Restitution and civil assessments each require collection due process rights

Plain-English summary

Chief Counsel considered a tax period with both a court-ordered restitution assessment and a separate assessment from a civil examination. Although the two assessments relate to the same period and payments are cross-applied to prevent double collection, they are computed under different rules and may differ in amount. Regulations allow another collection due process hearing when unpaid tax increases because of an additional assessment. The IRS therefore should provide separate lien and levy notices and hearing rights for both the restitution-based assessment and the civil assessment. The taxpayer's ability to contest the restitution liability itself remains limited.

Ruling snapshot

• Question: Must the IRS provide new collection due process rights for a civil assessment when the same period already had a restitution-based assessment, or vice versa?
• Outcome: Advice given, separate notices and hearings are required for both assessments
• Key authorities: IRC §§ 6201(a)(4), 6320, and 6330; Treas. Reg. §§ 301.6320-1(d)(2) and 301.6330-1(d)(2)

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201510043
       Release Date: 3/6/2015
       CC:PA:04:ANSolodchikova
       POSTN-141612-14

UILC: 6201.00-00, 6330.00-00, 6320.00-00

date: January 14, 2015

 to:   Margaret Glasgow
       Advisory Restitution Manager
       (SBSE)

from: Mitchel S. Hyman
Senior Technician Reviewer
(Branch 3, Procedure & Administration)

subject: New Collection Due Process rights where a tax period is the subject of both a
restitution-based assessment and an assessment arising out of a civil examination.

       This memorandum responds to your request for assistance. This advice may not
       be used or cited as precedent.

       ISSUE

       Whether a taxpayer is entitled to a second collection due process (CDP) notice and a
       hearing where a tax period is the subject of both a restitution-based assessment and an
       assessment arising out of a civil examination?

       CONCLUSION

       Because the restitution-based assessment and assessment after the civil exam are two
       separate and distinct assessments, the Service should provide CDP notices and
       hearings for both assessments.

       BACKGROUND

       On April 16, 2010, Federal Excise Tax Improvement Act of 2010, Pub.L.No. 111-237,
       amended section 6201(a) to require assessment and administrative collection of the
       amount of restitution under an order pursuant to 18 U.S.C. § 3556, for failure to pay any
       tax imposed under the Internal Revenue Code, “in the same manner as if such amount
       were such tax”. Section 6201(a)(4). Thus, the Service can not only make an

POSTN-141612-14 2

assessment based on a restitution order, but can file notices of federal tax lien and
issue administrative levies to collect such assessment.

After a criminal case is closed the Service may conduct a civil examination of a taxpayer
for any tax period for which the period of limitation for assessment is still open, even if
such tax period was the basis of the amount ordered as restitution in the criminal case.
The civil tax liability is determined separately from the amount of restitution determined
by the federal district court in the earlier criminal case. See Muncy v. Commissioner,
T.C. Memo. 2014-251, at 16 (2014); Chief Counsel Notice 2013-012, Deficiency and
Litigation Issues Concerning Tax Periods For Which Criminal Restitution Has Been
Ordered. Thus, the Service not only assesses and collects on the restitution order
pursuant to section 6201(a)(4) but also may determine the civil tax liability and assess
that amount (after providing any required notices of deficiency under sections 6212 and
6213).

The civil tax examination can result in a tax liability that differs from the amount ordered
as restitution. In particular, a taxpayer’s tax liability may exceed amounts of restitution
ordered for the tax period at issue. See Morse v. Commissioner, 419 F.3d 829, 833-35
(8th Cir. 2005) (holding that despite a federal criminal case against the same taxpayer
resulting in a sentence that the taxpayer make restitution to the Service, the doctrine of
res judicata did not apply to preclude a civil fraud penalty assessment because a
criminal prosecution for filing false income tax returns did not involve the same cause of
action as the civil tax case); Gillum v. Commissioner, T.C. Memo. 2010-280, aff’d, 676
F.3d 633 (8th Cir. 2012) (although restitution is based upon an estimate of the civil tax
liability, it is not a determination of civil tax liability and generally does not bar the
Commissioner from assessing a greater amount of civil tax liability).

The restitution based assessment is recorded under the Master File Transaction (MFT)
Code 31 and the civil examination based assessment is recorded under the MFT Code

30. See IRM 5.19.23.1.3. To prevent double collection, any payments made to satisfy
    the restitution-based assessment are also applied by the Service to satisfy the civil tax
    assessment for the same tax period. See IRM 5.19.23.1.2. See also United States v.
    Tucker, 217 F. 3d 960 (8th Cir. 2000) (explaining that criminal restitution for a tax crime
    should be ordered in favor of the IRS and calculated based on the tax owed and that
    “any amounts paid to the IRS as restitution must be deducted from any civil judgment
    IRS obtains to collect the same tax deficiency”), United States vs. Helmsley, 941 F.2d
    71, 102 (2d Cir. 1991) (“[W]e believe it is self-evident that any amount paid as restitution
    for taxes owed must be deducted from any judgment entered for unpaid taxes in such a
    civil proceeding.”).

Following an assessment the Service is required to issue notice and demand for the
payment, pursuant to section 6303. If the taxpayer neglects or refuses to pay the
assessed amount, the amount demanded becomes a lien under section 6321, and the
Service can file a Notice of Federal Tax Lien under section 6323. Pursuant to section
6320(a), the Service shall notify the taxpayer after the filing of a NFTL of the taxpayer’s

POSTN-141612-14 3

right to request a post-filing CDP hearing. The Service can also levy on the taxpayer’s
property under section 6331 to collect the assessed amount, but only after providing the
taxpayer a pre-levy notice and right to a CDP hearing pursuant to section 6330 (with
several exceptions enumerated in section 6330(f) where only a post-levy notice and
right to hearing must be provided).

Due to the Service’s ability to collect on two separate and distinct assessments, you ask
whether the Service should provide CDP rights for the second time based on a civil
assessment if CDP rights were previously given to the taxpayer after the restitution-
based assessment. Alternatively, the same question arises when the restitution-based
assessment is made after the civil assessment.1

DISCUSSION

Sections 6320(b)(2) and 6330(b)(2) each provide that a taxpayer is entitled to one CDP
hearing before the Office of Appeals with respect to the tax and tax periods covered by
the CDP notice. Thus, as a general rule, the taxpayer has an opportunity for only one
CDP lien hearing and one CDP levy hearing for each tax and tax period. See
Investment Research Associates, Inc. v. Commissioner, 126 T.C. 183 (2006) (upholds
regulations only allowing hearing from filing of first NFTL); Shirley v. Commissioner,
T.C. Memo. 2014-10 (Appeals did not abuse discretion by refusing to consider years for
which petitioner received previous CDP hearings).

However, there are limited circumstances where more than one hearing may be
provided for the same tax and same tax period. Treas. Reg. §§ 301.6320-1(d)(2) Q&A-
D1 and 301.6330-1(d)(2) Q&A-D1 provide that the taxpayer is entitled to a second CDP
hearing where the same type of tax and period is involved, but the amount of unpaid tax
has increased because of an additional assessment of tax (not including additional
assessments for accruals of interest and penalties) or a new assessment for an
accuracy-related or filing-delinquency penalty. See Concert Staging Services, Inc. v.
Commissioner, T.C. Memo. 2011-231, at 10. See also Freije v. Commissioner, 131
T.C. 1, at 5 (2008) (holding that since in certain circumstances the Commissioner may
assess tax more than once for the same tax period, it is quite reasonable that a
taxpayer can have a separate opportunity for a hearing regarding each of the distinct
assessments).

Because separate assessments are made based on the restitution order and the civil
examination, these assessments are computed based on different criteria, and may be
for different amounts, we conclude that this is comparable to the situation mentioned in
the regulation where an additional assessment is made for the same tax and period.

1
The cases where the assessment based on the civil exam will precede the restitution-based assessment
are rare.

POSTN-141612-14 4

Thus, sections 6320 and 6330 require that separate CDP rights be given for the
restitution based assessment and for the civil based assessment.2

If you have any questions or need further assistance, please contact Alina Solodchikova
at (202) 317-5209.

2
We note that the issues a taxpayer can raise in a CDP hearing on the restitution-based assessment are
limited since the liability cannot be challenged and is not subject to a settlement. Chief Counsel Notice
2011-18, The Assessment and Collection of Criminal Restitution, Q-A 19.