If you are convicted of a tax crime and ordered to pay restitution to the government, how is the amount of the restitution determined? Can the government make an estimate? What if third parties already paid the IRS? Do you get credit for these payments? The court addresses these questions in United States v. Ramseur, No. 18-11591 (5th Cir. 2019).
Facts & Procedural History
The defendant owned a tax preparation business in Dallas, Texas.
The IRS looked into his tax return filings and noted that 87% of his tax returns included a Schedule C business loss for the 2009 to 2012 tax years. The IRS interviewed several of these clients and were told that the taxpayers did not operate businesses.
An IRS special agent posed as a customer and had the defendant prepare a tax return for him. The defendant prepared a tax return reporting a business loss for a business that did not exist.
The defendant was indicted on 26 counts of preparing false tax returns. The jury found him guilty on all counts and the probation department prepared a report that restitution could be counted based on 55 tax returns it had discovered that had Schedule C losses.
But the evidence showed that many of the client in question were never audited, their returns were never adjusted, and they had not made any payments to the IRS for alleged taxes due.
The court entered an order accepting the restitution amount based on the 55 returns. The defendant filed the appeal that led to the current court case.
About Preparing False Tax Returns
Tax return preparers are highly regulated. This regulation includes the IRS’s return preparer office and its due diligence enforcement actions. It also includes civil and criminal tax return preparer penalties.
This case involved criminal liability. The criminal false tax return statute is short. It says that anyone engaging in the following conduct is committing a crime:
Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document.
The reference to “return, affidavit, claim or other document” means a tax return.
Needless to say, tax crimes are a serous matter. Those being investigated for tax crimes need to hire an experienced tax attorney (such as our tax attorneys in The Woodlands).
About Criminal Tax Restitution
This case also involved a restitution order. The law generally says that the amount of the restitution is limited to the loss (to the government) for the crimes that are part of the criminal conviction.
Recall that in this case, the restitution order was for tax on 55 tax returns. The defendant was convicted on 21 counts–one count for each tax return. The IRS attorney admitted that the lower court committed an error in using 55 tax returns.
The court also considered whether the restitution order for a tax crime has to account for payments the tax preparer’s clients made to the IRS. The IRS attorney admitted that it did and that the lower court also erred in this regard as well.
Given these two errors, the appeals court vacated the restitution order and remanded the case back to the trial court. The trial court will need to determine what the correct amount of restitution is in this case. The defendant’s tax attorneys can help with this.