151 T.C. No. 12
UNITED STATES TAX COURT
JASON BONTRAGER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5998-16L. Filed December 12, 2018.
P pleaded guilty in 2012 to violation of I.R.C. sec. 7201. The basis for his conviction was that he had aided and abetted his father in evading payment of his father’s Federal income tax liability for 1994. In 2013 P filed a petition under chapter 7 of the Bankruptcy Code. At sentencing in 2014 the District Court ordered P to pay restitution of $72,710, representing 10% of the Government’s total tax loss attri- butable to his father’s unpaid tax liability for 1994.
Relying on I.R.C. sec. 6201(a)(4), R assessed the $72,710 of restitution that P had been ordered to pay and recorded this assess- ment as a liability for P’s 1994 tax year. When P did not pay the balance of the liability, R began collection action by filing a notice of Federal tax lien (NFTL). After a CDP hearing the settlement officer upheld the filing of the NFTL, and P timely petitioned this Court.
1. Held: I.R.C. sec. 6201(a)(4) authorizes the IRS to assess restitution that a person has been ordered to pay upon conviction of -2-
violating I.R.C. sec. 7201, when his wrongdoing consisted of aiding and abetting the evasion of payment of a third party’s tax liability.
2. Held, further, P’s restitution liability was not discharged in the bankruptcy proceeding.
3. Held, further, the IRS collection action is sustained.
Holly C. Henson, for petitioner.
Derek S. Pratt and Rachael J. Zepeda, for respondent.
OPINION
LAUBER, Judge: In this collection due process (CDP) case, petitioner
seeks review pursuant to sections 6320(c) and 6330(d)(1)1 of the determination by
the Internal Revenue Service (IRS or respondent) to uphold a notice of Federal tax
lien (NFTL) filing. The IRS filed the NFTL to facilitate collection of criminal
restitution that it had assessed against petitioner under section 6201(a)(4). That
section authorizes the IRS to “assess and collect the amount of restitution * * * for
1 Unless otherwise indicated, all statutory references are to the Internal Reve- nue Code (Code) in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar. -3-
failure to pay any tax imposed under this title in the same manner as if such
amount were such tax.”
Petitioner pleaded guilty in 2012 to one count of violating section 7201,
which criminalizes willful attempts “to evade or defeat any tax * * * or the
payment thereof.” The basis for his conviction was that he had aided and abetted
his father in evading payment of his father’s Federal income tax liability for 1994,
which the IRS had assessed in 1998. At sentencing, petitioner was ordered to pay
to the IRS restitution of $72,710, representing 10% of the Government’s tax loss
relating to his father’s unpaid tax liability for 1994.
The principal question presented, one of first impression in this Court, is
whether section 6201(a)(4) authorizes the IRS to assess restitution that a person
has been ordered to pay, upon conviction of violating section 7201, when his
wrongdoing consisted of aiding and abetting the evasion of payment of a third
party’s tax liability. We resolve this question in respondent’s favor.
Background
The parties have submitted the case for decision without trial under Rule
122. Relevant facts have been stipulated or are otherwise included in the record.
See Rule 122(a). Pursuant to rule 201 of the Federal Rules of Evidence, we take
judicial notice of certain filings in petitioner’s criminal case. See United States v. -4-
Bontrager, No. 2:12-CR-00052-RAJ (W.D. Wash.) (Mar. 11, 2014). Petitioner
resided in Arizona when he filed his petition.2
Petitioner, Jason Bontrager, is the son of Winston G. Bontrager (Winston).
In 1994 Winston was convicted of conspiracy to commit wire fraud, ordered to
pay restitution of $687,000, and sentenced to prison for several years. About the
time when he was released from prison, the IRS assessed against him $185,346 of
Federal income tax for 1994.
In 1997 petitioner lived in Everett and Snohomish, Washington. Then aged
26, he had completed some coursework at Seattle University and had worked at
several real estate title firms. In March 1997 he established his own real estate
firm, Alexandria Investment Co., Inc. (AIC), of which he was the president and
(initially) the sole shareholder.
From age seven until well into his adulthood, petitioner had had little con-
tact with his father. Shortly after Winston was released from prison, however, he
moved to nearby Bellevue, Washington, and offered to help petitioner with the
real estate business. Unwisely perhaps, petitioner accepted his father’s offer.
2 Absent stipulation to the contrary, appeal of this case would lie to the U.S. Court of Appeals for the Ninth Circuit. See sec. 7482(b)(1)(G). Where relevant to the discussion, we note that court’s precedent. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971). -5-
Winston thereafter played a significant role in the business, exercising substantial
control over financing arrangements and negotiating terms for complex real estate
deals.
Winston, petitioner, and others eventually became the subjects of a Federal
investigation into various crimes, including tax crimes and mortgage fraud. That
investigation revealed (among other things) that Winston had evaded payment of
his outstanding Federal tax and restitution liabilities by using petitioner’s real es-
tate business as a front to conceal Winston’s income and assets.
On February 29, 2012, the U.S. Department of Justice filed a criminal infor-
mation against petitioner in the U.S. District Court for the Western District of
Washington. The information alleged one count of violating section 7201 and 18
U.S.C. sec. 2. Section 7201 criminalizes any willful attempt “to evade or defeat
any tax imposed by this title [viz., title 26, U.S. Code] or the payment thereof.”
Title 18 U.S.C. sec. 2 provides that “[w]hoever commits an offense against the
United States or aids, abets, counsels, commands, induces or procures its commis-
sion, is punishable as a principal.”
The information alleged that petitioner, from 1998 through 2010, had
criminally aided and abetted Winston in evading payment of Winston’s 1994
Federal income tax liability. Petitioner was alleged to have done this by using -6-
AIC and a related real estate company to help Winston conceal assets, income,
bank accounts, and business interests. The information alleged that petitioner had,
for example, issued corporate checks to Winston’s female acquaintance, had used
corporate funds to purchase a Rolls Royce for Winston’s use, had allowed Win-
ston to charge personal expenditures to a corporate credit card, had titled various
assets in the names of Winston’s nominees, and had used offshore accounts to
conceal Winston’s income and assets.
That same day petitioner pleaded guilty as charged. Almost two years later,
on January 31, 2014, the District Court issued its judgment in petitioner’s criminal
case. The judgment entered on his plea stated that he was adjudicated guilty of
violating “26 U.S.C. § 7201.” It stated that his “Offense Ended” on August 9,
2010. And it described the “Nature of [his] Offense” as “Aiding and Abetting the
Evasion of Payment of Income Tax.”
Petitioner was sentenced to one year in prison and three years of supervised
release. At the sentencing hearing the District Court described petitioner as an
upstanding member of his community but noted his “very significant role” in his
father’s tax-evasion scheme. The parties agreed that the Government’s overall tax
loss stemming from Winston’s unpaid 1994 tax liability was $727,096, i.e., in- -7-
come tax of $185,346, additions to tax totaling $90,781, and statutory interest of
$450,969.
While acknowledging that he could be held liable for the full amount of the
tax loss, petitioner asked the sentencing court “to apportion the restitution obliga-
tion * * * and to assign ten percent of the total loss to * * *[him] as his separate
liability.” In light of petitioner’s lesser role in the overall scheme, the District
Court granted this request, apportioned 10% of the tax loss (or $72,710) to peti-
tioner, and ordered him to pay to the IRS restitution in that amount.
Several months before his sentencing, on October 4, 2013, petitioner filed a
petition under chapter 7 of the Bankruptcy Code. During the bankruptcy proceed-
ing, the IRS filed a general unsecured proof of claim for $233,530, of which it
ultimately received $17,542 from the bankruptcy estate. On February 20, 2014,
several weeks after petitioner’s sentencing, the U.S. Bankruptcy Court for the
Western District of Washington closed the bankruptcy case by issuing an order of
discharge. That order noted that certain types of debts are not discharged in a
chapter 7 case, including “[d]ebts for most fines, penalties, forfeitures, or criminal
restitution obligations.”
On June 9, 2014, the IRS assessed against petitioner, under section
6201(a)(4), the amount of restitution the District Court had ordered him to pay, -8-
$72,710. The IRS also assessed pursuant to section 6601(a) underpayment interest
of $165,508, calculated from the due date of Winston’s 1994 tax return. The IRS
applied a credit of $17,542 for the payment it had received from petitioner’s bank-
ruptcy estate.
On June 3, 2015, after petitioner did not pay the balance of the liability on
notice and demand, the IRS filed an NFTL. Upon notification, petitioner timely
requested a CDP hearing. In his hearing request he contended that the restitution
was not assessable because it was ordered for failure to pay a tax that title 26 im-
posed upon his father rather than upon him.
Petitioner’s hearing request was assigned to a settlement officer (SO) from
the IRS Appeals Office. The SO scheduled a telephone hearing for November 4,
2015. At the hearing petitioner challenged the validity of the assessment and
sought withdrawal of the lien. He contended that the assessment was invalid, in
whole or in part, because: (1) the IRS had no legal authority to assess the restitu-
tion, (2) the restitution obligation had been discharged in bankruptcy, (3) the IRS
had no legal authority to assess underpayment interest, and (4) the assessment was
improperly recorded as a liability on his 1994 tax module. He did not request a
collection alternative. -9-
The SO rejected all four arguments. On February 8, 2016, the IRS issued
petitioner a notice of determination sustaining the NFTL filing, and he timely
petitioned this Court for redetermination. On May 15, 2017, the parties submitted
this case for decision without trial under Rule 122.
On March 6, 2018, the parties filed a stipulation of settled issues in which
respondent conceded that, under this Court’s decision in Klein v. Commissioner,
149 T.C. __ (Oct. 3, 2017), petitioner is not liable for underpayment interest under
section 6601(a)(1) on the $72,710 restitution-based assessment. In light of that
concession, the issues remaining in live dispute are whether the SO erred in deter-
mining that: (1) the IRS had authority under section 6201(a)(4) to assess the resti-
tution and (2) the restitution obligation had not been discharged in bankruptcy.3
Discussion
I. Standard of Review
Petitioner challenges the restitution-based assessment of $72,710. We treat
this amount as being the “underlying tax liability” in this case. See Klein, 149
T.C. at __ (slip op. at 13). The Code expressly precludes review of the amount of
3 The parties had originally presented, as a third question for review, whether the restitution obligation should be assessed on petitioner’s 1994 or 2014 tax mod- ule. Given respondent’s concession that petitioner is not liable for underpayment interest, that question no longer has any practical importance for this case, and we therefore decline to address it. - 10 -
restitution ordered by the sentencing court. See sec. 6201(a)(4)(C) (“The amount
of such restitution may not be challenged by the person against whom assessed on
the basis of the existence or amount of the underlying tax liability in any proceed-
ing authorized by this title[.]”).
When the taxpayer’s underlying liability is not properly at issue, the Court
reviews the SO’s determination for abuse of discretion. Goza v. Commissioner,
114 T.C. 176, 181-182 (2000). In this case our evaluation of the questions pre-
sented turns largely on issues of law. The standard of review we apply thus makes
little difference; as a rule, we must reject the SO’s determinations to the extent
they were based on erroneous views of the law. See Kendricks v. Commissioner,
124 T.C. 69, 75 (2005) (“Whether characterized as a review for abuse of discretion
or as a consideration ‘de novo’ (of a question of law), we must reject erroneous
views of the law.”); Swanson v. Commissioner, 121 T.C. 111, 119 (2003) (“If
respondent’s determination was based on erroneous views of the law and peti-
tioner’s unpaid liabilities were discharged in bankruptcy, then we must reject re-
spondent’s views and find that there was an abuse of discretion.”).
II. Validity of Assessment
The IRS can make a restitution-based assessment only to the extent author-
ized by section 6201(a)(4)(A). That section provides that the Secretary “shall as- - 11 -
sess and collect the amount of restitution under an order pursuant to section 3556
of title 18, United States Code, for failure to pay any tax imposed under this title
[viz., title 26] in the same manner as if such amount were such tax.” The parties
agree that the restitution obligation at issue arose “under an order pursuant to sec-
tion 3556 of title 18.”4 They disagree, however, as to whether this restitution was
ordered “for failure to pay any tax imposed under this title.”
The restitution petitioner was ordered to pay equals 10% of the Govern-
ment’s loss attributable to Winston’s unpaid tax liability for 1994. In petitioner’s
view this restitution falls outside the scope of section 6201(a)(4) because it was
ordered for failure to pay a tax that title 26 imposed, not upon him, but upon his
father. Petitioner thus reads “tax imposed under this title,” as used in section
6201(a)(4), to mean “tax imposed upon him under this title.” The answer to the
question presented depends on whether this gloss is correct.
4 Title 18 U.S.C. sec. 3556 (2012) provides that “[t]he court, in imposing a sentence on a defendant who has been found guilty of an offense[,] * * * may order restitution in accordance with section 3663.” The latter section permits the court to “order restitution in any criminal case to the extent agreed to by the parties in a plea agreement.” 18 U.S.C. sec. 3663(a)(3) (2012). Tax crimes under title 26 are covered by 18 U.S.C. sec. 3663(a)(3). See United States v. Soderling, 970 F.2d 529, 534 (9th Cir. 1992) (“[S]ection 3663(a)(3) applies to offenses under any title of the United States Code.”). Petitioner agreed to pay restitution as a part of his guilty plea, which left the amount of the restitution to be apportioned by the sentencing court pursuant to its authority under 18 U.S.C. sec. 3664(h) (2012). - 12 -
“We begin our inquiry, as we must, by considering the plain and ordinary
meaning of the text Congress enacted.” Klein, 149 T.C. at __ (slip op. at 17)
(citing Jimenez v. Quarterman, 555 U.S. 113, 118 (2009), and Rainero v. Archon
Corp., 844 F.3d 832, 837 (9th Cir. 2016)). Section 6201(a)(4) authorizes assess-
ment and collection of restitution “under an order pursuant to section 3556 of title
18.” The latter section provides (as relevant here) that “[t]he court, in imposing a
sentence on a defendant who has been found guilty of an offense[,] * * * may or-
der restitution in accordance with [18.U.S.C.] section 3663.”
We thus start with the District Court’s sentencing order. That order stated
that petitioner was adjudicated guilty of violating “26 U.S.C. § 7201.” Section
7201 criminalizes any willful attempt “in any manner to evade or defeat any tax
imposed by this title or the payment thereof.” The elements of a section 7201 of-
fense are “(1) willfulness; (2) the existence of a tax deficiency; and (3) an affirm-
ative act constituting an evasion or attempted evasion of the tax.” United States v.
Kayser, 488 F.3d 1070, 1073 (9th Cir. 2007) (citing Sansone v. United States, 380
U.S. 343, 351 (1965)). The second element is equivalent to a failure to pay tax.
See United States v. DeTar, 832 F.2d 1110, 1113 (9th Cir. 1987) (noting that the
first two elements of a section 7201 offense are the same as the elements of an
offense under section 7203, which criminalizes any willful failure to pay tax); - 13 -
United States v. Fisher, 607 F. App’x 645, 646 (9th Cir. 2015) (“It is undisputed
that § 7203 is a lesser included offense of § 7201.”).
The sentencing order described the nature of petitioner’s offense as “aiding
and abetting the evasion of payment of income tax,” within the meaning of 18
U.S.C. sec. 2. This section does not make “aiding and abetting” a distinct crime.
Rather, it provides that a person who “aids, abets, counsels, commands, induces or
procures” the commission of an offense against the United States “is punishable as
a principal.” See United States v. Snider, 957 F.2d 703, 706 (9th Cir. 1992) (“Sec-
tion 2 does not establish ‘an offense’ of which a defendant may be convicted; it
merely determines which offenders may be punished as principals.”). Restitution
orders in this setting are thus based on the underlying crime, not on the aiding and
abetting.
Section 6201(a)(4) authorizes the Commissioner to assess and collect the
amount of restitution under a sentencing order “for failure to pay any tax imposed
under this title.” Petitioner was convicted of violating section 7201. He was thus
found guilty of attempting “to evade or defeat [a] tax imposed by this title or the
payment thereof.” Because failure to pay a tax imposed by title 26 was an element
of the offense with which petitioner was charged, and because he was convicted of - 14 -
that offense, section 6201(a)(4) by its terms authorized respondent to assess and
collect the amount of restitution that petitioner was ordered to pay.
Petitioner notes correctly that the tax, the payment of which he was con-
victed of evading, was not originally imposed upon him by title 26. But neither
section 7201 nor section 6201(a)(4) requires that this be the case. Section 7201
criminalizes any willful attempt to evade payment of “any tax imposed by this
title.” Section 6201(a)(4) authorizes the assessment of restitution “for failure to
pay any tax imposed under this title.” Petitioner was ordered to pay restitution for
aiding and abetting Winston’s failure to pay Federal income tax. That tax was
clearly “[a] tax imposed under this title.”
The phrase “any tax imposed under this title” in section 6201(a)(4) contains
no limiting language. “Read naturally, the word ‘any’ has an expansive meaning.”
United States v. Gonzales, 520 U.S. 1, 5 (1997). In Gonzales, the Supreme Court
was called upon to interpret the meaning of the phrase, “any other term of impris-
onment” as used in 18 U.S.C. sec. 924 (c)(1) (1994). Because Congress had in-
cluded no language limiting the scope of “any,” the Court held that “any * * *
term of imprisonment” must be construed “as referring to all ‘terms of imprison-
ment,’ including those imposed by state courts.” See Gonzales, 520 U.S. at 5. - 15 -
Reasoning similarly here, we conclude that the term “any tax imposed under
this title” includes all taxes imposed under title 26. The tax that petitioner was
convicted of willfully attempting to evade the payment of--Winston’s income tax
liability for 1994--was “[a] tax imposed under this title.” Because “failure to pay
[a] tax imposed under this title” was an element of the crime of which petitioner
was convicted, section 6201(a)(4) authorized respondent to assess and collect that
restitution. The statute’s text does not support the limiting gloss that petitioner
seeks to place upon it.
The statute’s purpose likewise counsels rejection of petitioner’s proposed
construction. Historically, principal responsibility for restitution has lain with the
Financial Litigation Unit (FLU) at the U.S. Attorney’s Office. Klein, 149 T.C. at
__ (slip op. at 16). “The FLU reported restitution payments to the sentencing
court and eventually transmitted the funds to the IRS.” Ibid. But before 2010 the
IRS typically had no account receivable against which restitution payments it re-
ceived could be credited, because it usually had not yet completed (or even begun)
a civil examination of the defendant taxpayer and assessed the tax. Section
6201(a)(4) cured this problem by allowing the IRS to assess and collect the resti-
tution amount immediately “as if such amount were such tax.” See Klein, 149
T.C. at __ (slip op. at 26-27). - 16 -
If the IRS cannot assess restitution of the sort involved here, the problem
Congress aimed to solve in 2010 would be perpetuated for a subset of restitution
payments. Indeed, the problem would be particularly acute in this context. The
IRS cannot commence an examination of petitioner to determine Winston’s 1994
civil tax liability. Thus, it could never make an assessment against petitioner for
that tax unless permitted to do so by section 6201(a)(4). And this problem could
arise in the case of restitution ordered, not just for violations of section 7201, but
for violations of other Code provisions. See, e.g., secs. 7202 (willful failure to
collect or pay over tax) and 7203 (willful failure to file, supply information, or pay
tax). We decline to find a gap in the statutory scheme in the absence of any textu-
al evidence suggesting that such gap exists.
We thus conclude that section 6201(a)(4) authorized the IRS to assess the
restitution at issue. That section directs the Commissioner to assess and collect
restitution ordered “for failure to pay any tax imposed under this title.” Sec.
6201(a)(4)(A). Winston’s 1994 Federal income tax was “[a] tax imposed under
this title,” and petitioner was convicted of violating section 7201, which involved
willful failure to pay that tax. The plain language of the statute, supported by the - 17 -
policy goal Congress sought to achieve, justifies the assessment of restitution in
these circumstances.5
III. Bankruptcy Discharge
Petitioner asserts that his restitution obligation was discharged in his 2013-
2014 bankruptcy proceeding. Under the Bankruptcy Code, restitution obligations
imposed under title 18 are generally excepted from a chapter 7 discharge. See 11
U.S.C. secs. 523(a)(13), 727(b) (2012); Olson v. United States (In re Olson), 154
B.R. 276, 285 (Bankr. D.N.D. 1993) (“[R]estitution owing to the IRS as part of the
Debtor’s criminal sentence is not dischargeable.”). Indeed, the discharge order
that petitioner received stated that “[d]ebts for most fines, penalties, forfeitures, or
criminal restitution obligations” are not discharged.
However, certain actions taken by a creditor during a bankruptcy proceed-
ing may result in the creditor’s waiving the nondischargeability of his claim. See,
e.g., In re Garrett, 2017 WL 2990376, at *4 (B.A.P. 9th Cir. July 14, 2017) (hold-
ing that creditor waived claim of nondischargeability by failing to raise certain
5 Petitioner contends that he cannot be held responsible for his father’s tax liability for 1994, which arose before he and Winston began doing business to- gether. This is an impermissible attempt to relitigate the criminal case. Petitioner pleaded guilty to a violation of section 7201, and he was punishable as a principal for that crime. He was ordered to pay restitution for evading payment of a tax imposed under title 26, and he cannot now challenge the restitution he was ordered to pay. See sec. 6201(a)(4)(C). - 18 -
claims during the bankruptcy case). Petitioner asserts that a waiver occurred here.
Specifically, he contends that the IRS waived the nondischargeability of the resti-
tution obligation by filing a claim as a general unsecured creditor in petitioner’s
chapter 7 case.
Contrary to petitioner’s view, nothing in the Bankruptcy Code prevents a
creditor of a nondischargeable debt from filing a claim. Generally, all properly
filed creditor claims are allowed in a bankruptcy case unless expressly disallowed
by the Bankruptcy Court under a specific provision. See 11 U.S.C. sec. 502(a),
(b), (d), (e) (2012). None of these provisions disallows claims for nondischarge-
able debts. And no provision of the Bankruptcy Code prevented the IRS from
filing a claim or attached any adverse consequences to its doing so.
Further, the IRS properly filed its claim as a general unsecured creditor.
Because the IRS had not assessed the restitution obligation at the time of peti-
tioner’s bankruptcy, let alone filed an NFTL, it was required to file its claim as a
general unsecured creditor. See In re Bennett, 237 B.R. 918, 923 (Bankr. N.D.
Tex. 1999) (holding that the IRS could file only a general unsecured claim when it
had not filed an NFTL before the commencement of the chapter 7 case). Peti-
tioner has cited no legal authority for the proposition that the IRS’ filing of this
claim effected a waiver of any kind. - 19 -
In sum, we conclude that petitioner’s restitution obligation was not dis-
charged in his prior bankruptcy and that section 6201(a)(4) authorized the Com-
missioner to assess and collect that amount as if it were a tax. Taking account of
respondent’s concession that the restitution-based assessment does not attract
underpayment interest under section 6601(a), we will sustain the collection action
as set forth in the notice of determination.
To reflect the foregoing,
An appropriate decision will be
entered.