FTP Book Clean Up - Restitution-Based Assessments (RBAs) (7/8/26; 7/10/26)

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).

Tax Court Sustains Deficiencies Equaling Restitution with No RBA (4/4/26)

In Thody v. Commissioner, T.C. Memo. 2026-30, the Court sustained the deficiencies asserted against Thody with respect to the tax loss that had been subject to a restitution order against Thody in an earlier criminal tax prosecution. The Thody opinion can be viewed at TC No. 27415-21, here, at #50 dated 3/30/26 and GS here. Actually, the original notices of deficiency exceeded the amount in the restitution order, but the IRS conceded (pp.. 4-5) the excess deficiencies asserted in the notice of deficiency, so that with that concession, the amounts of deficiencies the IRS asserted in the case equaled the amounts in the criminal restitution order. The Court then sustained the deficiencies based on the evidence.

One unexplained apparent oddity is that the IRS did not make a restitution-based assessment (“RBA”) allowed by § 6201(a)(4). The Court offers no explanation and treats the case as a straight-forward deficiency case permitting Thody to contest the amounts. If the IRS had made the RBA in the same amounts, Thody could not have contested the amounts of the RBA. In that regard, the IRS can assert deficiencies in amounts exceeding the amounts of restitution, whether or not asserted in an RBA. I don’t know why the IRS conceded the excess amounts. The IRS may have known or believed that it could not sustain that excess, so that this would be a normal concession in a deficiency case. But, if as a straight deficiency case, the IRS could have sustained the excess deficiency amounts, there was no reason to concede them. The IRS may have conceded just to move the case to a prompt decision with less hassle. A related question is whether, once the IRS decided to concede the excess before the trial level consideration was concluded, the IRS could have made an immediate RBA which would preclude Thody from contesting the amounts. I am not sure that there is a statute of limitations on RBAs because I have not researched that issue. And I am not sure that the Court would have treated such a belated RBA as mooting the deficiencies case.

Moreover, the Court seems not to have made the distinction between a tax deficiency and restitution. Thus, at p. 3, the Court says that the Government reduced the restitution (not the RBA) to judgment. In doing so, the Court cites in fn. 4 the IRM for the purpose of suits to reduce tax claims to judgment is to extend the statute of limitations. The IRM provision, I think, relates to tax assessments rather than criminal restitution. Of course, if there is a statute of limitations on restitution (likely), the reason to reduce restitution to judgment may be for the same.

Thody made the argument that the payments he had made for restitution should reduce the amount of the deficiencies. The Court (pp. 7-8) did correctly find that Thody’s argument was incorrect. The Court notes that, although in collecting on any resulting deficiencies approved by the Tax Court, the IRS would have to credit the restitution payments against the tax liabilities.

This blog content is cross-posted on the Federal Tax Crimes Blog here.

Conflicting Statutes of Limitations for Regular Tax Assessments and Restitution-Based Assessments (4/27/25)

 In United States v. Brown (W.D. WA Case No. 24-cv-05021 Dkt. No. 38 Order dated 4/21/25), GS here and CL here, the Court upheld the validity of a restitution-based assessment (“RBA”) against Brown that was for the same tax that had been previously assessed against Brown. (For prior Blogs on RBAs on the Federal Tax Crimes Blog, see here, and on the Federal Tax Procedure Blog, here.) For clarity, I will differentiate the two assessments by calling the first-in-time assessment, the regular assessment and the second-in-time assessment the RBA. The reason that was even an issue was because Brown never fully paid the regular assessment and the 10-year statute of limitations to collect any balance on the regular assessment (by reducing to judgment) had expired. Brown claimed that, since the statute of limitations on the regular assessment had expired, thus preventing the IRS from claiming on that regular assessment, the IRS could not end-run the regular assessment statute of limitations based on the RBA assessment. At least that is how I understand Brown’s claim that the court rejected, thus permitting the government to reduce the RBA to judgment and use the RBA extended statute of limitations to collect (including further extending the statute of limitations).

I think the court properly gives a good textual reading of the applicable statutory provisions. I am concerned that the decision may not be consistent with the purpose or intent of the statute. (For a textualist, purpose or intent may not matter.) Although I have not filtered back through the legislative history, my understanding of the purpose of the RBA was to avoid requiring the IRS to jump through assessment hoops for tax ordered as restitution. In other words, it was to permit the IRS to make an immediate assessment where it had not assessed before. (Stated otherwise, it was not to give the IRS two independent assessments to collect. The Code provisions do not say that, but that is my understanding of the need for an RBA. If the tax later subject to restitution had already been assessed, there would be no need for an RBA. And the IRS could deal with an expiring statute of limitations on the regular assessment by simply reducing the regular assessment to judgment, thereby refreshing the statute of limitations.

It is true that § 6501 says that § 6501(c)(1) says: “In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.” But, at a minimum, that would only apply where there was no regular assessment and presumably no RBA. Where there is a regular assessment, one might argue through inference that the regular assessment statute and its limitation period should apply.

Tax Court Opinion on Various Aspects of Collection Activity for RBAs and Coordination with DOJ (1/28/21)

 In Reynolds v. Commissioner, T.C. Memo. 2021-10, TC Dkt entry #20 here * and TN here, in a collection due process (“CDP”) case, the Court (Judge Thornton) discussed restitution-based assessment (“RBA”) under § 6201(a)(4).  In the prior criminal case preceding, the sentencing judge (i) imposed tax restitution of $193,812, but waived interest on the restitution based on a finding that the Reynolds could not pay; (ii) ordered payments during imprisonment of $25 per quarter and during supervised release of the greater of $100 or 10% of his monthly income; and (iii) ordered that Reynolds apply income tax refunds and “anticipated or unexpected financial gains.”

The IRS made the RBA in the amount of $193,812 restitution and also assessed interest for the period.  The IRS audited the years 2002 and 2003 and determined deficiencies and civil fraud penalty.  Reynolds petitioned the Tax Court to redetermine the deficiencies.  The decision document reduced the deficiencies and assessed the civil fraud penalty but noted (Slip Op. 5 n. 2) that the civil fraud penalty had been discharged in a bankruptcy proceeding (although there is no further explanation).

In this CDP case, Reynolds complained about the IRS’s collection activity with regard to the RBA.  I will just bullet point some of the key discussion / holdings rather than have a further narrative.

• The opinion discusses the IRS Collection Advisory Group’s role in RBAs which interfaces with IRS Collections.  The opinion describes this group (Slip Op. 6 n 2): 

The IRS Collection Advisory Group coordinates and monitors probation and restitution cases; the advisor serves as a liaison for coordinating such cases with IRS field offices and the Department of Justice (DOJ). See Internal Revenue Manual (IRM) pt. 5.1.5.16 (Oct. 6, 2017); IRM pt. 5.19.23.1(5) (Oct. 27, 2017); IRM pt. 25.26.1.5.2 (Mar. 24, 2014). 

• The opinion discusses the Revenue Officers’ collection activity over a number of years in some detail, mostly after the NFTL.

• Reynolds attorneys apparently believed that once an RBA was made, only the IRS could collect.  However, the IRS position was that there were two separate debts:  the restitution debt that DOJ’s financial unit can collect; and the RBA that the IRS can collect.  Of course, to the extent that restitution and RBA are the same, payments against one are credited against the other so that there is not double payment.  But, DOJ and the IRS can proceed on separate tracks to collect, although there must be some coordination.

• The IRS and the Reynolds tilted during much of the period over Reynolds’ ability to pay more than he was paying.  In the final analysis, the IRS concluded that "this appeal is being maintained primarily for delay."  (Slip Op. 17.)

• The IRS eliminated the restitution interest and failure to pay penalties per Klein v. Commissioner, 149 T.C. 341 (2017 ).

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: