The IRS Notice CP94 is known as the Criminal Restitution Final Demand Notice. The Internal Revenue Service is trying to tell you that a restitution-based assessment was made under Internal Revenue Code (IRC) Section 6201(a)(4), in accordance with the court’s restitution order. The amount due is based on the amount of restitution you were ordered to pay, as well as any other penalties and interest reflected on the billing summary. The Notice CP94 falls under the category of “levy”.

STEPS TO TAKE

• Read the notice carefully and understand the message the IRS is trying to pass across. If you can’t fully understand it, you can contact your tax preparer or any certified tax representative to explain the notice to you.
• If you agree with what the IRS sent you, you should pay the amount by the due date to avoid additional interest and penalties.
• If you disagree with what was in the notice, contact the IRS using the number provided on the Notice and explain why you disagree with them.
• If you are to make any payments, do not make payments to the IRS. You are required to pay the amount due directly to the court and include a copy of the Notice CP94.

RESTITUTION BASED ASSESSMENT

IRS Authorized to Collect Restitution-Based Assessment for Evasion of Third-Party Tax Liability. In a case of first impression, the Tax Court ruled that Code Sec. 6201(a)(4) authorizes the Internal Revenue Service (IRS) to assess restitution that a person has been ordered to pay upon conviction of violating Code Sec. 7201 when his wrongdoing consisted of aiding and abetting the evasion of payment of a third party’s tax liability.

In 2010, U.S. Congress amended section 6201 (a)(4) to permit the IRS to make an immediate assessment based on an order of restitution in a criminal case. In Rozin v. Commissioner, T.C Memo 2017-52, the Tax Court continues to instruct taxpayers on the interplay between restitution assessments and deficiency assessments.  The opinion comes close to being an advisory opinion because very little separated the position of the IRS and the petitioner; however, the opinion brings clarity to the role of restitution assessments and payments.

Let’s take a look at an example of RBA: An individual was ordered by the court to pay restitution for aiding and abetting his father’s failure to pay federal income tax. The father had used the person’s real estate business to conceal his income and assets. The individual argued that the restitution was not assessable because the tax payment that he was convicted of evading was not originally imposed on him, but on his father. However, Code Sec. 7201 criminalizes any willful attempt to evade payment of any tax, and Code Sec. 6201 (a) (4) authorizes the assessment of restitution for failure to pay any tax imposed under Title 26. The word “any” has an expansive meaning and includes all taxes imposed under Title 26, including the tax that the individual was convicted of willfully attempting to evade.

Further, the individual’s restitution liability was not discharged in a subsequent Chapter 7 bankruptcy proceeding. No legal authority supported the individual’s claim that the IRS had waived non-discharge ability of the restitution obligation by filing a claim as a general unsecured creditor in the bankruptcy case. Therefore, the IRS properly sustained a collection action by filing a notice of federal tax lien (NFTL) to collect the individual’s restitution liability.

INTEREST AND PENALTIES ON RESTITUTION-BASED ASSESSMENTS

On June 27, 2019, the Office of Chief Counsel, IRS published Notice CC-2019-004 to update a notice it issued eight years ago shortly after the IRS was given permission by Congress to make assessments based on restitution orders. The idea to allow the IRS to make assessments based on these orders improved the process for handling the civil side of criminal cases. Before the change in the law, the Internal Revenue Service (IRS) had to go through the entire deficiency process before it could begin the collection process. Many taxpayers who go through the criminal process already have a significantly diminished ability to satisfy any subsequent assessment of the tax relating to the crime. For those taxpayers who did have the post criminal process ability to pay the tax, the sometimes multiyear process needed by the IRS to achieve an assessment further winnowed the group with an ability to pay.

So, in general, the innovation of restitution-based assessments greatly improved the process; however, these assessments have limitations and almost 10 years after these types of assessments were approved, the limitations are still being refined. This notice addresses limitations on restitution-based assessments when it comes to interest and penalties. Keep in mind that although Congress granted the IRS the ability to make an assessment of tax after the imposition of a restitution order it did not prevent the IRS from continuing to use its traditional bases for making an assessment and those traditional bases could fill the gaps left by restitution based assessments in those situations in which pursuing the additional steps to assessment would make good sense.

Interests are being charged to the restitution-based assessment. A restitution-based assessment is treated like any other assessment of tax under Title 26 of the Internal Revenue Code (IRC). Title 26 interest will accrue on the restitution-based assessment separately, even if the sentencing court waived Title 18 interest in whole or in part. For additional information, please see Chief Counsel Notice 2011-018.

Taxpayers believe that there is no need for the IRS to assess the court-ordered restitution when their tax return for that year was audited. The IRS is required to make an assessment for all court-ordered restitution payable to the IRS. Both the civil assessment and the restitution-based assessment modules will be linked to ensure you only pay the underlying tax liability once.

Finally, you are required to pay the amount due on Notice CP94 to the court (not the IRS). There is a deadline for payment and it will be indicated in the notice sent to you by the IRS.