Daugerdas v. Comm'r of Internal Revenue

Paul M. Daugerdas, Petitioner v. Commissioner of Internal Revenue, Respondent

No. 7350-20L

United States Tax Court

August 11, 2021

ORDER

JOSEPH ROBERT GOEKE JUDGE

On January 25, 2021, petitioner filed a motion for summary judgment in this collection due process (CDP) case challenging respondent's determination sustaining the filing of a notice of tax lien and a proposed levy to collect restitution-based assessments pursuant to section 6201(a)(4) arising from a restitution order that petitioner pay criminal restitution to the IRS and denying petitioner's request for an installment agreement that conforms to a payment schedule set forth in the District Court's restitution order.^[1]

Background

For more than a decade beginning in the early 1990s, petitioner a former tax attorney, designed, sold, and implemented fraudulent tax shelters to his clients to enabled them to evade tax. In October 2013 he was convicted in the U.S District Court for the Southern District of New York on mail fraud, obstruction of the administration of the internal revenue laws, four counts of client tax evasion, and conspiracy to defraud the United States. United States v Daugerdas, 837 F.2d 212, 218 (2nd Cir. 2016). He was acquitted of tax evasion for his personal income tax. At a sentencing hearing on June 25, 2014, the District Court sentenced petitioner to 180 months incarceration, 3 years of supervised release, restitution of $371, 006, 397, and preliminary forfeiture of $164, 737, 500 of petitioner's assets.

Petitioner agreed to the restitution calculations submitted by the Government, and the District Court adopted those calculations. At the sentencing hearing, the District Court stated that the restitution pursuant to the Mandatory Victims Restitution Act (MVRA) and named the IRS as petitioner's victim. It did not address a payment schedule or expressly state whether payment was due immediately. Addressing how to portion the restitution among petitioner and his co-defendants, it stated that petitioner is "responsible for the full amount of restitution" and made him jointly and severally liable with his co-defendants for $258.6 million of the restitution. The Court noted that petitioner had criminal proceeds of $97 million, i.e., tax shelter fees.

On June 26, 2014, the District Court entered the forfeiture order and on June 27, 2014, filed a written judgment using a preprinted form (judgment form). The judgment form states that if any restitution is imposed, the defendant must pay restitution in accordance with the payment schedule as a condition of supervised release. The District Court checked a box that interest on the restitution would begin 15 days after the judgment pursuant to 18 U.S.C. sec. 3612(f). It did not check a box that petitioner was unable to pay the restitution.

Sheet 6 of the judgment form is titled "Schedule of Payments" and provides choices for payment options including a lump-sum payment due immediately, payment to begin immediately, and three options for installment payments, none of which were checked. The District Court checked the box for "Special instructions regarding the payment of criminal monetary penalties" and wrote, as amended on October 30, 2014, that petitioner "shall make restitution payments in monthly installments of 10% of his gross monthly income over a period of supervision to commence 30 days after his release from incarceration." It also checked a box that required petitioner to forfeit his interest in property in accordance with the forfeiture order.

On February 26, 2018 and March 2, 2020, respondent assessed additional tax and interest against petitioner of approximately $227 million. On April 24, 2018, respondent issued to petitioner a notice of intent to levy (proposed levy), and on May 4, 2018, issued a notice of Federal tax lien filing. Petitioner remains incarcerated and the payment schedule in the District Court's written judgment has not yet begun. Upon his request, petitioner had a CDP hearing. On May 6, 2020, respondent issued to petitioner a notice of determination sustaining the proposed levy and the lien filing and denying an installment agreement. Petitioner timely filed a petition with this Court.

Statement of the Law

Section 6201(a)(4)(A) states that the Secretary "shall assess and collect the amount of restitution under an order pursuant to section 3556 of title 18, United States Code, for failure to pay any tax imposed under this title in the same manner as if such amount were such tax." It grants to respondent independent authority to assess and administratively collect restitution ordered under title 18. Carpenter v Commissioner, 152 T.C. 202, 219 (2019) aff'd, 788 Fed.Appx. 187 (4th Cir. 2019). Respondent may not assess the restitution until the criminal defendant has exhausted all appeals and the restitution order is final. Sec. 6201(a)(4)(B).

Petitioner argues that respondent's collection actions must be in accordance with the terms of the District Court's restitution order, which he argues delays payment until 30 days after his release from prison. Respondent disagrees with petitioner's reading of the restitution order and argues that restitution is due immediately. In the alternative, he argues that he is not bound by title 18 or the District Court's restitution order if it did delay payment because his section 6201(a) authority is independent from title 18.

The facts in this case raise issues that the parties have not adequately addressed in their motion papers, and we direct them to address those issues as explained further below. Furthermore, the Court of Appeals for the Second Circuit had jurisdiction to review the District Court's sentence. Accordingly, we will apply the precedent from that Circuit to determine petitioner's payment obligations unless the parties can direct us to a reason for not doing so. We direct the parties to address how Second Circuit authority would interpret the restitution order and specifically to address the title 18 provisions discussed below under Second Circuit authority.

1. Collection of Restitution for Nontax Crimes

The District Court ordered restitution under the MVRA for mail fraud and conspiracy, both of which are title 18 offenses, and named the IRS as the victim on the basis of loss of tax revenue. Petitioner was convicted of title 26 offenses but the restitution was not imposed for title 26 offenses. We have not yet reviewed administrative actions to collect the restitution ordered for nontax crimes.

The MVRA is codified in 18 U.S.C. secs. 3663A and 3664. In relevant part, 18 U.S.C. sec. 3663A mandates restitution for title 18 offenses. It does not authorize restitution for criminal violations of title 26. United States v. Adams, 955 F.3d 238, 250 (2d Cir. 2020); see also 18 U.S.C. sec. 3663 (authorizing discretionary restitution for title 18 offenses).

Carpenter v. Commissioner, 152 T.C. at 211-212, involved a taxpayer who pleaded guilty to title 26 offenses and agreed to pay restitution to the IRS as part of his plea agreement. The sentencing court exercised its authority under 18 U.S.C. sec. 3663(a)(3) to order restitution to the extent the defendant agreed to the restitution as part of a plea agreement. See also Bontrager v. Commissioner, 151 T.C. 213, 221 (2018) (taxpayer pleaded guilty to tax crimes); Klein v. Commissioner, 149 T.C. 341, 343 (2017) (taxpayers pleaded guilty to tax and nontax crimes); Catlett v. Commissioner, T.C. Memo. 2019-86 (restitution ordered for title 26 offenses as a condition of supervised release under the sentencing authority of 18 U.S.C. sec. 3583, thus, restitution was not yet due while the taxpayer remained incarcerated).

Section 6201(a)(4) authorizes respondent to collect restitution order "for failure to pay any tax imposed under this title [26]". Restitution is not a tax imposed by the Code. Bontrager v. Commissioner, 151 T.C. at 222. Rather, it is assessed "in the same manner as if such amount were such tax." Sec. 6201(a)(4); see United States v. Helmsley, 941 F.2d. 71, 102 (2d Cir. 1991) (stating before section 6201(a) enactment "[r]estitution is in fact and law a payment of unpaid taxes"). In Bontrager v. Commissioner, 151 T.C. at 222, we held that the "failure to pay any tax" is not limited to the defendant's personal tax and respondent has authority under section 6201(a)(4) to assess and collect restitution against a criminal defendant who aided and abetted a third person's nonpayment of tax. Accordingly, it is immaterial that petitioner to respondent's collection actions that petitioner was acquitted of personal tax evasion.

We stated in Klein v. Commissioner, 149 T.C. at 352, that the amount of restitution is treated as being the underlying tax liability for "the limited purpose of enabling the IRS to assess that amount, thus creating an account receivable on the taxpayer's transcript against which the restitution payment can be credited." (holding that section 6201(a) does not grant to respondent the authority to collect title 26 interest or failure to pay penalties that are in excess of the restitution amount). "[A]ny amount paid as restitution for taxes owed must be deducted from any judgment entered for unpaid taxes." United States v. Helmsley, 941 F.2d 71, 102 (2d Cir. 1991). And, restitution payments stop the accrual of penalties and interest and cannot result in double collection of tax. Ervin v. Commissioner, T.C. Memo. 2021-075.

We direct the parties to address whether section 6201(a) authorizes respondent to assess and collect restitution ordered for nontax crimes and whether restitution ordered for nontax crimes but payable to the IRS is restitution for "failure to pay any tax" under title 26. It is unclear from the record before us how the amount of...