An individual who experiences the full process of prosecution and conviction by the Department of Justice for a tax crime has the obligation to pay the owed taxes. This is known as “restitution.” Restitution is generally defined as a compensation for loss to victims ordered in a criminal sentence or condition of probation. In the instance of a tax evasion or tax fraud case, the victim is considered the Internal Revenue Service. Federal courts order restitution pursuant to Title 18 USC §3556 as part of the trial sentencing or plea agreement. The courts determination of restitution is final and uncontestable, unless the issuing federal court amends the amount of restitution to be paid. Additionally, a period of incarceration and/or probation is concurrently decided by the court as part of the sentencing.
The Firearms Excise Tax Improvement Act of 2010 (FETI Act) allows the Internal Revenue Service to assess and collect the amount of restitution ordered in a federal criminal tax case for failure to pay any tax under Title 26. However, the Justice Department retains the authority to enforce the restitution under Title 18. The FETI Act allows the Internal Revenue Service to collect the restitution as if it were a tax. The Internal Revenue Service cannot modify the amount of the restitution order. Any amounts paid toward the restitution is applied to the civil tax liability and penalties. IRC §6204 requires that the civil assessment matches the order of restitution.
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Severe restitution laws assure that the United States Treasury is not a means to finance a lavish lifestyle or fund a business venture. Restitution must be paid within 20 years from judgement, plus the period of incarceration. In the event of the death of the person who is subject to a restitution order, the defendant’s estate will be held responsible for the unpaid tax under the Justice for All Reauthorization Act of 2016. Other criminal enforcement sections of Title 18 state that when restitution is imposed by the court, a statutory lien is created in favor of the United States as if the liability of the person fined were a liability for a tax assessed under the Internal Revenue Code. Also, restitution orders are non-dischargeable in bankruptcy.
The filing of fraudulent tax returns has serious consequences. The aftermath of a criminal tax conviction remains with an individual after serving in prison. After release, the individual continues to encounter tax liens to secure restitution, legal fees, a damaged credit score, and felony charges that effect his employment record. Consult with your Marcum, LLP professional to avoid these problems.
