IRS Authority: Restitution in Tax Cases

The IRS wields the power to demand repayment for tax missteps through a process known as “criminal restitution.” A recent case, Carpenter v. United States, underscores the critical importance of understanding these rules for individuals accused of tax-related offenses.

In 2014, Carpenter admitted to making false tax filings for the years 2005 and 2006. As a consequence, he received a prison sentence followed by supervised release. Additionally, he was mandated to reimburse approximately $508,000 in taxes. Even after serving his sentence, Carpenter still grappled with an outstanding debt of over $500,000.

The U.S. Department of Justice attempted to collect Carpenter’s debt from his Social Security payments. Ten years later, the IRS assessed the remaining amount and began collection efforts. Things you should know about IRS Tax Help Michigan

Congress has granted the IRS the authority to collect criminal restitution, treating it on par with unpaid taxes. This allows various agencies to collect concurrently, albeit with an obligation to share the funds.

Collections for restitution are handled by the IRS’s revenue officers, while appeals are handled by appeals officers. Both groups typically assert that they lack the authority to negotiate or settle these debts. Once a restitution judgment is entered, the court’s ability to alter it is limited, offering minimal protection against IRS collection.

The court order established payment terms, including monthly payments with no maximum amount specified, and required immediate refunds to allow the IRS to collect more than just the monthly sum.

Carpenter’s decision is understandable—he likely concentrated on regaining his freedom, not financial intricacies. However, broader policy considerations come into play. Imposing unchangeable criminal restitution can be more severe than the sentence itself.

The financial ramifications can be enduring. If the IRS enforces restitution without negotiation, as with other debts, it creates a divide between those pursued for tax offenses and those who evade it.

A potential solution could be allowing the IRS to conduct a standard tax assessment instead of a specialized restitution assessment in tax cases. This would grant convicted individuals the same rights as those with unpaid taxes, some of whom may have also committed tax offenses. This approach aims to strike a balance between accountability and fairness in cases involving tax offenses.

In conclusion, understanding the intricacies of restitution in tax cases is crucial for individuals navigating the complexities of tax-related legal proceedings. The recent case of Carpenter v. United States serves as a stark reminder of the significance of this knowledge. Balancing the need for accountability with fairness in these cases is an ongoing challenge that requires careful consideration of policy and procedural implications.