Sam Brotman, JD, LLM, MBA January 19, 2021 18 min read

What Are Criminal Tax Restitution, Fines and Forfeiture?

For a taxpayer facing a criminal tax sentence the two questions that will resonate in his or her thoughts are:  1) How much will I owe? And,  2) Will I go to jail? 

Much can depend on the crime and your defense of course. In many cases, a good attorney can keep you out of jail or shorten the amount of time spent in it, but the extent of what financial repercussions you will experience will remain in question until the verdict.

Let’s start by defining the three different types of financial punishments that may be ordered by the court in a criminal tax case: (1) restitution (2) forfeiture and (3) fines.  

 

The purpose of restitution is to compensate a victim, while the purpose of forfeiture and fines is to punish the defendant.

 

However, since the Government is the victim in a criminal tax case, it is possible that a taxpayer can be hit with all three. Such is the  case of United States v. Sanjar.

What is Restitution?

Restitution is a legal way for victims to be paid back for a crime. In criminal tax cases, the victim is the United States Government, but it can still be owed compensation just like a civilian. 

Restitution can only be ordered by a judge when a law or rule allows for it. There are three major sections that allow for restitution in tax related offenses. 

The Victim and Witness Protection Act (VWPA), which was enacted by Congress in 1982 allowed for restitution to be ordered in criminal cases that fall under Title 18 of the U.S. Code, or in any criminal case where a defendant agrees to restitution in a plea agreement. Pub. L. No. 97-291, 96 Stat. 1248; See 18 U.S.C. § 3663. 

Since most tax crimes fall under Title 26 of the U.S. Code, there is no express authorization in those cases for the judge to order restitution without an agreement by the defendant. 

The Mandatory Victim Restitution Act (MVRA) which was enacted 14 years later, made restitution for Title 18 crimes mandatory, and included charges related to tax crimes such as conspiracy to defraud the United States and false or fraudulent claims. See 18 U.S.C. § 3663A.  Pub. L. No. 104-132, § 204(a), 110 Stat. 1227.  

Finally, the Sentencing Guidelines state that restitution may be ordered as a condition of probation or supervised release. USSG § 5E1.1.  The power to order a defendant to pay restitution as one of these conditions come from 18 U.S.C. § 3563(b) (as a condition of probation) and 18. U.S.C. § 3583(d) (as a condition of supervised release).

All this means is that there are three ways restitution can be ordered in a criminal case: (1) the tax crime falls under Title 18 of the U.S. Code; (2) the defendant agrees to restitution as part of a plea agreement; or (3) the court orders restitution as a condition of probation or supervised release.

Under the sentencing guidelines, restitution should be ordered when a defendant has been found guilty of a tax crime and the government suffered a loss. See USSG § 5E1.1(a)(2). 

However, restitution does not need to be ordered if there are too many injured parties to determine restitution or the issues are so complex and drag out the sentencing process so much that determining restitution is more of a burden than a benefit. § 5E1.1(b)(2).  

If the judge decides not to order restitution, he or she needs to explain why. See 18 U.S.C. §§ 3663 and 3664.

How is the Amount of Restitution Calculated? 

How much restitution you have to pay can be a complicated equation, but essentially it boils down to the money that was actually owed to the government that wasn’t paid. See United States v. Chalupnik, 514 F.3d 748, 754 (8th Cir. 2008); United States v. Galloway, 509 F.3d 1246, 1253 (10th Cir. 2007)

Earlier we discussed how the sentencing guidelines for tax crimes rely heavily on what is known as the tax loss. The difference between the tax loss and the loss calculated for purposes of restitution is that restitution has to be the amount that was actually lost as a result of the crime, rather than the amount of loss that was intended. 

Generally, Restitution can only be for the loss that caused by the crime actually charged and not any other related conduct. United States v. Serawop, 505 F.3d 1112, 1124 (10th Cir. 2007)

The only exception to this is if the loss occurred as part of a conspiracy to defraud the Government. See United States v. Cohen, 459 F.3d 490, 500 (4th Cir. 2006).  Any penalties for the offense (for example, there is a civil failure to file penalty that can be added along with are not usually included in the calculation of restitution, but may be ordered in cases such as evasion of payment or failure to pay.  See United States v. Chalupnik, 514 F.3d 748, 754 (8th Cir. 2008)

However,  any interest can be included in the restitution, even interest accruing after the  judgement is entered. See United States v. Perry, 714 F.3d 570, 577 (8th Cir. 2013).

How Goes the Government Collect Restitution?

To the Government, the ideal way to collect on a monetary punishment is payment in full, or as much as possible, either immediately or on a set date. However, if the defendant doesn’t have the resources, the court can set a payment schedule. See U.S. v. Myers, 198 F.3d 160 (5th Cir. 1999). 

The government can generally enforce restitution for 20 years after the formal written decision of the court was entered or 20 years after the defendant is released from prison, whichever is later. 18 U.S.C. § 3613(b)

Restitution acts as  a lien (legal claim against your property or assets that you have now or will have in the future) in favor of the government. If restitution is collected while the defendant is in prison, restitution will be collected by the Federal Bureau of Prisons.

Once the defendant has been released, if they are subject to supervised release or probation, the local probation office will enforce restitution. After that, the burden to ensure compliance with the restitution is on the USAO and AUSA handling the case, and restitution will be paid directly to the clerk of court. 

While  restitution  can still be collected outside of the term of probation or supervised release order by the court, the IRS’ policy is that restitution that is ordered as a condition of probation or supervised release can only be collected during the period of supervised release or probation.  PMTA 2018-19 (8/23/18) at 2-3

What is Criminal Forfeiture?

Whereas restitution seeks to pay back money or property actually taken from the victim, criminal forfeiture seeks to penalize the defendant for any gains resulting from or used in illegal conduct. 

Criminal forfeiture is different from restitution because it gives the Government the ability to actually seize assets and property you may  have in your possession, if they were used in a crime or bought with the proceeds of a crime. 

Unlike restitution, forfeiture is part of the actual sentence in a criminal tax case rather than just a condition of probation or supervised release. Libretti v. United States, 516 U.S. 29, 39-41 (1995). 

A forfeiture allegation must be included in the criminal indictment, so the defendant will be on notice that the Government intends to seize assets. Fed. R. Crim. P. 32.2(a). 

In other words, if the Government intends to take your property using this mechanism, you will be forewarned. The indictment can include either a list of the property to be forfeited, or just a general statement that the Government is intending to forfeit all property that can be forfeited. Id. 

What is the Criminal Forfeiture Process?

In criminal tax cases, forfeiture is used sparingly however, we’ll quickly walk you through the process. As soon as the defendant is found or pleads guilty to a tax crime where the Government is seeking criminal forfeiture, the court must determine what property is actually subject to forfeiture. United States v. Davenport, 668 F.3d 1316, 1320 n.7 (11th Cir. 2012)

The Government can’t just waltz into your home and take everything you own, just because you have been convicted of a tax crime. If the Government intends to seize specific property, they must prove that the property was connected to the offense that was  charged.

Typically only property that is used in or gained from the offense charged can be forfeited. United States v. Capoccia, 503 F.3d 103, 114 (2d Cir. 2007).  However, the internal revenue code has its own forfeiture provisions which specifically allow only for the forfeiture of property used or intended for use in violating tax laws, and not for proceeds of the tax crime. See 26 U.S.C.7302 §§7303.

Forfeiture is not appropriate in criminal tax cases which deal only with unpaid taxes from legal income. See Tax Directive 145, §§ 8(a) & n.5.).

Once the judge or jury determines what  can be forfeited, the court will enter a preliminary order of forfeiture  which states the amount of money or property to be forfeited. Fed. R. Crim P. 32.2(b)(2). Once this preliminary order is entered, the  Government is authorized to seize the noted property. Fed. R. Crim P. 32.2(b)(3). 

The preliminary order becomes a final order at the time of sentencing unless the defendant consents for the final order to be entered prior to sentencing. Fed. R. Crim P. 32.2(b)(4)(A). However, if a third party has any claim to the property being forfeited, the order can’t be finalized until that party’s claim is resolved.  Id. 

Conclusion

If you have read through the entire article, you’ll have a good understanding about the purpose of restitution – to compensate the victim – usually the government – and the purpose of forfeiture and fines – to punish the delinquent taxpayer.

As a tax attorney, it’s my job to defend the taxpayer, and if we agree to work together, my firm will prepare a case to make your restitution reasonable. If you think that the level of your financial liability will more than likely end up on trial, we’ll back you up with our experience dealing with both the state and federal tax authorities in and out of court.

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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