IRS Can't Collect Criminal Restitution Without Court Oversight, Individual Argues

Randy Carpenter
v.
IRS

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

 INFORMAL BRIEF

1. Jurisdiction

Name of court from which review is sought: United States Tax Court

Date of order for which review is sought: April 18, 2019

2. Issues for Review

This is a case about criminal restitution and administrative collection efforts of the Internal Revenue Service (IRS) concerning that restitution. Appellant has made each scheduled monetary penalty payment to the District Court but has not been able to pay the full restitution amount. His only income is social security disability and his economic circumstances and financial obligations have not materially changed since sentencing. The IRS is collecting those restitution payments from the District Court and now is seeking additional payment through administrative levy and lien actions.

Issue 1. Whether the IRS has Enforcement Authority to Independently Collect Criminal Restitution pursuant to 26 U.S.C. sec. 6201(a)(4) or is the IRS Subject to the Restitution Enforcement Provisions of 18 U.S.C. sec. 3664 and District Court Oversight.

Supporting Facts and Argument.

The District Court defined the restitution in this case as a criminal monetary penalty and ordered that it shall be paid in accordance with the Schedule of Payments. (Ex. 28-J at *4). The District Court ordered under the “Schedule of Payments” that “All criminal monetary penalty payments are to be made to the United States District Court” and that “All criminal monetary penalty payments are to be made as directed by the court.” (Ex. 28-J at *6) (emphasis added).

This Court has long recognized that making decisions about the amount of restitution, the amount of installments, and their timing is a judicial function. United States v. Johnson, 48 F.3d 806, 809 (4^th Cir. 1995). Other circuits agree that “it is the inherent responsibility of the judge to determine matters of punishment and this includes final authority over all payment matters.” United States v. Merric, 166 F.3d 406, 409 (1^st Cir. 1999) (emphasis added).

The criminal judgment provided no direction to the IRS; however, the IRS appeals officer determined that “[t]he Court directed the IRS to make the restitution based assessments that are listed on the Letter 1058 you received.” (Ex. 2-J at *3). No such order or direction by the District Court is found in the record, and furthermore, the Letter 1058 was for collection of unpaid federal tax. (Ex. 5J). The IRS appeals officer also determined that the payment obligations set out in the restitution order are specifically limited to the Department of Justice and have no bearing on the administrative collection procedures of the IRS concerning criminal restitution. (Ex. 1-J, Ex. 2-J).

This Tax Court, in support of appeals determination, declared that with the enactment of section 6201(a)(4) Congress expanded the Secretary's collection authority in relation to criminal restitution. (Op. at *15). However, the Tax Court in Klein had noted that nothing in the legislative history of section 6201(a)(4) suggests that Congress intended that the enactment of that section to subject restitution payments to the IRS's entire civil tax collection apparatus. Klein v. Commissioner of Internal Revenue, 149 T.C. 15 (slip opinion at *24-25).

This Tax Court notes that section 6201(a)(4)'s reference to title 18 is only a means to direct the Secretary to the amount of criminal restitution to collect. (Op. at *21). This statement made after the Tax Court provided a lesson on 18 U.S.C. section 3664.

The Tax Court recognized that 18 U.S.C. section 3664(f)(2) requires 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. Also citing to title 18, this Tax Court recognized that a restitution order may direct the defendant to make a single, lump-sum payment or partial payments at specified intervals (“installments”), and that once imposed, an order of restitution is a final judgment that may not be modified absent certain enumerated statutory exceptions. (Op. at *20).

The Tenth Circuit has recognized that “[i]n requiring the court to consider the defendant's financial condition, the statute directs the court (not the government) to determine how and when the defendant should pay the restitution amount.” United States v. Martinez, 812 F.3d 1200, 1206 (10^th Cir. 2015) (citing United States v. Grant, 715 F.3d 552, 558 (4^th Cir. 2013) (stating that 18 U.S.C. section 3664 “carefully balance[s] the need for obtaining victim compensation with a requirement that restitution obligations be based on a defendant's ability to pay”)).

It appears that in enactment of section 6201(a)(4) Congress intended to maintain judicial oversight of criminal restitution payments. If, for instance, if the IRS was not receiving payment of criminal restitution such as they are in this case, then Congress gave the IRS the right to proceed for collection of the restitution amount in court at any time. See 26 U.S.C. sec. 6501 (c)(11).

There is no indication Congress intended for the IRS to have independent collection authority over criminal restitution under Title 26 such that the IRS may compel payment without the District Court's oversight under Title 18. Notably, Congress did not provide amendment for collection of criminal restitution under Title 26 Chapter 64 — Collection. Also, Congress provided no authority to the IRS for notice and demand for criminal restitution payment under Title 26. Finally, there is no requirement in 26 U.S.C. sec. 6201(a)(4) for consideration of a defendant's financial condition, a requirement that this Tax Court noted is clearly required under 18 U.S.C. sec. 3664. In fact, the Tax Court in Klein pointed out that “[a]ccording to the Joint Committee, the intended effect of section 6201(a)(4) was limited to improving the IRS' bookkeeping.” Klein at *27.

The IRS is attempting an end-around by labeling the criminal restitution as a restitution based assessment. However, assessment is just the recording of the liability, it is akin to the recording of the judgment. Graev v. Commissioner, 149 T.C. 2017-23 at *40. Appeals determined that “IRS can and is charged with administratively collecting restitution based assessments (RBA's) as ordered by the court.” (Ex. 2-J at *4). No such court order is found in the record.

Title 26 U.S.C. section 6301 gives the Secretary collection authority only over taxes imposed by the internal revenue laws. For the criminal restitution to be equated to a tax that can be independently collected by Respondent, the legislative intent must be plainly inferred. Cf. Helvering v. Wheeling Mold & Foundry Co., 71 F.2d 749, 751 (4^th Cir. 1934).

The IRS settlement officer relied upon the Internal Revenue Manual (IRM) provision that the amount of restitution ordered creates two separate debts — the first debt is the restitution judgment and the second debt is the restitution-based assessment. (Ex. 18-J). However, there have not been any regulations issued by the IRS interpreting section 6201(a)(4). Klein at *19. Also, agency manuals lack the force of law and may be entitled to some deference, but only to the extent that they have the “power to persuade.” Christensen v. Harris County, 529 U.S. 576, 587 (2000). The Klein court reviewed the IRM provision and determined that while long on instructions, it was short on analysis, and on a question of statutory construction such as his, it had limited power to persuade as it did not evidence thoroughness, logic, and expertness. Klein at *19-21.

The IRM provision does not provide a statutory analysis. The creation of a debt is legislative and this is what the IRM is attempting to do without public notice and comment. Congress did not plainly infer independent collection authority to the IRS under Title 26 such that they may compel restitution payment without the District Court's oversight under Title 18.

Issue 2. Whether the Restitution Order Payment Schedule set by the District Court Limits IRS Collection Actions in This Case.

Supporting Facts and Argument.

The sentencing court ordered the payment of restitution and right after, referring to the restitution, stated “the Court finds he [Petitioner] does not have the ability to pay that money all at once”. (Ex. 43-J at *11). Subsequently, the sentencing court stated that the monetary penalties are due and payable immediately, but if Petitioner can't pay them, then, when released from imprisonment, he “shall begin payments of $100 per month until the monies are repaid.” (Ex. 43-J at *12). In its judgment, the District Court ordered payment to begin immediately or in equal monthly installments. (Ex. 24-J at *6). The disjunctive “or” creates “mutually exclusive” conditions. United States v. Williams, 326 F.3d 535, 541 (4^th Cir. 2003).

This Court has noted that “[a] restitution obligation is due immediately unless the court specifies otherwise” and that “[i]n order to alter the payment schedule to make the deferred restitution obligation due immediately,” the court is required to find that economic circumstances have materially changed under 18 U.S.C. section 3664(k). United States v. Bratton-Bey, 564 F. App'x 28 (4^th Cir. 2014) (unpublished opinion at *3 & *6). This followed an earlier Fourth Circuit decision where the Court determined that

[a]fter sentencing, except in the case of the enumerated exceptions . . . the MVRA authorizes the modification of the restitution payment schedule only upon a finding by the court of a “material change in the defendant's economic circumstances that might affect the defendant's ability to pay restitution.”

United States v. Grant, 715 F.3d 552, 559 (4^th Cir. 2013) (citing 18 U.S.C. section 3664(k)). In each of these cases, this Court vacated district court rulings allowing the government to access funds outside the payment schedule set forth in the judgment.

Likewise, the Tenth Circuit has determined that “[u]nder 18 U.S.C. section 3572, the full restitution amount is due immediately only if the restitution order does not provide for installment payments.” United States v. Martinez, 812 F.3d 1200, 1205 (10^th Cir. 2015).

However, in this case, the Tax Court stated

[w]hen 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 amount the Government may collect from the defendant.

(Op. at *26). “This interpretation would allow the government to usurp the district court's role in evaluating the defendant's financial conditions and setting the payment schedule.” Martinez at *1206.

The Tax Court relied upon two Fourth Circuit decisions in its opinion: the first being United States v Hawkins, 392 F. Supp. 2d 757 (W.D. Va. 2005); and the second being United States v. Dawkins, 202 F.3d 711 (4^th Cir. 2000). These two cases are clearly unlike the present, each involved action by the defendants challenging the district court's ability to evaluate their financial ability because each had installment schedules of some kind in their restitution order. That is clearly contrary to the government's action in the present case to take administrative action to collect restitution beyond the installment schedule without oversight by the district court of Petitioner's financial ability to make payments. Also, those two cases used by this Court required restitution payment due “in full immediately”; whereas the restitution order in the case only requires restitution payment to begin immediately or in equal monthly installments, which has happened.

This case is more comparable to this Court's opinion in Johnson, where it was found that the order was fashioned to address a situation where the defendant did not have the assets to pay restitution immediately but may have the capacity to earn money for payment in the future. Johnson at *809. This Court found that “[s]ections 3663 and 3664 of Title 18 clearly impose on the court the duty to fix terms of restitution.” Id. at *808 (emphasis in original).

Moreover, 26 U.S.C. sec. 6201(a)(4), entitled criminal restitution, charges the IRS to the collect the amount of restitution under an order pursuant to 18 U.S.C. sec. 3556. The term “under” is defined to mean “according to.” Black's Law Dictionary. 18 U.S.C. sec. 3556 prescribes that “[t]he procedures under section 3664 shall apply to all orders of restitution under this section.”. 26 U.S.C. sec. 6201(a)(4), by its language, does nothing to change the authority of the District Court over criminal restitution. The Klein court noted that the legislative history behind the enactment is devoid of any suggestion that Congress intended to change the long-settled practice of according primacy to the terms of the restitution order in executing a civil collection remedy. Klein at *26, note 10.

The IRS can enforce the restitution order only in a manner that does not exceed the payment obligations set out in the restitution order and further, only as directed by the District Court. Since the IRS is collecting the restitution installment payments from the District Court, there is nothing for them to enforce by administrative levy or lien.

Issue 3. Whether Appeals Abused its Discretion in Sustaining the Collection Actions in This Case.

Supporting Facts and Argument.

Written argument to IRS Appeals raised issues interpreting 26 U.S.C. sec. 6201(a)(4) and sec. 6501(c)(11) and their relations to 18 U.S.C. sec. 3556 and sec. 3664. (Ex. 16-J at *6). Appeals noted that sec. 6201(a)(4) charged the IRS to “collect the amount of restitution under an order pursuant to 18 U.S.C. sec. 3556”. (Ex. 3-J at *2). However, had Appeals reviewed sec. 3556, they would have found that “[a]n order of restitution must be enforced in accordance with 18 U.S.C. sec. 3664.”

Instead, Appeals stated that “[t]he court has no jurisdiction over the civil RBA assessments”. (Ex. 3-J at *6). Appeals made no review whatsoever of sec. 6501(c)(11) wherein the IRS was allowed to go to the court for collection. If the District Court has no jurisdiction, then why is this section even in the Code.

For verification an appeals officer must verify that any actions required by the Code have occurred. Roberts v. Commissioner, 118 T.C. 365, 371 n. 10 (2002). There is nothing in the record to indicate the Appeals Office reviewed 26 U.S.C. section 6501(c)(11), 18 U.S.C. section 3556, nor 18 U.S.C. section 3664. Besides repeating the language of sec. 6201(a)(4) that the collection is “under an order pursuant to 18 U.S.C. sec. 3556”, Appeals failed to discuss the section and verify what the language of the Code required. That Code section is entitled “Criminal Restitution.” Instead, Appeals relied upon the two debt theory published in the IRM. (Ex. 3-J at *6). Furthermore, Appeals determined that the “IRS can and is charged with administratively collecting restitution based assessments (RBA's) as ordered by the court.” (Ex. 2-J at *4). That court order is not found in the record and Appeals failed to explain where it was found. Furthermore, the Code does not mention restitution based assessments (RBA's).

An abuse of discretion would include would include instances in which the Appeals Office made its decision “without a rational explanation”. Estate of Gardner v. Commissioner, 82 T.C. 989, 1000 (1984) (quoting Wong Wing Hang v. INF, 36 F.2d 715, 719 (2d Cir. 1966). Without a reasonable and rational review of the Code and Title 18 in the record, Appeals wrongfully verified that applicable law had been considered.

3. Relief Requested

This Court should vacate the decision of the United States Tax Court.

Randy A. Carpenter