In Daugerdas v. Commissioner (T.C. Dkt.7350-20L Order Dated 8/11/21), here, the Tax Court (Judge Goeke) in addressed some issues arising in a CDP proceeding arising from a lien filing related to a restitution-based assessment (“RBA”) under § 6201(a)(4) for tax loss arising from Title 18 crimes of conviction. Long-term readers of this blog may recognize the petition, Paul M. Daugerdas. A link to posts mentioning Daugerdas is here(sorted by relevance but can be sorted in reverse chronological order).
I find the order confusing so I will try to work through the order adding some of my own nuance (at the risk of further confusion). I caution readers that I am confused about some of the Order and may be missing the point in some of my comments. Nevertheless here is my best shot at working through the order. I find it very difficult to summarize in fewer words in a meaningful way.
Judge Goeke summarizes Daugerdas’ relevant trajectory as follows (Order 1-2):
For more than a decade beginning in the early 1990s, petitioner, a former tax attorney, designed, sold, and implemented fraudulent tax shelters to his clients to enabled them to evade tax. In October 2013 he was convicted in the U.S. District Court for the Southern District of New York on mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States. United States v. Daugerdas, 837 F.2d 212, 218 (2nd Cir. 2016). He was acquitted of tax evasion for his personal income tax. At a sentencing hearing on June 25, 2014, the District Court sentenced petitioner to 180 months incarceration, 3 years of supervised release, restitution of $371,006,397, and preliminary forfeiture of $164,737,500 of petitioner’s assets.
Petitioner agreed to the restitution calculations submitted by the Government, and the District Court adopted those calculations. At the sentencing hearing, the District Court stated that the restitution pursuant to the Mandatory Victims Restitution Act (MVRA) and named the IRS as petitioner’s victim. It did not address a payment schedule or expressly state whether payment was due immediately. Addressing how to portion the restitution among petitioner and his co-defendants, it stated that petitioner is “responsible for the full amount of restitution” and made him jointly and severally liable with his co-defendants for $258.6 million of the restitution. The Court noted that petitioner had criminal proceeds of $97 million, i.e., tax shelter fees.
The IRS then made a § 6201(a)(4) assessment. That provision is:
(4) Certain orders of criminal restitution
(A)In general. The 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.
(B)Time of assessment. An assessment of an amount of restitution under an order described in subparagraph (A) shall not be made before all appeals of such order are concluded and the right to make all such appeals has expired.
(C)Restriction on challenge of assessment. 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 proceeding authorized under this title (including in any suit or proceeding in court permitted under section 7422).
To repeat, the crimes of conviction were: “mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States.” Restitution law divides the tax loss universe into tax loss related to Title 26 crimes (which includes tax evasion and obstruction of the administration of the internal revenue laws) and tax loss related to crimes under other Code provisions, principally Title 18 (which includes mail fraud and conspiracy). Restitution for tax loss for Title 26 crimes is not generally available; restitution for tax loss for Title 18 crimes is generally available. I say generally not available for Title 26 crimes, but a court can impose restitution for Title 26 tax crimes: (i) as a condition of supervised release after the defendant serves his incarceration period (see Order p. 8); or (ii) by consent of the defendant (which is a common condition in cases resolved by plea agreement, but there is no indication that Daugerdas consented here). Judge Goeke discusses the supervised release that the sentencing court ordered (Order p. 8) but fails to tie it to the restitution ordered by the sentencing court. In other words, from the factual recounting in the Order, the restitution did not include restitution for the tax crimes of conviction but only for the Title 18 crimes of conviction, so even if the court had imposed (which it does not seem to have done) restitution as a condition of supervised release, the need to tie restitution to tax crimes of conviction would seem unnecessary and nonsensical. (The Order is not clear on this point, so I am taking a bit of a leap to conclude that the restitution related only to Title 18 crimes of conviction.)
Daugerdas was acquitted of his own tax evasion, so restitution could not include his own tax liability. For Daugerdas’ own tax liability (plus penalties and interest), the IRS would have to the normal assessment mechanisms (including notice of deficiency). Tax crimes fans will recall that the IRS can assess tax and assert civil fraud (for civil fraud penalty and open statute of limitations) even after an acquittal for the crime of tax evasion. After a regular tax assessment, the IRS could then use its own collection mechanisms (particularly filing a lien) without concern about the restitution order and authority under § 6201(a)(4). However, the CDP proceeding in this case seems related only to the RBA under § 6201(a)(4).
As recounted by the Court, the sentencing court ordered Daugerdas to pay restitution of $371 million (rounded) of which $258.6 was jointly and severally imposed on his convicted co-defendants. It is not clear to me from Judge Goeke’s order what the difference in amount is for which Daugerdas was solely liable (about $103 million). I infer (but the order is not clear) that the difference related to some Title 18 crime of conviction for which the other convicted defendants were not liable and thus their restitution could not include the related tax loss.
Now, back to the Order, Judge Goeke feels (Order pp. 8-9) that he does not have enough facts and law to decide whether the sentencing court ordered restitution to be due immediately (which would be the default rule). I am not sure what that commotion is about, but Judge Goeke wants the parties to address it in subsequent briefing.
Probably the more interesting part of the Order is set up under the caption “3. Collection Procedures under Title 18” (Order pp. 9-10). The Court recounts some basic restitution and restitution lien law. Restitution lien law is the lien related solely to restitution and is not separate tax Code lien that arises under § 6201(a)(4) which is designed to allow the IRS to use its collection mechanisms of lien and levy independent of mechanisms available under restitution law. The Court notes that the restitution lien and enforcement of that lien may be enforced by the victim even if there is a payment schedule for the restitution. I suppose the implication might be that immediate enforcement might also be available for the tax lien for an RBA and the broader issue for the RBA is whether a tax lien filing is inconsistent court-ordered schedule (depending upon how that issue is resolved).
Judge Goeke wants more briefing to clarify and resolve his confusion.