152 T.C. No. 12
UNITED STATES TAX COURT
RANDY ALAN CARPENTER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5327-17L. Filed April 18, 2019.
P pleaded guilty to violating I.R.C. sec. 7206(1) by willfully filing false returns for 2005 and 2006. At sentencing, the District Court ordered P to pay restitution to the IRS, ordered that restitution was due immediately, and set a schedule of payments. The District Court also ordered that P pay all outstanding tax as an additional condition of his supervised release. Though P made each scheduled payment, he did not pay the full restitution amount.
R assessed against P the full amount of restitution ordered in reliance on I.R.C. sec. 6201(a)(4). When P did not pay the assessed amount R began collection action. Before the first payment was due under the schedule set by the District Court, R sent a final notice of intent to levy and filed a notice of Federal tax lien. Following a CDP hearing IRS Appeals sustained the proposed collection actions. P contends that I.R.C. sec. 6201(a)(4) does not grant R independent administrative authority to collect amounts of criminal restitution. P also contends a schedule of restitution payments limits the amount R -2-
may administratively collect absent a further order by the sentencing court.
Held: I.R.C. sec. 6201(a)(4) grants R independent authority to collect administratively amounts of criminal restitution assessed under that section.
Held, further, a payment schedule included in an order for criminal restitution that is due immediately does not limit R’s authority to collect administratively unpaid amounts of such restitution.
Held, further, Appeals did not abuse its discretion in sustaining the collection actions at issue.
Randy Alan Carpenter, pro se.
Johnny Craig Young, Abby Moua, and Scott Lyons, for respondent.
OPINION
COHEN, Judge: In this collection due process (CDP) case petitioner seeks
review under sections 6320(c) and 6330(d)(1) of the Internal Revenue Service
(IRS) Office of Appeals’ (Appeals) determination sustaining a Letter 3172, Notice
of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 (NFTL),
and a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a
Hearing (FNIL). Both letters relate to an order of criminal restitution for tax -3-
losses, which prompted the IRS assessment and administrative collection efforts
pursuant to section 6201(a)(4). That provision authorizes the Secretary, following
a taxpayer’s criminal conviction for failure to pay any tax imposed by title 26, to
“assess and collect the amount of restitution” ordered by the sentencing court “in
the same manner as if such amount were such tax.” Sec. 6201(a)(4). Unless
otherwise indicated, all section references are to the Internal Revenue Code
(Code) in effect at all relevant times, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Following our Opinion in Klein v. Commissioner, 149 T.C. 341 (2017),
respondent conceded and abated the statutory interest and additions to tax
determined with respect to the assessments at issue. After concessions we must
decide two issues of first impression. The first is whether section 6201(a)(4)
grants the IRS independent authority to collect administratively amounts assessed
under that section; we hold that it does under these facts. The second is whether
the schedule of payments in the sentencing court’s criminal restitution order limits
IRS administrative collections; we hold that it does not. We must also decide
whether to sustain the issuance of the FNIL and the NFTL filing on an amount of
restitution that included statutory interest and additions to tax that respondent
subsequently conceded and abated. We hold that each be sustained only in an -4-
amount that reflects the restitution obligation due from petitioner. Finally, we
must decide whether the Appeals settlement officer who conducted petitioner’s
CDP hearing abused his discretion in sustaining the FNIL and the filing of the
NFTL; we hold that he did not.
Background
The parties submitted this case fully stipulated under Rule 122. The
stipulated facts are incorporated in our findings by this reference. Petitioner
resided in North Carolina when he filed his petition.
I. The Underlying Criminal Case
Following a prosecution in the U.S. District Court for the Western District
of North Carolina, petitioner entered into a plea agreement pursuant to rule
11(c)(1)(C) of the Federal Rules of Criminal Procedure. Petitioner agreed to plead
guilty to certain charges and pay restitution for tax losses in exchange for a
sentence within a lower range than the one calculated under the U.S. Sentencing
Guidelines. Pursuant to the agreement petitioner pleaded guilty to one count of
violating section 7206(1) by willfully making and subscribing to a false Federal
income tax return for 2005, and to one count of violating section 7206(1) by
willfully making and subscribing to a false Federal income tax return for 2006. -5-
Petitioner admitted that the false returns resulted in his failure to correctly report
all of his gross income for those years.
On April 15, 2014, the District Court held a sentencing hearing during
which the court accepted the plea agreement and sentenced petitioner to 27 months
in prison, followed by one year of supervised release for each count to run
concurrently. The District Court also accepted without objection a presentencing
report and the Government’s calculation of the Federal tax loss for petitioner’s
2005 and 2006 tax years. As a separate component of the sentence, the District
Court ordered petitioner to pay restitution to the IRS of $507,995.
During the sentencing hearing the judge’s oral pronouncements closely
followed the order and text of the District Court’s standard form, judgment in a
criminal case (judgment form), and the District Court followed the judgment form
to organize its oral pronouncements while summarizing the language used in the
judgment form. See United States v. Randy Alan Carpenter, No. 12cr00116-GCM
(W.D.N.C., Apr. 17, 2014) (AO 245B (WDNC Rev. 02/11) Judgment In A
Criminal Case). When dealing with the conditions of supervised release, in both
its oral pronouncements at the sentencing hearing and in its written judgment, the
District Court ordered petitioner to file tax returns with the IRS as required by law.
The sentencing judge orally pronounced that petitioner “shall cooperate with the -6-
Internal Revenue Service to pay outstanding taxes”. The District Court’s written
judgment stated that petitioner shall “pay all outstanding taxes, interest and
penalties” as an additional condition of his supervised release.
The District Court next addressed criminal monetary penalties and imposed
a mandatory $200 special assessment, did not impose a fine, and ordered petitioner
to pay restitution in the full amount of the tax loss. Because the total criminal
monetary penalties were more than $2,500, the District Court considered
petitioner’s ability to pay statutory interest required for any fine or restitution that
was not paid in full within 15 days of the judgment. See 18 U.S.C. sec. 3612(f)
(2012). The District Court found that petitioner did not have the financial ability
to pay either a fine or interest on the amounts of criminal monetary penalties
remaining unpaid 15 days after it entered judgment and waived both. After
waiving statutory interest due according to 18 U.S.C. sec. 3612(f), the District
Court stated: “I don’t know what effect that has on the Internal Revenue Service
with all your penalties and interests [sic] and whatever, it seems to me that if you
hope to get anything out of this guy, freezing his number at $507,995 is a pretty
good idea. And that is what’s ordered by the court.”
Once the District Court set the amount of the total criminal monetary
penalties and waived interest payments on those, it addressed when payment was -7-
due. In both its oral pronouncements at the sentencing hearing and in its written
judgment the District Court ordered that the restitution was “due and payable
immediately” and that “if * * * [petitioner] can’t pay” the entire amount of
restitution, he must pay $100 per month beginning 60 days after his release from
imprisonment. The District Court further stated in its oral pronouncements that
petitioner must continue making payments “until the monies are repaid.” At no
point during the sentencing hearing did the District Court orally state that the $100
monthly installment was the maximum amount that petitioner must pay per month.
The District Court’s written judgment was consistent with its oral pronouncements
at the sentencing hearing. The District Court ordered that restitution was due in
full and payable immediately, and it ordered petitioner to comply with its payment
schedule as a special condition of petitioner’s supervised release in the event he
had not fully repaid the restitution prior to his release from imprisonment.
On May 27, 2016, after his release from prison, petitioner began serving a
term of supervised release. While on supervised release petitioner complied with
the District Court’s payment schedule. As a result, on March 7, 2017, the District
Court modified the conditions of petitioner’s supervised release to allow his
supervision to expire on May 26, 2017, with an outstanding balance of
$501,546.90 “remaining due on * * * [petitioner’s] restitution obligation”. As part -8-
of this modification the District Court ordered that the amount of restitution still
outstanding “be collected by civil means through the U.S. Attorney’s Office.”
II. Collection Activities
A. USAO
After petitioner’s sentencing hearing the U.S. Attorney’s Office (USAO) for
the Western District of North Carolina took steps to collect the court-ordered
restitution amount from petitioner. On or about April 17, 2014, the USAO filed a
Federal notice of lien for fine and/or restitution imposed pursuant to the Anti-
Terrorism and Effective Death Penalty Act of 1996 in the amount of $508,195
with the Office of the Clerk of Superior Court of Avery County, North Carolina.
At some point prior to the start of the petitioner’s supervised release term, the
USAO began collection through the Federal Payment Levy Program (FPLP),
which levied on petitioner’s Social Security benefits resulting in monthly
restitution payments of $283.95. On or about December 23, 2015, the USAO
forwarded to the IRS $2,340.70 that it had collected from petitioner through the
FPLP levy, and the IRS recorded it as a payment against petitioner’s 2005 liability.
(The IRS account transcript for petitioner’s 2005 liability records and credits
payments total $7,648.10 as of April 3, 2018.) -9-
B. IRS
On January 18, 2016, the IRS made restitution-based assessments (RBA)
against petitioner under section 6201(a)(4) for 2005 and 2006. The IRS made
RBAs of $89,045 and $418,950 for 2005 and 2006, respectively, which totaled the
exact amount of restitution ordered by the District Court. That same day the IRS
mailed petitioner a notice and demand for the unpaid restitution. The notice stated
the total RBA amount and the interest due for each year at issue and instructed
petitioner to pay the full amount to the District Court by February 1, 2016.
Petitioner wrote to the IRS to dispute the amounts due and the IRS collection
efforts. As of April 3, 2016, the combined unpaid balance for the assessed
criminal restitution, excluding interest and additions to tax, totaled $500,346.90.
On May 2, 2016, the IRS sent petitioner two Notices CP504, Notice of
Intent to Levy, with respect to petitioner’s unpaid liabilities for 2005 and 2006.
Both notices stated that the IRS intended to levy on petitioner’s State tax refund or
other property, including Social Security benefits, if he failed to either call the IRS
immediately or pay the amount listed directly to the IRS by May 12, 2016.
Petitioner did not respond to these notices.
On May 23, 2016, the IRS sent petitioner an FNIL, which indicated that
petitioner owed a total of $759,380.74, representing the total amount of the RBAs - 10 -
for 2005 and 2006, statutory interest, and additions to tax. The FNIL also stated
that the Government might seize petitioner’s property to satisfy the amount due
but that he could appeal the proposed seizure of his assets by requesting a CDP
hearing under section 6330 by June 22, 2016.
Petitioner timely submitted a Form 12153, Request for a Collection Due
Process or Equivalent Hearing, with respect to the FNIL. Petitioner checked the
box on the Form 12153 indicating that he was unable to pay the balance of his
liabilities and that he would like to discuss collection alternatives. He included a
statement that his only source of income was Social Security disability benefits
and that his expenses exceeded his income because of making restitution payments
and supporting three dependents. Petitioner further stated: “I do not owe the taxes
I owe restitution to the court”. He asserted that he had not yet received a
deficiency notice. On or about June 9, 2016, IRS mailed petitioner a letter to
confirm receipt of his Form 12153 and to inform him that unless he filed Federal
income tax returns for 2011 through 2015 he was ineligible for a collection
alternative. This letter also requested that petitioner provide further financial
information in order for Appeals to consider a proposed collection alternative and
included copies of Form 433-A, Collection Information Statement for Wage - 11 -
Earners and Self-Employed Individuals, and Form 433-B, Collection Information
Statement for Businesses.
On or about July 1, 2016, petitioner sent a letter to the IRS stating that “I do
not submit that at this time you have the authority to collect ‘federal tax’ from me
for the periods noted * * * [and that] I mistakenly selected the collection
alternative box [on Form 12153].” In the same letter petitioner also stated that
“[b]y this letter, I withdraw my request for a collection alternative consideration.”
Petitioner went on to state:
I disagree with the existence and amount of the federal tax, penalties, and interest as I have not received a notice of deficiency from you for the tax and have not had an opportunity to dispute the tax liability with you; I noted this on the Form 12153. I offer in support that ‘[i]n order to prove a tax deficiency, [you] must show first that the taxpayer had unreported income, and second, that the income was taxable,’ United States v. Moore, 498 Fed. Appx. 195, 201 (4th Cir. 2012), quoting United States v. Abodeely, 801 F.2d 1020, 1023 (8th Cir. 1986). This has not been done and your intent to levy action is premature. Based on any reasoning you may have to proceed, there has never been an effort by the government to identify amounts deposited that are non-taxable, i.e., the ‘purification’ process. Moore at 202, citing United States v. Boulet, 577 F.2d 1165, 1167 (5th Cir. 1978). I expect my taxpayer ‘right to pay no more than the correct amount of tax’ to be upheld.
Petitioner failed to provide sufficient financial information, and he did not file his
missing Federal income tax returns in order to be eligible for collection alternative
consideration. - 12 -
On or about June 28, 2016, the IRS filed an NFTL against petitioner with
the Office of the Clerk of Superior Court of Avery County, North Carolina, and
sent petitioner an NFTL filing. Petitioner timely submitted a separate Form 12153
challenging the NFTL filing. On this Form 12153 petitioner did not check the box
requesting consideration for a collection alternative. Instead petitioner included a
statement that the “IRS lacks jurisdiction to lien and levy” to enforce the District
Court’s restitution order. He asserted again that he had not received a notice of
deficiency and had not had an opportunity to dispute the underlying tax liability.
C. CDP Hearing
On August 10, 2016, petitioner’s case was assigned to an Appeals
settlement officer (officer). During the officer’s case review he examined the
District Court’s restitution order, the transcript of the sentencing hearing, IRS
criminal investigation closing reports, and IRS inventory control system notes
related to the making of the RBAs and the subsequent FNIL and the NFTL filing.
The officer reviewed IRS records related to petitioner’s income for the 2011
through 2015 years, which indicated that petitioner received Social Security
benefits and had canceled debt. The officer discussed petitioner’s failure to file
Federal tax returns for 2011 through 2015 with both petitioner and his probation
officer. The officer also secured and reviewed a partially completed copy of Form - 13 -
433-A from petitioner. The officer reviewed IRS administrative guidance related
to RBAs and caselaw related to criminal restitution orders cited by petitioner. The
officer verified that the total of the RBA amounts made for 2005 and 2006
matched the amount of restitution ordered by the District Court. The officer also
confirmed that the IRS factored into its financial analysis and collections
determination the $100-per-month payment schedule ordered by the District
Court. Accordingly, the officer determined that the IRS had satisfied the relevant
procedural requirements.
On November 17, 2016, the officer conducted a telephone CDP hearing
with petitioner. During this hearing petitioner argued: (1) that the IRS lacks
authority to enforce criminal restitution orders, (2) that the IRS is prohibited from
initiating administrative collection actions without obtaining an order from the
District Court, and (3) that IRS collections may not exceed the financial
obligations established by the District Court’s monthly payment schedule.
Petitioner did not request a collection alternative or propose an installment
agreement either during the hearing or in his subsequent written arguments
submitted at the officer’s invitation. The officer wrote to petitioner on January 23,
2017, to respond to subsequent written arguments and to inform petitioner that he
would recommend that Appeals sustain the FNIL and the filing of the NFTL. - 14 -
D. Notice of Determination
On January 30, 2017, the officer sustained the determination, closed the
case, and submitted it for review to his Appeals team manager. The team manager
concurred in the officer’s proposed determinations. Appeals sent petitioner two
notices of determination concerning collection action(s) under section 6320 and/or
6330, one each for the NFTL filing and the FNIL, dated February 3, 2017. At the
time Appeals sent these notices of determination, Klein v. Commissioner, 149 T.C.
341, had not been decided.
Discussion
I. Disputed Authority To Collect Criminal Restitution
We address, as an initial matter, petitioner’s challenge to the Secretary’s
administrative collection authority related to criminal restitution. Petitioner argues
that section 6201(a)(4) does not authorize the Secretary to file an NFTL
independently or to levy on property to collect amounts of restitution ordered by a
sentencing court and subsequently assessed under that section. He also contends
that the Secretary must seek a further order from the sentencing court before
administratively collecting amounts in excess of the sentencing court’s original
schedule of monthly restitution payments. Respondent disagrees with petitioner
on both points. - 15 -
A. The FETIA Amendments
With the enactment of section 6201(a)(4) Congress expanded the
Secretary’s collection authority in relation to criminal restitution ordered after
August 16, 2010. See Firearms Excise Tax Improvement Act of 2010 (FETIA),
Pub. L. No. 111-237, sec. 3, 124 Stat. at 2497. This provision directs that “[t]he
Secretary shall assess 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 in the same manner as if such amount were such tax.” Sec.
6201(a)(4)(A) (emphasis added); see also Bontrager v. Commissioner, 151 T.C.
___, ___ (slip op. at 10-11) (Dec. 12, 2018). The Secretary may not make an RBA
“before all appeals of * * * [the restitution order] are concluded and the right to
make all such appeals has expired.” Sec. 6201(a)(4)(B); see also FETIA sec. 3(a).
Congress exempted the Secretary’s power to assess and to bring collection
actions for RBAs from the usual time limitations. Sec. 6501(c)(11) (“[Criminal
restitution] may be assessed, or a proceeding in court for the collection of such
amount may be begun without assessment, at any time.”); see FETIA sec. 3(b),
124 Stat. at 2498. It also prohibited a taxpayer from collaterally attacking the
underlying restitution amount. Sec. 6201(a)(4)(C) (“The amount of such
restitution may not be challenged * * * on the basis of the existence or amount of - 16 -
the underlying tax liability in any proceeding authorized under this title[.]”).
Significantly, Congress did allow the taxpayer to retain the ability to challenge the
Secretary’s method of collecting an RBA. See secs. 6320(b), 6330(b); see also
Staff of J. Comm. on Taxation, General Explanation of Tax Legislation Enacted in
the 111th Congress, 461 (J. Comm. Print 2011).
B. Assessment Authority
In Klein v. Commissioner, 149 T.C. 341, we considered whether Congress
intended the assessment of criminal restitution to be a basis for statutory interest
and additions to tax. We held that Congress did not on the basis of its directive
that restitution assessments and collections be made “in the same manner as if
such amount were such tax.” Id. at 351-352 (quoting section 6201(a)(4)(A)). We
concluded that section 6201(a)(4) was intended only to enable the IRS to assess
the exact amount of restitution ordered, which would create “an account receivable
on the taxpayer’s transcript against which the restitution payment can be credited.”
Id. at 352; see also Rozin v. Commissioner, T.C. Memo. 2017-52, at *10-*11
(“The IRS is permitted to immediately assess, without issuing a statutory notice of
deficiency, and collect, as if it were a tax, the restitution ordered * * * separately
from a taxpayer’s [civil] tax liability[.]” (Citations omitted.)). Summary
assessment of criminal restitution is an accounting measure to “facilitate IRS - 17 -
bookkeeping by transforming the restitution obligation from a deemed assessment
to an actual assessment.” Klein v. Commissioner, 149 T.C. at 358 n.12.
C. Collection Authority
1. Provisions of Title 26
The Code requires that upon making an assessment the Secretary issue
notice and demand for payment pursuant to section 6303 before starting
administrative collection efforts. A Federal tax lien automatically arises as of the
date an assessment is made. Sec. 6322. Section 6331 grants the Secretary the
authority to collect on the assessment by levy and distraint. Congress, by its
amendments to the Code in FETIA, expanded the Secretary’s authority to collect
actively on criminal restitution orders following summary assessment. See Muncy
v. Commissioner, T.C. Memo. 2017-83, at *18, aff’d, 890 F.3d 724 (8th Cir.
2018).
Specifically, Congress exempted assessment of criminal restitution from the
Code’s time provisions and limited the taxpayer’s ability to challenge the
restitution order itself. Petitioner argues that the interplay of these sections binds
the Secretary’s hands to prevent collection other than by court order in accordance
with the provision of title 18. This argument has no merit. - 18 -
Section 6201 delays assessment and subsequent collection activities until
after any appeals are concluded or the period for appeals of an order of restitution
has lapsed. Sec. 6201(a)(4)(B). The inclusion of this provision indicates that
Congress intended to grant the Secretary collection authority that is independent
from title 18 and the underlying criminal procedures. This intention is
underscored by provisions in FETIA that amend section 6501 to exclude
specifically criminal restitution from the usual three-year limitation period. See
sec. 6501(c)(11); see also FETIA sec. 3. With this amendment Congress ensured
that any delays that may accompany criminal prosecution and any subsequent
appeals would not hinder the Secretary’s ability to assess and collect criminal
restitution. See generally Internal Revenue Manual pt. 1.2.13.1.11 (Oct. 5, 2005);
Michael I. Saltzman & Leslie Book, IRS Practice and Procedure, para.
10.01[2][e][i], at 10-8, S10-2 (rev. 2d ed. 2002 & Supp. 2018-2). In the light of
the time provisions and the provision precluding direct challenges to the
underlying restitution liability, we conclude that Congress intended to expand the
Secretary’s independent collection authority, not restrict it, as petitioner contends.
2. Provisions of Title 18
Petitioner asserts that the payment schedule included in the District Court’s
restitution order limits the amounts the Secretary may collect. Petitioner bases his - 19 -
argument on the provision directing that the Secretary “shall assess and collect the
amount of restitution under an order pursuant to section 3556 of title 18”. Sec.
6201(a)(4)(A). The parties agree that the restitution in this case is an “amount of
restitution under an order pursuant to section 3556 of title 18” within the meaning
of section 6201(a)(4). Respondent otherwise disagrees with petitioner’s
interpretation.
Section 3556 of title 18 grants the District Court authority to include
restitution orders as an independent part of a criminal defendant’s sentence. Title
18 does not specifically grant the District Court authority to order restitution for
violations of title 26. Where a case involves violations of title 26, such as the
present one, 18 U.S.C. sec. 3556 (2012) grants the District Court discretionary
authority to order restitution in accordance with 18 U.S.C. sec. 3663 (2012). See
also 18 U.S.C. sec. 3663(a)(3) (“The court may also order restitution in any
criminal case to the extent agreed to by the parties in a plea agreement.”); 18
U.S.C. sec. 3664(f)(1)(A) (2012) (requiring a District Court using its discretionary
authority under 18 U.S.C. sec. 3663 to impose restitution “in the full amount of
each victim’s losses” and “without consideration of the economic circumstances of
the defendant.”). When exercising this discretion, a sentencing court must specify
in its restitution order the manner and schedule according to which the defendant - 20 -
must pay. See 18 U.S.C. secs. 3663(d), 3664(f)(2) (requiring the District Court to
consider the defendant’s financial resources and other assets, his income, and his
obligations when determining the manner in which, and the schedule according to
which, the defendant is to pay restitution), (3)(A) (“A restitution order may direct
the defendant to a make a single, lump-sum payment, partial payments at specified
intervals, in-kind payments, or a combination of payments at specified intervals
and in-kind payments.”). Once imposed, an order of restitution is a final judgment
that may not be modified absent certain enumerated statutory exceptions. See 18
U.S.C. sec. 3664(o); see also United States v. Bratton-Bey, 564 F. App’x 28, 29
(4th Cir. 2014); United States v. Grant, 715 F.3d 552, 557 (4th Cir. 2013).
None of the restitution-related provisions of title 18 required the Secretary
to seek a court order before collecting criminal restitution. Cf. 18 U.S.C. sec.
3664(m)(1)(A) (providing that restitution orders may be enforced by the United
States in the same manner that it recovers fines or “by all other available and
reasonable means”). Nothing in the text or the legislative history of section
6201(a)(4) indicates that Congress intended to limit or otherwise subordinate the
Secretary’s authority to assess and collect criminal restitution when it is due to the
provisions of title 18. We conclude that section 6201(a)(4) refers to 18 U.S.C. sec. - 21 -
3556 as a means to direct the Secretary to the amount of criminal restitution that
must be assessed and collected.
D. Orders of Criminal Restitution
Even if the provisions of title 18 were binding on the Secretary, restitution
orders with conditions such as petitioner’s would not limit the Secretary’s
collection efforts. In general, a restitution obligation is due immediately unless in
the interests of justice the court specifies otherwise. 18 U.S.C. sec. 3572(d)(1)
(2012). To determine whether a sentencing court specified that a restitution
obligation is due immediately Federal courts look to the judge’s oral
pronouncements at the time of sentencing and the subsequent written judgment.
Where the written judgment conflicts with the court’s oral pronouncements, the
oral pronouncements control. See Rakes v. United States, 309 F.2d 686, 687-688
(4th Cir. 1962) (“[T]he defendant in a criminal case must be personally present at
every stage of the trial * * *. Thus, it follows that the sentences to be served in
these cases are those pronounced in the defendant’s presence in open court and not
those set out in the written judgments of the court.”). An expanding number of
Federal courts have recognized a “crucial distinction” between cases where the
court expressly orders that restitution is due only through a payment schedule that
does not require immediate payment in full and cases where the court specifies - 22 -
restitution is immediately due in full. See United States v. Williams, 898 F.3d
1052, 1055 (10th Cir. 2018) (interpreting a judgment that included a payment
schedule and specified that the amount owed was due in full immediately; holding
that the payment schedule did not preclude garnishment as an additional means to
collect the restitution judgment).
1. Restitution Ordered Due Immediately
When payment of restitution is ordered due immediately, as it was in this
case, numerous Federal courts have held that the Government is not limited by
judicially crafted payment schedules and may freely pursue other means of
securing restitution, including a writ of garnishment. See 18 U.S.C. secs.
3664(m), 3613(a) (2012); see, e.g., Williams, 898 F.3d at 1055 (“We agree with
the courts that have recognized this distinction and thus AFFIRM the District
Court’s conclusion that the government may seek garnishment * * * because the
total amount of restitution was ordered ‘due immediately’ at the time of
judgment.” (explaining United States v. Martinez, 812 F.3d 1200 (10th Cir.
2015))); United States v. Wykoff, 839 F.3d 581, 582 (7th Cir. 2016); United States
v. Behrens, 656 F. App’x 789, 790 (8th Cir. 2016) (“[T]he payment schedule set
forth in the judgment did not preclude the instant garnishment, because the
judgment [also] specified that the amount owed was due in full on the date of - 23 -
judgment; and notably, the judgment imposed the obligation to make installment
payments without limiting the government’s ability to institute civil collections
proceedings.”); United States v. Schwartz, 503 F. App’x 443, 445-446 (6th Cir.
2012); United States v. Shusterman, 331 F. App’x 994, 996-997 (3d Cir. 2009);
United States v. Ekong, 518 F.3d 285, 286 (5th Cir. 2007) (per curiam) (rejecting
argument that immediate payment not required where nothing to the contrary in
the judgment); United States v. Rush, No. 14cr00023, 2016 U.S. Dist. LEXIS
94307, at *2-*3 (W.D. Va. July 19, 2016) (and cases cited thereat); United States
v. Robles, No. 06-20286-CR-Gold/Goodman, 2014 U.S. Dist. LEXIS 4402, at
*1-*2 (S.D. Fla. Jan. 14, 2014); United States v. Hawkins, 392 F. Supp. 2d 757,
759 (W.D. Va. 2005) (“[A] payment schedule simply serves as another collection
method for the benefit of the victim rather than as a benefit to the defendant.”);
United States v. James, 312 F. Supp. 2d 802, 807 (E.D. Va. 2004).
2. Restitution Ordered Due According to Payment Schedule
Correspondingly, in cases where a sentencing court expressly declines to
order restitution immediately payable, the Government’s collection efforts may not
exceed the amounts due according to the schedule. See, e.g., United States v.
Hughes, 813 F.3d 1007, 1008-1009 (D.C. Cir. 2016); Martinez, 812 F.3d at 1203-
1204 (determining restitution not due immediately where District Court expressly - 24 -
declined to order immediate payment of entire amount); Bratton-Bey, 564 F.
App’x at 30 n.2 (holding defendant not under current obligation to pay restitution
where District Court granted defendant’s request and ordered restitution due only
after his release from incarceration according to payment schedule rather than due
immediately); Grant, 715 F.3d at 555; United States v. Kay, No. 11-218(1)
ADM/TNL, 2017 U.S. Dist. LEXIS 30668, at *11 (D. Minn. Mar. 3, 2017) (“Since
the Judgment in this case specified that Kay’s repayment was due only in
installments, the full restitution amount was not due immediately.”); United States
v. Villongco, No. 07-009 (BAH), 2016 U.S. Dist. LEXIS 89285, at *6-*7, *20-*24
(D.D.C. July 11, 2016) (interpreting sentencing judge’s oral pronouncements that
payment due immediately, in context of his further explanation that it intended
dates and amounts of payments due to be established by inmate financial
responsibility program, as requiring periodic, rather than immediate, payments;
quashing Government’s writ of garnishment filed eight years after defendant’s
term of supervised release ended for accounts identified in defendant’s
presentencing report because defendant was in compliance with the restitution
order); United States v. Roush, 452 F. Supp. 2d 676, 681 n.9 (N.D. Tex. 2006)
(construing payment schedule to control where District Court’s written judgment
differentiated between payment of fines due immediately and payment of - 25 -
restitution due only as scheduled), vacated and remanded on other grounds, 466
F.3d 380 (5th Cir. 2006).
In Hughes the U.S. Court of Appeals for the District of Columbia Circuit
considered a restitution judgment wherein the District Court made conflicting
statements about whether its restitution judgment was due immediately or
according to a payment schedule. In that case the District Court ordered $442,330
in restitution for Hughes’ role in her employer’s fraudulent billing practices. Her
employer, Blackhawk, had previously been ordered to pay over $1 million.
Hughes, 813 F.3d at 1008. During Hughes’ sentencing hearing the District Court
stated that “she would not be on the hook at all [for restitution] if Blackhawk paid
its fine.” Id. The District Court further explained during its oral pronouncements
that ‘payment of restitution shall begin after the adjustment is figured where the fine for [Blackhawk] will be applied,’ and later added that Hughes was to pay ‘the balance of any restitution owed at a rate of not less than $50 each month * * * if it turns out that * * * there is an amount outstanding that [Hughes] owe[s]’ after Blackhawk’s fine is subtracted. * * *
Id. at 1009 (quoting transcript of sentence, Dec. 20, 2011) (alterations in original).
The District Court also stated once during its oral pronouncements that restitution
was “immediately payable”. Id. - 26 -
The Circuit Court determined that the District Court’s brief statement that
restitution was immediately payable to be “boilerplate language”. Id. The Circuit
Court held that including “boilerplate language” that restitution was immediately
payable in the District Court’s oral rendition of a restitution order was not
controlling in the context of the District Court’s “specific and repeated references”
to the contrary. Id. (emphasis added). In this context the “district court * * *
expressed * * * [its] clear intention” that Hughes’ restitution obligation was to
begin only after payments by her employer had been subtracted. Id.
We are persuaded by the reasoning of those courts that regularly impose
restitution in sentencing defendants. Absent a District Court’s expressly declining
to order restitution payable immediately, its restitution judgment imposes an
immediate obligation to pay on the defendant. When a District Court includes a
payment schedule in a judgment that also orders restitution immediately payable,
as it did in this case, the payment schedule does not limit the amounts the
Government may collect from the defendant. See Hawkins, 392 F. Supp. 2d at
759 (“[A] payment schedule simply serves as another collection method for the
benefit of the victim rather than as a benefit to the defendant * * * [and] is simply
one means of ensuring that restitution will be paid by the defendant.”); see also
United States v. Dawkins, 202 F. 3d 711, 716 (4th Cir. 2000) (holding that it is - 27 -
permissible for a sentencing court to order the entire restitution amount due
immediately if it also sets a payment schedule to be followed in the event that the
defendant cannot make immediate payment in full); James, 312 F. Supp. 2d at 806.
In this case the District Court’s oral statements regarding petitioner’s ability to pay
all at once the total amount of criminal monetary penalties, including restitution,
were made in the context of its decision to waive interest payments. See 18 U.S.C.
sec. 3612(f)(1) (“The defendant shall pay interest on any fine or restitution of
more than $2,500, unless the fine [or restitution] is paid in full before the fifteenth
day after the date of the judgment.”).
At no point during the District Court’s oral rendition of its restitution order
did it expressly decline to impose an immediately payable restitution obligation on
petitioner. Rather, the District Court expressly ordered that “[p]ayment [of
petitioner’s restitution obligation was] to begin immediately”. The District Court
clarified that it did not intend to limit IRS collection activities in both its oral
pronouncements and written judgment. During the sentencing hearing, after
waiving interest on unpaid restitution required according to title 18, the District
Court orally stated: “I don’t know what effect that has on the Internal Revenue
Service with all your penalties and interests [sic] and whatever”. In its written
judgment the District Court ordered petitioner to “pay all outstanding taxes, - 28 -
interest and penalties.” The District Court’s inclusion of a $100-per-month
payment schedule in its restitution judgment serves only as another means of
ensuring that petitioner fulfilled his restitution obligation in the event he could not
pay the full amount before his release from imprisonment. We hold that the
District Court’s payment schedule does not limit the Secretary’s administrative
collection authority. The Secretary may properly file an NFTL and levy on
property to collect the full unpaid amounts of the RBAs.
II. Collection of Unpaid Liabilities
Having determined that section 6201(a)(4) grants the Secretary collection
authority over criminal restitution orders, we turn to petitioner’s challenge of the
Secretary’s methods of collection. In general, the Secretary has authority to
collect taxes imposed by the Code. Sec. 6301. The Code equips the Secretary
with certain tools to carry out his collection efforts. Section 6321 provides one
such tool that creates a lien in favor of the United States on all property and
property rights of a taxpayer liable for Federal tax who neglects or refuses to pay
the tax after the Secretary’s notice and demand for payment. Section 6320(a)(2)
requires the Secretary to provide to the taxpayer written notice of the filing of an
NFTL within five business days after the filing. The Secretary may also levy upon
the taxpayer’s property and rights to property. See sec. 6331(a). Section - 29 -
6331(d)(1) requires that a taxpayer be given notice before a levy may be made,
and section 6330(a) sets out the prelevy notice requirements.
With respect to either an NFTL filing or a proposed levy the taxpayer may
request a CDP hearing before an impartial Appeals officer to review the propriety
of the collection action. Secs. 6320(b), 6330(b). The officer conducting the
hearing must verify that the requirements of any applicable law or administrative
procedure have been met. Sec. 6330(c)(1). The taxpayer may raise at the hearing
any relevant issues relating to the unpaid tax or the proposed levy, including
(1) appropriate spousal defenses, (2) challenges to the appropriateness of
collection actions, and (3) offers of collection alternatives such as an installment
agreement. Secs. 6320(c), 6330(c)(2)(A). However, the taxpayer may not
challenge the existence or amount of the underlying tax liability unless he or she
did not receive a statutory notice of deficiency for that liability or did not
otherwise have an opportunity to dispute the liability. Sec. 6330(c)(2)(B). A
taxpayer is strictly prohibited from challenging the existence or amount of an
underlying tax liability that is related to an order of criminal restitution. Sec.
6201(a)(4)(C).
Following a CDP hearing the officer must determine whether and how to
proceed with collection of the liability. The officer’s determination must take into - 30 -
account all issues properly raised by the taxpayer as well as whether any proposed
collection action balances the need for the efficient collection of taxes with the
taxpayer’s legitimate concern that any collection action be no more intrusive than
necessary. Sec. 6330(c)(3).
III. Standard of Review for Collection Actions
Within 30 days of a CDP determination by Appeals a taxpayer may petition
this Court for review of that determination. Sec. 6330(d)(1). We review the
determination de novo where the validity of the underlying tax liability was
properly at issue during the hearing. Goza v. Commissioner, 114 T.C. 176,
181-182 (2000). Otherwise, where the taxpayer’s underlying liability is not
properly at issue, we review the IRS decision for abuse of discretion only. Id.
Whether an abuse of discretion has occurred depends on whether the exercise of
discretion is arbitrary, capricious, or without sound basis in fact or law. See, e.g.,
Woodral v. Commissioner, 112 T.C. 19, 23 (1999); Venhuizen v. Commissioner,
T.C. Memo. 2012-270, at *12.
Petitioner’s underlying tax liability consists of the criminal restitution,
interest, and additions to tax that the IRS assessed for 2005 and 2006. See Klein
v. Commissioner, 149 T.C. at 348-349 (“[I]n any CDP proceeding, ‘underlying tax
liability’ refers to the assessed liabilit[y] that the IRS is seeking to collect via the - 31 -
challenged lien or levy.”). Respondent has conceded and abated the statutory
interest and additions to tax that he calculated with reference to the restitution
amount, and the underlying liability remaining in dispute consists of the
summarily assessed criminal restitution. As of April 3, 2016, the combined unpaid
balance for the assessed criminal restitution totaled $500,346.90.
In order to dispute his or her underlying tax liability in this Court, the
taxpayer must have properly raised that issue at the CDP hearing. See secs.
301.6320-1(f)(2), Q&A-F3, 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.;
see also Giamelli v. Commissioner, 129 T.C. 107, 115 (2007). Under section
6201(a)(4)(C) petitioner was expressly prohibited from challenging the existence
or amount of the RBAs for the years in issue during his CDP hearing. The proper
time to challenge the amount of his criminal restitution liability would have been
when he was sentenced. He did not avail himself of that option. Unlike in Klein,
here respondent conceded and abated the assessed interest and additions to tax;
therefore we need not review the determination as it relates to those amounts. See
Klein v. Commissioner, 149 T.C. at 345-346 (determining de novo review
appropriate because petitioners did not have opportunity to challenge interest and
additions to tax before their CDP hearing and fully paid restitution amount before
the NFTL was filed, leaving as underlying tax liability remaining in dispute only - 32 -
statutory interest and additions to tax). Respondent represents that he intends to
file a corrected NFTL that accurately reflects petitioner’s outstanding balance
should the Court sustain the FNIL and the filing of the NFTL for the unpaid RBA
amount. Thus, petitioner is precluded from raising the issue of his underlying tax
liability, and we review respondent’s determination sustaining the FNIL and the
NFTL filing only for abuse of discretion.
IV. Review of CDP Hearing
We agree with respondent that the officer did not abuse his discretion. The
officer’s case activity record shows that the officer diligently documented his
review of petitioner’s case, his correspondence, and his conversations with
petitioner. The evidence and the notice of determination itself demonstrate that
the officer (1) properly verified that the requirements of any applicable law or
administrative procedure were met, (2) considered all relevant issues petitioner
raised, and (3) considered whether the proposed collection action balanced the
need for efficient collection of taxes with petitioner’s legitimate concern that the
action be no more intrusive than necessary. See sec. 6330(c)(3). The officer also
confirmed that collection actions undertaken by the USAO and the District Court’s
payment schedule had been taken into account. - 33 -
The Appeals representative did not act arbitrarily, capriciously, or without
sound basis in fact or law. See Woodral v. Commissioner, 112 T.C. at 23. Indeed,
petitioner did not specify any abuse of discretion in his petition. See Rule 34(b)(4)
(“Any issue not raised in the assignments of error shall be deemed to be
conceded.”). Petitioner’s only remaining argument is that the underlying tax
liability is incorrect even after respondent’s concession and abatement of the
interest and penalties, and this is an argument that we are unable to consider in a
CDP case where the taxpayer’s liability is the result of an RBA. We conclude that
Appeals did not abuse its discretion in sustaining both the FNIL and the filing of
the NFTL.
Petitioner failed to take advantage of the opportunities made available to
him through the CDP hearing. During the CDP hearing petitioner was free to
propose an installment agreement whereby he would potentially end up paying a
relatively small amount per month. He might even have convinced the officer that
he could in fact afford to pay no more than the $100 per month set forth in the
sentencing court’s order. (Petitioner is not limited to the CDP hearing and may
propose an installment payment agreement anytime. See sec. 6159). In order to
secure a collection alternative like this, however, petitioner needed to do three
things: (1) make an actual proposal of a collection alternative, (2) submit financial - 34 -
information establishing that this was all he could afford to pay, and (3) become
current in his tax filing obligations. Petitioner did none of these things.
Instead of making the required factual showings, petitioner took the extreme
legal position that the IRS simply could not collect from him. That was a mistake.
Petitioner, like any other taxpayer in a CDP case, must affirmatively establish
what is his limited ability to pay. He cannot rely on the sentencing court’s
payment plan to establish that for Federal income tax purposes. In rejecting his
position, we are not ruling that the IRS can always levy to collect 100% of the
restitution regardless of the taxpayer’s financial circumstances.
V. Conclusion
Petitioner disputes respondent’s authority to collect criminal restitution in
the absence of a court order. We have held that in adding the provisions of section
6201(a)(4) to the Code, Congress intended to vest the Secretary with independent
authority to assess and administratively collect criminal restitution. We have also
held that a payment schedule set forth in an order for criminal restitution that is
due immediately does not limit the Secretary’s authority to collect administratively
unpaid amounts of such restitution. Furthermore, the officer’s determinations
reflected in the notices of determination were not the result of any abuse of
discretion. Except with respect to the conceded amounts of interest and penalties, - 35 -
we sustain the IRS FNIL and NFTL filing insofar as the amounts do not exceed
the amount of criminal restitution.
We have considered all of the parties’ arguments, and to the extent not
discussed above, conclude that those arguments are irrelevant, moot, or without
merit. To reflect the foregoing,
An appropriate decision will be
entered.