The Notice CP94: IRS Criminal Restitution Final Demand Notice

Notice CP94

Once a person becomes convicted of a crime and completes their sentence and/or enters a plea arrangement — unfortunately, that is not the end of the restitution process for many Taxpayers; in fact, for some Taxpayers, it is just the beginning of the Taxpayer’s financial burden. The Internal Revenue Service can initiate collection procedures in conjunction with the sentencing judge’s ruling. In other words, the IRS is authorized to seek unpaid restitution and penalties in a situation in which a taxpayer was convicted of a crime and ordered to pay restitution as a result of the crimes they committed. The form used by the IRS in order to pursue criminal restitution is a CP94.  Let’s walk through the basics of the CP94 notice, noting that Taxpayers will usually have the opportunity to challenge the debt with a CDP Hearing if they want.

IRM 25.26.1.1.1 Authority

1. 1. 1. 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.

      2. Public Law No. 111-237 amended IRC 6201, Assessment Authority, to provide that the IRS 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. IRC 6201(a)(4), Certain Orders of Criminal Restitution, requires criminal restitution ordered after August 16, 2010 to be assessed as if it were a civil tax. Whether criminal restitution can be assessed as a tax under IRC 6201(a)(4) depends on whether the restitution ordered derived from a failure to pay any tax imposed by Title 26. Restitution ordered for a criminal violation of IRC 7201, Attempt Evade or Defeat Tax, IRC 7202, Willful Failure to Collect or Pay Over Tax, IRC 7203, Failure to File or Failure to Pay, IRC 7206(1), False Return, as well as several other criminal tax violations under the Internal Revenue Code and Title 18 may meet the requirement necessary to be assessed as a tax. The applicability of IRC 6201(a)(4) will be determined by Criminal Investigation (CI) with input from Criminal Tax Counsel and will be reflected on Form 14104, Notification of Court Ordered Criminal Restitution Payable to IRS.

      3. Public Law No. 111-237 also amended IRC 6213(b), Exceptions To Restrictions on Assessments, to provide 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), Exceptions, to provide a proceeding in court for the collection of such amount may be begun without assessment, at any time.

      4. The United States Tax Court opinion, Klein v. Commissioner, 149 T.C. No. 15 filed on October 3, 2017, held that “IRC 6201(a)(4) does not authorize the IRS to add underpayment interest or Failure to Pay penalty to a Title 18 restitution award, and may not assess or correct from taxpayer’s underpayment interest or additions to a tax without first determining their civil tax liabilities.”

      5. Under section 18 USC section 3363(a)(3), restitution may be ordered as part of the sentence (including in criminal cases) pursuant to a plea agreement. In the Fifth Circuit case, United States v. Westbrooks, 58 F. 3d 317, 328 (5th Cir. 2017), the court held that restitution ordered solely as a condition of either supervised release or probation is only enforceable beginning with the first day of the period (the first day of supervised release following a prison term or the first day of probation, respectively) and ending with the last day of that conditional period as directed by the sentencing court. The amount of restitution ordered solely as condition of supervised release or probation will not be assessed until the taxpayer is under the supervision of a Probation Officer (supervised release or probation).

What does this Mean?

It means that when there is a criminal tax case, the sentencing court has the ability to require the defendant to pay losses that were incurred by the government as restitution. And, depending on whether or not the Taxpayer entered into a plea deal, the restitution aspect can become part of the plea arrangement.

Sample Language from a CP94 Notice

• • • “We assess and collect court ordered criminal restitution payments. The amount due is based on the amount of criminal restitution you were ordered, or agreed to pay to the IRS. You must still pay the restitution payments directly to the court. The court will send us those payments and we will apply your payment against the amount of the criminal restitution assessment. We only collect the amount due plus any accrued interest and penalty charges.”

What you need to do immediately

• • • Pay immediately

      • Send the amount due of by (Date), to avoid additional penalty and interest charges.

      • If you can’t pay in full, you must meet the court-ordered payment schedule. You may send in extra payments to reduce interest and penalty charges.

      • Pay directly to the court and include a copy of this notice if you pay more than the required amount.

      • Keep a copy of your payment for your records. If you’ve already paid your balance in full within the past 21 days, please disregard this notice.

Fraud

• • • “We charged a penalty for fraud. The penalty is 75% of the tax you didn’t pay due to fraud (50% of the tax you didn’t pay due to fraud on returns required to be filed before January 1, 1987, not including extensions). For tax you didn’t pay due to fraud on returns required to be filed before January 1, 1989, the penalty includes an additional 50% of the interest charged on the part of your underpayment due to fraud. This additional interest charge is a penalty and you can’t deduct it from your federal taxes. (Internal Revenue Code section 6663).”

Failure-to-pay

• • • “When you pay tax after the due date, we charge a penalty on the unpaid amount for each month (or fraction of a month) the tax remains unpaid. The penalty is generally 0.5% of the unpaid amount, however, the penalty increases to 1% for any amount that remains unpaid 10 days after we notify you of our intent to levy certain assets. We can decrease the penalty to 0.25% for any month during which you have an approved installment agreement to pay this tax, provided you filed your return on time. The maximum penalty we can charge for paying late is 25% For the purpose of computing this penalty, tax shown on your return (or on a return prepared under IRC 6020(b)) is due on the return due date without regard to any extension of time to file. Tax not shown on a return is due within 10 business days after we give notice and demand for payment of the tax. (Within 21 calendar days if the total amount due shown in the notice is less than $100,000)”

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