Court upholds IRS authority to assess and collect criminal tax restitution in full
Paul M. Daugerdas v. Commissioner. United States Court of Appeals for the Seventh Circuit. No. 25-1055.
The IRS can turn criminal tax restitution into a tax debt that is due right away, even if the criminal court set up a slower payment plan.
Holding
The Seventh Circuit decided that §6201(a)(4)(A) lets the IRS assess and collect the full amount of criminal restitution for tax-related crimes, including those under Title 18, and follow its own collection schedule.
Why It Matters
Confirms broad IRS collection power. The IRS can treat criminal restitution as a tax liability and pursue full collection immediately.
Overrides criminal payment schedules. The IRS is not bound by installment terms set in the criminal judgment.
Applies beyond Title 26 convictions. Restitution tied to Title 18 offenses that involve tax loss still qualifies.
Practical exposure increases. Taxpayers face accelerated collection actions, including liens and levies, regardless of court-imposed payment plans.
Key Facts
Paul Daugerdas designed and promoted a large-scale fraudulent tax shelter.
A federal jury convicted him of conspiracy, mail fraud, tax evasion, and obstruction.
The sentencing Court ordered:
15 years in prison
$164.7 million in forfeiture
$371 million in restitution
The criminal Court set a payment schedule of 10% of the monthly income after release.
The IRS later:
Assessed the full $371 million under §6201(a)(4)(A)
Treated it as immediately due
Filed a Notice of Federal Tax Lien
Statutory or Regulatory Framework
§6201(a)(4)(A): Requires the IRS to assess and collect criminal restitution “as if such amount were such tax.”
18 U.S.C. §3556: Authorizes courts to order restitution in criminal cases.
18 U.S.C. §3663A: Mandatory restitution for certain offenses against property, including tax-related fraud.
§6321: Creates a federal tax lien when a taxpayer fails to pay assessed amounts.
§6201(a)(4)(C): Bars challenges to the amount of restitution in IRS administrative proceedings.
Arguments
Taxpayer argued:
§6201(a)(4)(A) applies only to Title 26 convictions, not Title 18 offenses.
The IRS must follow the criminal Court’s payment schedule.
The IRS’s actions exceeded statutory authority and raised constitutional concerns.
Government argued:
The statute applies to restitution arising from tax-related offenses, including Title 18 crimes.
The IRS may assess and collect restitution as a tax, independent of criminal payment terms.
The lien and collection actions were authorized under the Code.
Court’s Reasoning
The statute requires the IRS to assess restitution ordered under §3556 when it relates to unpaid taxes.
The underlying conviction involved a conspiracy to deprive the government of tax revenue, which qualifies.
The cross-reference to §3556 shows Congress intended to include Title 18 offenses tied to tax loss.
Limiting the statute to Title 26 convictions would render the cross-reference meaningless.
The IRS may treat restitution as a tax liability, including immediate assessment and collection.
The statute does not require the IRS to adopt the criminal Court’s payment schedule.
The lien was valid because restitution assessed as tax triggers standard lien rules.
No constitutional violation arises from parallel civil and criminal enforcement mechanisms.
Result
The Seventh Circuit affirms the Tax Court’s decision sustaining the IRS’s assessment and collection actions.
The Takeaway
Criminal restitution in tax cases is not limited to the criminal judgment. Once the IRS assesses it, the debt is treated like a tax, and the IRS decides how fast to collect it.