Restitution Based Assessment--Some Issues of Interest (8/3/19; 8/7/19)

Readers of this blog will likely be interested in a recent post on Procedurally Taxing Blog:  Keith Fogg, Interest and Penalties on Restitution-Based Assessments (Procedurally Taxing Blog 7/31/19).  Highly recommended.  The context is the relationship between restitution as ordered by the court in a criminal case and the restitution based assessment that the IRS is mandated to make, particularly as related to interest on the restitution.

After some emailing with Keith, I thought I would add some related material and comments that readers of this blog might find interesting or useful.

1.  The amount of the restitution can include an interest factor from the date of the loss through the date of the restitution order by judgment in the criminal case.  The DOJ Criminal Tax Manual thus says:  "Prosecutors should seek prejudgment Title 26 interest in restitution in order to fully compensate the IRS."  DOJ CTM 44.00 RESTITUTION IN CRIMINAL TAX CASES (last edited January 2019), here.

The U.S. Attorneys Manual (now called Justice Manual after renaming in 2018) had a template in the Tax Resource Manual that would include interest under 6601 and/or 6621 in the restitution order as of the date of sentencing.

• https://www.justice.gov/archives/usam/tax-resource-manual-20-optional-restitution-paragraphs
• https://www.justice.gov/archives/usam/tax-resource-manual-21-proposed-restitution-order

The Tax Resource Manual seems to have dropped off the current Manual (called the Justice Manual), although the prior Tax Resource Manual is still available per the links above.  (Perhaps it will be added back later.)  So, diligent US Attorneys should be aware of it.  And, of course, DOJ Tax CES attorneys should be aware of the CTM provision.  And, since the IRS makes the calculations, the IRS agents should be aware of as well.  (By contrast, interest is not included on tax loss for Sentencing Guidelines purposes except in the case of evasion of payment, when interest was included in the amount the defendant sought to evade.)

My understanding, though, is that courts sometimes (perhaps even often) do not include interest in restitution.  (See discussion of recent case in paragraph 3 below.)

2.  I have just updated the text and a footnote in the working draft of my Federal Tax Procedure Book (will be published on SSRN by mid-August 2019) dealing with some of the nuance.  Here is a cut and paste of the text and the key text amd footnote:

ERISA Anti-Alienation and Tax Collection from Retirement Accounts (11/28/12)

I have just posted this blog entry on my Federal Tax Crimes Blog, Restitution And Tax Collection from Retirement Accounts - Anti-Alienation (11/28/12), here.  The bulk  of the blog is about the general rule preventing the collection of restitution from retirement accounts covered by ERISA's Anti-Alienation provision.

For tax assessments, the Anti-Alienation provision does not prevent an IRS levy.  Here is the relevant portion of the blog entry (at the end):

However, keep in mind that, in criminal tax cases, the restitution that is awarded to the IRS either by contract (i.e., the plea agreement) or by the court for tax-related Title 18 counts (such as conspiracy under Title 18 USC Section 371) is restitution for a tax liability that will be assessed as a tax.  And, even where restitution for the tax is not awarded, the IRS will likely move to assess the tax at issue in a criminal tax case.  As a tax, the IRS can collect from the retirement account even if otherwise protected by the Anti-Alienation provision.  See 26 USC § 6334 - Property exempt from levy, here.  Subsection (a) lists items exempt from a tax levy, but only exempts "certain" retirement plans as follows (emphasis supplied).

(6) Certain annuity and pension payments
Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U.S.C. 1562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.

For a related blog entry, see New Statute for Civil Effect of Restitution in Tax Cases (at Least Title 26 Crimes of Conviction (Federal Tax Crimes Blog 2/11/11), here.  [I recommend that this blog be read even if the tax procedure student is not particularly interested in tax crimes.]