At the conclusion of a criminal tax case, a convicted defendant is rightfully most concerned with the prospect of incarceration. Defendants, however, must be aware of other consequences of a conviction, including significant financial ramifications. While the federal restitution statutes do not permit restitution in tax cases, restitution is nonetheless relevant because it typically is required by plea agreements and, where a defendant is convicted after trial, may be imposed by sentencing judges as a condition of supervised release. Moreover, the Internal Revenue Service can pursue the defendant civilly for taxes, interest and penalties beyond what was at issue in the criminal case.
In one recent case, Senyszyn v. Commissioner,1 a defendant who pleaded guilty to tax evasion but was not ordered to pay restitution persuaded the Tax Court that he was not liable for the unpaid taxes, penalties and interest sought by the IRS. This case underscores the critical role orders of restitution play in criminal tax cases: in the absence of a restitution order, the IRS was unable to recover civilly. By contrast, in cases where the sentencing judge orders restitution, the criminal judgment serves as a floor to the defendant’s liability but does not preclude the IRS from seeking additional taxes, interest and penalties. Practitioners representing defendants in federal criminal tax cases should be mindful of the complex framework governing the availability of restitution, and the impact an order of restitution will have on subsequent civil litigation with the IRS.
Restitution in Tax Cases
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