In Uncategorized on 12/12/2018 at 16:01

Is Another Man’s Restitution

Jason Bontrager, 151 T. C. 12, filed 12/12/18, wanted to patch up his relationship with his Dad. Dad offered to help Jason in his real estate business. With help like this, Jason got convicted for aiding and abetting Dad in evading $727K in Dad’s income tax. USDCWDWA hit Jason with $72K in restitution, 10% of Dad’s evading.

Jason filed bankruptcy, and IRS put in an unsecured claim, although Federal restitution is non-dischargeable per 11 USC §523(a)(13), 727(b) (2012). Jason claims IRS waived its chance to collect, as he got discharged in bankruptcy and paid IRS $17K.

Judge Lauber isn’t buying.

“Contrary to petitioner’s view, nothing in the Bankruptcy Code prevents a creditor of a nondischargeable debt from filing a claim.  Generally, all properly filed creditor claims are allowed in a bankruptcy case unless expressly disallowed by the Bankruptcy Court under a specific provision.  See 11 U.S.C. sec. 502(a), (b), (d), (e) (2012).  None of these provisions disallows claims for nondischargeable debts.  And no provision of the Bankruptcy Code prevented the IRS from filing a claim or attached any adverse consequences to its doing so.   Further, the IRS properly filed its claim as a general unsecured creditor.

“Because the IRS had not assessed the restitution obligation at the time of petitioner’s bankruptcy, let alone filed an NFTL, it was required to file its claim as a general unsecured creditor.” 151 T. C. 12, at p. 18 (Citations omitted).

Jason claims that IRS can’t assess the ordered restitution, because Section 6012 (a)(4(A) restitution was ordered “for failure to pay any tax imposed by this title.” But USDCWDWA ordered restitution for failure to pay Dad’s tax, not Jason’s.

I award Holly C. Henson, Esq., Jason’s attorney, a Taishoff “good try, first class.”

“Petitioner notes correctly that the tax, the payment of which he was convicted of evading, was not originally imposed upon him by title 26.  But neither section 7201 nor section 6201(a)(4) requires that this be the case.  Section 7201 criminalizes any willful attempt to evade payment of ‘any tax imposed by this title.’  Section 6201(a)(4) authorizes the assessment of restitution ‘for failure to pay any tax imposed under this title.’  Petitioner was ordered to pay restitution for aiding and abetting [Dad’s] failure to pay Federal income tax.  That tax was clearly ‘[a] tax imposed under this title.’

The phrase ‘any tax imposed under this title’ in section 6201(a)(4) contains no limiting language.” 151 T. C. 12, at p. 14. (Emphasis by the Court).

The reason for Section 6201(a)(4)(A) was that Justice prosecuted evasion and won restitution; Treasury (IRS) may not even have begun examination at that point, thus there was no account receivable against which to debit restitution. So Congress let IRS collect restitution “as if” it were a tax. Remember Hans Vaihinger, the philosopher of “as if”? No? See my blogpost “Als Ob,” 11/22/16.

And Congress could not have intended a gap that gives a free kick to aiders and abettors.

“If the IRS cannot assess restitution of the sort involved here, the problem Congress aimed to solve in 2010 would be perpetuated for a subset of restitution payments.  Indeed, the problem would be particularly acute in this context.  The IRS cannot commence an examination of petitioner to determine {Dad’s] civil tax liability.  Thus, it could never make an assessment against petitioner for that tax unless permitted to do so by section 6201(a)(4).  And this problem could arise in the case of restitution ordered, not just for violations of section 7201, but for violations of other Code provisions.  See, e.g., secs. 7202 (willful failure to collect or pay over tax) and 7203 (willful failure to file, supply information, or pay tax).  We decline to find a gap in the statutory scheme in the absence of any textual evidence suggesting that such gap exists.” 151 T. C. 12, at p. 16.

But IRS concedes that Section 6601(a) underpayment interest doesn’t apply.

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