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Engle v. Commissioner (T.C. Memo. 2020-69)

On May 28, 2020, the Tax Court issued a Memorandum Opinion in the case of Engle v. Commissioner (T.C. Memo. 2020-69). The sole issue before the court in Engle was whether the criminal restitution order in this case falls within the scope of Firearms Excise Tax Improvement Act of 2010 (FETIA), Pub. L. No. 111-237, sec. 3, 124 Stat. at 2497, and therefore under the guidance of Klein v. Commissioner, 149 T.C. 341, 350 (2017).

Background

Frederick Engle and the IRS have long been “acquainted” with one another. The petitioner evaded taxes for 16 years since 1984. Apparently Big Brother was not watching Mr. Engle’s finances quite closely enough, as it wasn’t until 2004 when Engle plead guilty to one count of criminal tax evasion. Engle was sentenced by the Western District of North Carolina in 2008, but the sentence was reversed and remanded by the Fourth Circuit in 2010. Getting their act together, the Charlotte court sentenced Engle once more on May 26, 2011, this time according to some high-fallutin’ “sentencing guidelines” that the Fourth Circuit had mentioned in passing in its ruling.

Engle owed over $600,000, and in 2014 the IRS made restitution-based assessments (RBAs) against him totaling $600,000. The IRS then mailed notice and demand for the unpaid restitution and file a Form 668(Y)(c) (Notice of Federal Tax Lien) against Engle in the county where he lived.

The notice of Federal tax lien (NFTL) indicated that Engle owed a total of $2.8m, which represented the RBAs ($600,000), statutory interest, and additions to tax. The NFTL informed Engle of his CDP rights, which he exercised by mailing a Form 12153 (Request for CDP or Equivalent Hearing) and requesting to discuss collection alternatives.

Notably, Engle was prohibited from challenging the existence or amount of an underlying tax liability that is related to an order of criminal restitution.” Carpenter v. Commissioner, 152 T.C. 202, 219 (2019), aff’d, 788 F. App’x 187 (4th Cir. 2019).

Restitution Based Assessments and Timelines

If a person is ordered to pay restitution pursuant to 18 U.S.C. § 3556 for failure to pay any tax imposed by the Code, the IRS may assess and collect the restitution “in the same manner as if such amount were tax.” IRC § 6201(a)(4)(A). This was not always the case, however. The IRS’s collection authority under IRC § 6201(a)(4) applies only to criminal restitution ordered after August 16, 2010. If that seems like a wholly random day by tax standard, you would be correct.

The Intercession of Firearms

On August 16, 2010, the Firearms Excise Tax Improvement Act of 2010 (FETIA), Pub. L. No. 111-237, § 3, 124 Stat. at 2497, was passed. FETIA provides the statutory authority to assess criminal restitution for unpaid taxes, but such authority was proactive. Thus, any restitution ordered prior to August 16, 2010, was immune from restitution.

Engle, therefore, argued that between the May 2011 restitution order did not change the restitution he was required to pay, the restitution itself predates FETIA. As such, Engle claimed FETIA did not apply, and the IRS was without authority to use the RBA procedures to collect from him. Respondent retorted that the old order (2008) was “included” in the 2010 Circuit Court ruling; therefore, Engle’s argument was poppycock.

The Tax Court swayed as much by the IRS’s argument as it was by its charming anachronism, ultimately found for the IRS that the Fourth Circuit vacated petitioner’s entire sentence and remanded “for new sentencing [and] further proceedings.” See United States v. Engle, 592 F.3d 495, 504 (4th Cir. 2010). The Tax Court, therefore, held that the order of the Fourth Circuit remanding the case to the boys in Charlotte, expressly intended to include the 2008 restitution order in its decision to vacate and remand petitioner’s sentence.

As such, the 2010 order remanding the case for further proceedings rendered the 2008 restitution order null and void. Because the Tax Court looked to the 2011 order of restitution, notably later than August 16, 2010, the RBAs were valid, and the IRS was not in error when it determined to sustain the NFTL. Neither was there any abuse of discretion in doing so.

(T.C. Memo. 2020-69) Engle v. Commissioner

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