A civil tax debt and a criminal tax debt are treated vastly different in collections. Civil tax debt have an orderly procedure, well used. Criminal tax debts, not so much.
The District Court has authority to order restitution under the criminal provisions of Title 18, not the Internal Revenue Code.
Current
Because the assessment procedures under the Code apply only to taxes imposed by the Code, those procedures do not apply to restitution orders issued under Title 18, even if the restitution order relates to an existing tax liability.
That is to say, for example, a tax payer is found guilty of tax evasion and part of his sentence includes an order for restitution (on the taxes owed, but not reported or paid). Under the current system, the Federal District Court may order restitution. However, as restitution is a criminal proceeding, the mechanisms for enforcement of that order just aren't there.
If the IRS wishes to collect on an outstanding debt owed, the IRS needs to follow the current procedure — typically a substitute for return and then notices to the taxpayer (which will probably be ignored). Then with that assessment the IRS can begin to lien and levy like usually.
As it is now, it is difficult for the Treasury to lien and levy off a order for criminal restitution.
This proposal, then appears to make some sort of sense. The reasons given for the change are:
Because court-ordered restitution in criminal tax cases cannot be assessed as a tax, the IRS cannot use its existing assessment systems to collect and enforce the restitution obligation. This leads to unnecessary duplication of efforts, delays, and confusion in the administration of court-ordered restitution.
Proposal
The proposal would allow the IRS and the Treasury Department to immediately assess, without issuing a statutory notice of deficiency, and collect as a tax debt court-ordered restitution. The taxpayer would not be able to collaterally attack the amount of restitution ordered by the court, but would retain the ability to challenge the method of collection.
Three unintended consequences I can think of:
#1. What happens when Defendants' attorneys figure out that orders for restitution are going to be vigorously pursued. Will this create more incentive for a Defendant to seek a jury trial, instead of taking a plea? If so, will these decisions overwhelm the system?
#2. Maybe there is a very good reason why criminal restitution and civil assessments are separate. The civil side of the IRS is very good at calculating how much someone should probably owe. The criminal side is very good at figuring out that a crime has been committed. I could foresee criminal orders for restitution being wildly inaccurate (because they are right now). The IRS will be collecting on money that is not theirs.
#3. Someone with a felony conviction for tax evasion is already is a terrible position. Earning power is greatly diminished. Families and children suffer. I am not excusing their behavior, but at the same time, the punishment should fit the crime. As long as civil remedies such a Offers in Compromise, Bankruptcy, Partial Payment Installment Agreements (PPIA) and Currently Non-Collectible (CNC) status are available, then such undue punishment should be avoided.
I have a suspicion bankruptcy is out of the question — fraudulent tax debt can typically not be discharged. Offers in Compromised are difficult to attain when the IRS feels that a taxpayer is taking advantage of the system. So that leaves two remedies — PPIA and CNC. Hopefully at least these two alternatives will be available.
