020), aff’d 788 F. App’x 187 (4th Cir. 2019); and Reynolds v. Commissioner, T.C. Memo. 2021-10 (also holding that the IRS can collect on the RBA even if the person has an agreement with DOJ for installment payment of the restitution). However, if the sentencing judge sets the terms of installment payment of the restitution, the Tax Court can consider those terms in a CDP proceeding contesting an IRS levy and the IRS should consider that as well. White v. Commissioner, T.C. Memo. 2026-56 (remanding to IRS Appeals to consider).

4. The restitution imposed upon a defendant need not be the defendant’s tax; the restitution is treated as a tax and thus assessable as RBA. Bontrager v. Commissioner, 151 T.C. 213 (2018).

5. The taxpayer may not contest the RBA in civil proceedings, § 6201(a)(4)(C). Administratively, the RBA is not a tax assessment but is assessed and collected by IRS collection tools as if it were a tax. This gets a little esoteric, but this means that

•       If the IRS believes that more tax, penalties, or interest is due than in the restitution order and resulting RBA, the IRS must make a regular tax assessment of the underlying tax liability (including the restitution-based assessment amount) through the SNOD procedure. See Klein v. Commissioner, 149 T.C. 341 (2017); see also Muncy v. Commissioner, T.C. Memo. 2017-83, aff’d on other grounds, 890 F.3d 724 (8th Cir. 2018); and CC 2011-018 (8/26/11). If the IRS proceeds also by deficiency assessment, the RBA will include some amount also included in the regular tax assessment; the two assessments will be duplicative to that extent. Both assessment amounts are still only one tax liability, and the taxpayer must be given appropriate credits against both assessments as the taxpayer pays so that the taxpayer pays the liability only once. For further discussion of these issues see CCN 2019-004 (6/27/19), discussed in Keith Fogg, Interest and Penalties on Restitution-Based Assessments (Procedurally Taxing Blog 7/31/19).

•       If the RBA amount exceeds the actual tax liability, the taxpayer will be unable to get any relief in civil tax proceedings but must request relief from the sentencing court to reduce the amount of the restitution order which will then permit the IRS to abate the amount of the RBA. CC 2011-018 (8/26/11) (Q&A 10). There is a lot of nuance here, so I direct readers to my blog entry at Tax Court Holds that Restitution Assessments under § 6201(a)(4) Do Not Permit Tax Interest and Additions (Federal Tax Crimes Blog 10/8/17); and 6th Circuit Holds Excessive Restitution Cannot Be Reduced thus Denying IRS Authority to Reduce Excessive Restitution-Based Assessment (Federal Tax Crimes Blog 5/23/23) (discussing United States v. Asker,  2023 FED App. 0223N, 2023 U.S. App. LEXIS 11662, 2023 WL 3370440  (6th Cir. 2023)). The DOJ CTM (Par.44.04) states that restitution can be modified “only in a limited set of circumstances” and “there is no statutory basis to reduce the amount of restitution ordered payable to the IRS based on a claim that the actual tax loss is less than the restitution ordered.”

•       RBA based on restitution as a condition for supervised release may be collected by the IRS only during the period of supervised release. PMTA 2018-19 (8/23/18); and The Interplay of Restitution as Condition of Supervised Release and § 6201(a)(4) Restitution Based Assessment (Federal Tax Crimes Blog 1/19/20).

•       The RBA may not include interest if the interest on the restitution is waived by the sentencing court. Klein v. Commissioner, 149 T.C. 341, 361–62 (2017).