Court-Ordered Restitution Subject of Informal Guidance

From the IRS

In a piece of informal guidance, the IRS Office of Chief Counsel has provided an outline of its understanding of the IRS’s new authority to assess and collect court-ordered restitution for failure to pay tax (Chief Counsel Advice (CCA) 201105037).

The Firearms Excise Tax Improvement Act, P.L. 111-237, enacted in August 2010, amended Sec. 6201(a)(4) to allow the IRS to assess and collect restitution ordered by a court for any failure to pay tax “in the same manner as if such amount were such tax.”

According to the CCA, this means the IRS can assess and collect the restitution without going through the civil assessment process. However, the advice concludes that the assessed amount is limited to losses attributable to violations of the Internal Revenue Code and does not include tax-related criminal charges under U.S. Code title 18.

The IRS has formed a team to develop new procedures for collecting restitution assessments, including addressing which agency will have primary responsibility for ensuring that restitution is collected.

The IRS interprets its new authority to mean that the defendant cannot challenge the assessment. The advice also concludes that the IRS is not prevented from also assessing a civil tax above the amount of the court-ordered restitution, under normal assessment procedures.

The general 10-year statute of limitation period for collection applies to tax liabilities assessed under Sec. 6201(a)(4)(A), and the IRS may also file suit under Sec. 6502(a) before the end of the 10-year period to avail itself of a 20-year judgment lien.