Paul Daugerdas was convicted in the Southern District of New York of multiple crimes, including conspiracy to defraud the IRS, mail fraud, and tax evasion. The district court sentenced him to 15 years in prison and ordered him to pay $371 million in restitution to the U.S. Treasury, structured as 10% of his gross monthly income starting 30 days after his release. After his convictions were affirmed by the Second Circuit, the IRS invoked its authority under 26 U.S.C. § 6201(a)(4)(A) to assess the full $371 million as a civil tax liability and file a federal tax lien. This administrative action made the entire restitution amount immediately due and payable, disregarding the installment schedule established in the criminal sentence. Daugerdas challenged this in the Tax Court, arguing the IRS lacked the authority to impose a parallel civil obligation with a different payment schedule. The Tax Court ruled in favor of the Commissioner, leading to this appeal.
The Seventh Circuit addressed two primary issues: whether the IRS has the authority to assess restitution for Title 18 offenses and whether it must adhere to the criminal court's payment schedule. First, the court analyzed 26 U.S.C. § 6201(a)(4)(A), which directs the Secretary of the Treasury to assess and collect restitution ordered under 18 U.S.C. § 3556 for failure to pay taxes in the same manner as a tax. The court rejected Daugerdas's argument that this authority applies only to convictions under the Tax Code (Title 26). The opinion states that Congress conditioned the assessment on whether the obligation arose under § 3556 for a failure to pay taxes, which Daugerdas's conspiracy to defraud the IRS clearly did. The court reasoned that limiting the provision to Title 26 convictions would render the cross-reference to § 3556 meaningless. The court also addressed the federal tax lien, noting that criminal restitution orders already function as liens under 18 U.S.C. § 3613(c), and the IRS's parallel lien was consistent with 26 U.S.C. § 6321. Second, the court addressed the payment schedule. Daugerdas argued that because the assessment derives from a criminal order, the IRS must follow the criminal court's schedule. The court disagreed, emphasizing that § 6201(a)(4)(A) instructs the IRS to collect the amount 'in the same manner as if such amount were such tax.' Unlike criminal courts, which must consider a defendant's ability to pay when setting a schedule, the IRS is not bound by those limitations when acting under the Tax Code. The court found no separation of powers violation in Congress authorizing the IRS to enforce restitution through civil mechanisms to ensure Treasury recovery.
The decision affirms the IRS's power to accelerate the collection of criminal restitution for tax-related crimes, effectively bypassing the payment plans negotiated or ordered by criminal courts. Taxpayers convicted of tax fraud now face immediate civil collection actions, including liens and levies, for the full restitution amount regardless of their ability to pay. The ruling leaves open the question of how this authority applies to non-tax-related Title 18 offenses, but confirms it for crimes involving the failure to pay taxes. The case is remanded to the Tax Court with instructions to enter judgment for the Commissioner, leaving the accelerated civil collection obligation intact.
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