IRS Collections Don’t Stop Just Because You’re Incarcerated

When the verdicts’ been read and the fat lady has sung, most convicted tax cheats have fleeting thoughts of escape, suicide and their eventual incarceration, viz. the big house. But when it comes to the rough and tumble world of tax collecting, incarceration is but a measly bump in the road. In fact, the financial consequences associated with tax crimes are so financially onerous, that restitution and judgments frequently go unpaid. Unfortunately, indigence won’t stop the IRS from playing “pig pile” a/k/a bringing a civil  action for unpaid taxes, penalties and interest.  

To this end, one of our former clients, who was incarcerated for a non-tax related offense, was contacted by an IRS Agent who wanted to interview him in prison. Our client refused, and eventually the resourceful Agent made up his own extrapolations, which were based on jaundice publications from the New York Post (and were wildly inaccurate). 

Another one of our client’s was visited by the IRS in a halfway house she called home, and just about coerced into signing a $1,000,000 confession of judgment (that she probably didn’t owe).  The inducement to sign was as simple as it was effective “Admit to this tax liability, or we’ll refer your case to Criminal Investigations, and you’ll be back in prison for another 5 years” (powerful stuff). Keep in mind that, at the time of her confession, she was 67 years old, indigent and in terrible health. Ultimately, we had her placed into temporarily uncollectable status, and she died several months later. A Dickensian story if ever there was one, says David Selig of Selig & Associates.  

Tax Tip of the Day: In a criminal tax case, a court can require a defendant to pay the losses incurred by the government. The amount of the restitution ordered by the court is calculated from evidence submitted at trial or from information contained in the plea agreement and presented to the court at sentencing.

Public Law No. 111-237 amended IRC 6201 to provide that the Service shall assess and collect the amount of restitution ordered in a tax case for failure to pay any tax imposed under the Internal Revenue Code in the same manner as if such amount were such tax. The law applies to restitution orders entered after August 16, 2010.

The law also amended IRC 6213(b) to stipulate that a notice of assessment of restitution is not a notice of deficiency and may not be petitioned to Tax Court and IRC 6501(c) to address the unlimited assessment period for restitution-based assessments (RBAs).