Challenging Federal Criminal Restitution Orders for Tax-Related Crimes

Convictions for crimes involving fraud, embezzlement or theft typically result in the defendants having to pay some amount of money in federal criminal restitution upon sentencing. The Seventh Circuit Court of Appeals recently affirmed the imposition of a federal criminal restitution order in United States v. Johnson over the objections of a defendant who argued that the government did not disclose the amount it already collected at sentencing and was required to do so.

Federal Criminal Restitution Orders for Tax-Related Crimes

When a defendant commits a federal tax crime, he may be ordered to pay restitution in order to compensate the IRS for the amount of tax that it was rightfully owed had the defendant not defrauded the government of that money. Rather than paying that amount to the IRS directly, the defendant pays that amount to the district court. The payments are made over time and are monitored by the Department of Justice.

In Klein v. Commissioner, the U.S. tax court ruled that the IRS is not allowed to impose fees or penalties on the amount of federal criminal restitution that a defendant is required to pay. Before assessing any fees or penalties, the IRS would have to first conduct a civil examination into the restitution matter and any amounts allegedly still owed by the criminal defendant. In those proceedings, the defendant could challenge the underlying amount he still needs to pay and can also raise a statute of limitations argument regarding collections.

The Consequences of a Defendant Failing to Pay a Restitution Order

Pursuant to 18 U.S.C. §3556, the federal district courts may impose the restitution amount, which can be secured against the defendant through a lien if it is not paid on time. Even if a defendant declares bankruptcy, he cannot discharge his obligation to pay the full amount of a federal criminal restitution order.

The Restitution Issue in United States v. Johnson

In United States v. Johnson, the defendant pleaded guilty to knowingly preparing false tax returns for her clients and was sentenced to 18 months in prison. She was also ordered to pay federal criminal restitution in the amount of $79,325 as a condition of her one-year term of supervised release. That was the outstanding amount that the government had not yet collected from taxpayers as a result of the defendant's illegal activities.

The defendant appealed the federal criminal restitution portion of her sentence by arguing that the government should have been forced to tell the court at the sentencing hearing how much of the outstanding amount that it anticipated collecting directly from the taxpayers. She relied on the Supreme Court case of Brady v. Maryland in contending that the amount of money that the government had already collected from the responsible taxpayers was exculpatory evidence and should have been revealed prior to sentencing. However, the appellate court ruled that Brady v. Maryland only applies in cases where the government is concealing information. Here, the government did not hide that amount from the defendant. In fact, she never inquired how much the government had collected prior to sentencing.

The Seventh Circuit Court of Appeals reasoned that whatever amounts the government collected against the responsible taxpayers would be credited against the amount that the defendant has to pay in federal criminal restitution. Neither party disputed this fact. Thus, the defendant's argument that there would be a double recovery was moot. The appellate court ultimately affirmed the federal criminal restitution order from the district court and ruled that the government was not obligated to disclose the extent of its tax collection efforts from the responsible taxpayers at the sentencing hearing.

Challenging the Amount of a Federal Criminal Restitution Order

Even if a defendant cannot avoid having to pay restitution upon a criminal conviction, there may be viable ways to challenge the amount that is imposed at sentencing. If the government has already seized valuable assets from the defendant during the course of its criminal investigation, it can be extremely difficult for a defendant to pay the entire amount of a federal criminal restitution order imposed. This is especially true if a defendant must also serve a prison sentence and has few prospects for employment upon his release from prison. That is why it is important to do everything possible in the appeals process to reduce the amount that a defendant must pay. Consult with an experienced criminal defense lawyer, such as Brandon Sample, Esq., to find out what your options might be to challenge a federal criminal restitution order after sentencing.