We have written about restitution based assessments before on several occasions some of which are found, here, here and here. Tax Notes recently published a series of internal Chief Counsel email advisory opinions on these assessments that collectively are worth mention. The emails focus on a case, United States v. Westbrooks, 858 F.3d 317 (5th Cir. 2017) which we have not previously blogged. I will spend some time on the case and then on the emails addressing issues raised by Westbrooks.
Tammy Westbrooks had two tax preparation businesses, one in North Carolina and one in Texas. She was indicted for overstating expenses of the businesses and convicted of corruptly endeavoring to obstruct the administration of the tax code in violation of IRC 7212(a) as well as three counts of filing false tax returns in violation of IRC 7206(1). Upon conviction the court imposed a sentence of 40 months and it also ordered her to pay $273,460 in restitution to the IRS in quarterly installments of $25 or half of prison earnings, whichever is greater, while incarcerated, and in the monthly amount of $400 or ten percent of gross earnings, whichever is greater, during the year of supervised release that would follow her prison term.
She appealed the conviction on the obstruction count and the restitution order. The Fifth Circuit upheld the conviction but modified the restitution order. Most of the opinion concerns her arguments regarding the appropriateness of the conviction on obstruction, but I will only discuss the restitution aspect of the opinion. With respect to the restitution order she argued:
the district court’s order of restitution was not authorized because: (1) the court imposed restitution as part of her sentence under a general restitution statute, which is not permitted for Title 26 offenses; and (2) even if the court imposed restitution as a condition of supervised release, which is permitted for Title 26 offenses, it was not authorized to do so because she did not agree to restitution in a plea bargain.
The Fifth Circuit found that
Neither the Victim and Witness Protection Act, 18 U.S.C. § 3663, nor the Mandatory Victim Restitution Act, 18 U.S.C. § 3663A, allow restitution for a tax code offense under Title 26 (as opposed to offenses described in the general criminal code of Title 18). But several statutes, read together, allow district courts to order restitution for tax offenses as a condition of supervised release…. Courts’ broad authority to order restitution as a condition of supervised release in tax cases is recognized in the Sentencing Guidelines and generally in the federal courts. See U.S.S.G. § 5E1.1(a)(2) ; United States v. Batson, 608 F.3d 630, 635 (9th Cir. 2010)
The court concluded that the judgment wrongly required her to make restitution payments while still in prison. It decided that the best means of fixing the error was to modify the judgment to only require restitution after her release. She argued that because this was a tax offense, the district court did not have authority to require restitution during supervised release but the Fifth Circuit disagreed.
Next, she argued that the amount of the restitution was too high and the tax loss calculation, which would impact her sentence under the guidelines, was improperly calculated. The Fifth Circuit noted that restitution is limited to the loss caused by the conviction. It also noted that this issue is one where it reviewed the amount of the restitution order for abuse of discretion, putting a tall barrier to success before her. The court looked at the trial court record and determined that the amount of the restitution award was not clearly erroneous. For purposes of this discussion the main takeaway from this restitution issue is the high bar a defendant faces to reduce the decision of the trial court. The more important restitution issue in the case is the limitation of the time during which the defendant must pay the restitution.
With this background, there was four advisory opinions recently published although issued over the course of the past year.
In CCA_2020090314343344 which was written on September 3, 2020, the advice provided was
The restitution in this case is assessable and is not subject to the Westbrooks limitations on assessment and collection. The judgment lists the restitution as a criminal monetary penalty as well as a condition of supervised release. Normally, where restitution is listed as a criminal monetary penalty, it is imposed as an independent part of the sentence. In addition, the plea agreement provides for the defendant to pay restitution.
In CCA_2020100911062544 which was written on October 9, 2020, the advice provided was
This is not a Westbrooks case. The activity for which the defendant was convicted under Title 18 (* * *) embraces conduct for all of the years for which restitution was ordered, and offense for which the defendant was convicted is described in 18 USC 3663A(c)(1). Restitution was therefore mandatory under the Mandatory Victims Restitution Act and the court thus had the power to impose it as an independent portion of the sentence. The court did so, as shown on p. * * * of the judgment.
In CCA_2020100914392144 which was also written on October 9, 2020, the advice provided was
This is not a Westbrooks case because restitution was imposed as an independent part of the sentence pursuant to a plea agreement. However, the government is only one of the victims of the crime in count * * *. Where there are victims other than the government, the government is only paid after the other victims have been paid. Accordingly, the government cannot collect on the restitution-based assessment until the non-government victims have been paid.
In CCA_2020111810055044 which was written on November 18, 2020, the advice provided was
The IRS is obliged only to assess and collect restitution during the period of supervised release. This is technically not a Westbrooks case because the district court had authority to impose restitution independently. However, the district court did not do so in this case. The judgment describes the restitution imposed solely as a condition of supervised release and not under the portion that describes the rest of the sentence. We also confirmed from the Department of Justice that the government’s understanding was that restitution was imposed solely as a condition of supervised release. Accordingly, for the reasons stated in PMTA 2018-19, the IRS is obliged to only assess and collect restitution during the period of supervised release.
The advisory opinions reflect that the IRS is paying careful attention to the restitution orders and its ability to pursue collection under those orders. This suggests that if you are representing someone who has been the subject of a restitution based assessment you should also pay careful attention to the restitution order and how the timing of that order works. As discussed in the prior posts there are limitations on restitution based assessments. The provision allowing these assessments gives the IRS the opportunity to assess shortly after a criminal conviction or plea eliminating the need for the IRS to go through what could be a very lengthy deficiency assessment process prior to assessment. The quickness provided by this assessment provides a significant benefit to the IRS and fills a gap in time created by the deficiency assessment process; however, the restitution assessment comes with some limitations on the IRS’s normal collection powers.