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Limitation on Offset When the Government Seeks to Collect Restitution


The case of United States v. Taylor, No. 2:06-cr-00658 (E.D. PA 2021) brings out a limitation on the right to offset when the Government is collecting on a court-ordered restitution amount.  Here, the Government, specifically the Department of Justice, gets its hand slapped for levying on the social security of a convicted criminal.  The levy here is the 15% on social security that regularly arises with respect to outstanding federal tax obligations.  There is no indication in the opinion that the IRS made a restitution based assessment in this case or any kind of assessment.  This appears to be a case involving the payment of the court ordered restitution payment and not a derivative liability stemming from the restitution order.  The court does not mention the IRS other than in relation to the crime committed by the petitioner.

Ms. Taylor and others were convicted of conspiracy to defraud the IRS.  The federal district court that sentenced her and then ordered her to pay a restitution judgment of $3.3 million.  The court, however, failed to take into account her financial resources and the Third Circuit vacated the restitution order and remanded the case so that the district court could make an appropriate determination of her ability to pay as well as her culpability.

On remand, the court determined her ability to pay was $100 per year and noted that the government could come back to the court for an increase if her circumstances changed.  This happened in 2012.  Between 2012 and 2019 when Ms. Taylor became eligible for aged-based social security benefits, the government did not return to the court to seek an increase, although it did make a preliminary determination that she could pay $25 a month.

The restitution payments were listed with the Bureau of Fiscal Services as available for offset pursuant to the Treasury Offset Program (TOP) because they were delinquent federal debts.  When the social security payments began, TOP began offsetting 15% of her social security (about $235 a month) and applied the funds taken from her monthly social security check to her outstanding restitution obligation.  She continued to comply with the court order to pay $100 a year.

When Ms. Taylor initially brought the action complaining of the TOP offset, she did so pro se.  The district court appointed Peter Hardy, one of the top white collar criminal defense attorneys in Philadelphia who also taught as an adjunct professor at Villanova when I was there and has guest posted for us in the past (for example, see this terrific post on the crime fraud exception to the attorney client privilege).  Undoubtedly, Ms. Taylor benefited from his appointment.

The court provides some background on the TOP program which we have discussed previously here and here

Ms. Taylor argued that she was in compliance with the restitution order, making the TOP offset inappropriate.  She also argued that her restitution debt was not delinquent, meaning it was not one the government should refer to TOP.  The Government argued that the referral to TOP was appropriate because she had a large outstanding debt.  The court finds that the debt is not delinquent:

“[U]nlike a civil judgment, the restitution order is the product of a ‘specific and detailed [statutory] scheme addressing the issuance . . . of restitution orders arising out of criminal prosecutions.’” Id. at 1204 (quoting United States v. Wyss, 744 F.3d 1214, 1217 (10th Cir. 2014)). Section 3572(d) states that “[a] person sentenced to pay a fine or other monetary penalty, including restitution, shall make such payment immediately, unless, in the interest of justice, the court provides for payment on a date certain or in installments.” 18 U.S.C. § 3572(d)(1). This subsection provides that the full payment of restitution is not due immediately if a court establishes a payment plan for restitution. See Martinez, 812 F.3d at 1205. Thus, “a defendant subject to an installment-based restitution order need only make payments at the intervals and in the amounts specified by the order.” Id. Section 3572 also explicitly defines when a payment of restitution is delinquent or in default. See 18 U.S.C. § 3572(h)-(i). A “payment of restitution is delinquent if a payment is more than 30 days late.” Id. § 3572(h). A “payment of restitution is in default if a payment is delinquent for more than 90 days. Notwithstanding any installment schedule, when a fine or payment of restitution is in default, the entire amount of the fine or restitution is due within 30 days after notification of the default.” Id. § 3572(i). These provisions “would be unnecessary, even meaningless, if the total restitution amount were already owed in full under an installment-based restitution order.” Martinez, 812 F.3d at 1205. It is evident from the structure and language of § 3572 that under an installment-based restitution order, the restitution debt only becomes delinquent when a defendant’s installment payment is more than 30 days late.

The court tells the government that if it wants more from Ms. Taylor it needs to come back to the court and request more.  It cannot simply offset at a time when she has continued to comply with the court’s order.  The court orders the government to stop the offset and to return to her all the money taken through TOP.  Perhaps the government will come looking for her and seek to raise the amount she must pay from $100 a year to a larger number.  Because she became unemployed as a result of the pandemic, this might prove difficult.

It’s unclear if the conspiracy to defraud the IRS could turn into a tax assessment.  If the IRS made a tax assessment of the liability or some part of the liability, it could collect on the tax liability independent of the restitution order and through a tax assessment could potentially levy on her social security.  Ms. Taylor, as part of her defense to the taking of the social security funds, argued that the taking of these funds put her into a difficult financial situation.  If the IRS made a tax assessment, it could not levy, even through TOP, if doing so would create financial hardship as defined by IRC 6343(b).  Convicted tax criminals generally make difficult clients from whom to collect.  Ms. Taylor appears to fit into that category.



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