oversight

Criminal Restitution Assessment Procedures Need Improvement

Published by the Office of the Treasury Inspector General for Tax Administration on 2021-06-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

 TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION




                 Criminal Restitution Assessment Procedures
                             Need Improvement


                                               June 7, 2021

                                 Report Number: 2021-30-033




This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and
    information determined to be restricted from public release has been redacted from this document.
                                                                                                 1
                           TIGTACommunications@tigta.treas.gov | www.treasury.gov/tigta
              HIGHLIGHTS: Criminal Restitution Assessment Procedures Need Improvement

Final Audit Report issued on June 7, 2021                                         Report Number 2021-30-033

 Why TIGTA Did This Audit               What TIGTA Found
 The Firearms Excise Tax                During Fiscal Years 2016 through 2020, defendants were ordered to
 Improvement Act of 2010                pay over $2.7 billion in criminal restitution to the IRS but paid only
 authorized the IRS to assess           $844 million, or 31 percent during that same period. TIGTA found
 criminal restitution ordered after     that in cases for which the IRS had the authority to assess the
 August 16, 2010, so that the IRS       restitution ordered, a higher percentage of restitution was paid.
 could collect the amount as if it
                                        Improvements can be made to ensure that the restitution ordered is
 were a tax. Prior to this change in
                                        properly assessed. IRS Criminal Investigation (CI) did not always send
 the law, the IRS accepted
                                        closing documents to the Small Business/Self-Employed Division for
 payments of restitution but could
                                        the assessment of restitution, and the Division incorrectly assessed
 not assess the amount of
                                        interest and penalties on some restitution-based assessments.
 restitution ordered or use its
 administrative collection tools to     TIGTA also found that a lack of resources within CI and the Small
 collect the restitution. Only the      Business/Self-Employed Division contributed to the IRS not being
 Department of Justice could            able to adequately monitor defendants’ compliance with the
 collect the amount of restitution.     conditions of probation or supervised release. TIGTA found that
 This audit was initiated to            internal controls could be improved to prevent the IRS from issuing
 determine if defendants convicted      erroneous refunds for restitution payments. Lastly, TIGTA identified
 of tax-related crimes are held         numerous errors in the CI Management Information System related
 responsible for the payments of        to defendants who were sentenced for tax-related crimes and
 the associated taxes.                  ordered to pay restitution.
 Impact on Taxpayers                    What TIGTA Recommended
 The ultimate goal of every             TIGTA recommended that the IRS: 1) develop procedures to ensure
 criminal prosecution is not merely     that CI timely sends restitution closing investigative documents to
 to obtain a conviction but also to     the Technical Services Unit; 2) review existing controls to ensure that
 obtain a sentence sufficient to        restitution assessments are made in a timely manner; 3) establish
 discourage similar criminal            monitoring procedures to provide reasonable assurance that all
 violations by other taxpayers. It is   interest and penalties incorrectly assessed are removed; and
 important that the IRS have            4) ensure that review of CI Management Information System
 effective procedures to ensure         information related to restitution and the monitoring of probation
 that the defendants are held           and supervised release are included in existing quality reviews
 responsible for their crimes and       mechanisms.
 the maximum amount of criminal         IRS management agreed with all four recommendations and has
 restitution is collected.              already implemented corrective actions to ensure that CI timely
                                        sends closing investigative documents to the SB/SE Division
                                        Technical Services Unit for restitution assessment, and that CI
                                        Management Information System information related to restitution
                                        and the monitoring of probation and supervised release is accurate.
                                         U.S. DEPARTMENT OF THE TREASURY
                                                  WASHINGTON, D.C. 20220



TREASURY INSPECTOR GENERAL
  FOR TAX ADMINISTRATION



                                              June 7, 2021


MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE



FROM:                        Michael E. McKenney
                             Deputy Inspector General for Audit

SUBJECT:                     Final Audit Report – Criminal Restitution Assessment Procedures Need
                             Improvement (Audit # 202030026)

This report presents the results of our review to determine if defendants convicted of tax-related
crimes are held responsible for the payments of the taxes associated with the offenses they
committed. This review is part of our Fiscal Year 2021 Annual Audit Plan and addresses the
major management and performance challenges of Improving Tax Reporting and Payment
Compliance and Reducing Fraudulent Claims and Improper Payments.
Management’s complete response to the draft report is included as Appendix IV.
Copies of this report are also being sent to the Internal Revenue Service managers affected by
the report recommendations. If you have any questions, please contact me or Matthew A. Weir,
Assistant Inspector General for Audit (Compliance and Enforcement Operations).
                                       Criminal Restitution Assessment Procedures Need Improvement




Table of Contents
Background .....................................................................................................................................Page        1


Results of Review .......................................................................................................................Page               4

            Criminal Restitution Was More Likely to Be Paid When
            the IRS Assessed the Restitution Ordered ..................................................................Page 4
            Steps Need to Be Taken to Ensure That Restitution Is
            More Timely Assessed ........................................................................................................Page 8
                         Recommendations 1 and 2: .....................................................Page 12

            Interest and Penalties Were Sometimes Erroneously
            Assessed ..................................................................................................................................Page 13
                         Recommendation 3: ...................................................................Page 14

            Limited Resources Have Diminished the Capacity to
            Monitor Compliance With the Conditions of Probation or
            Supervised Release ..............................................................................................................Page 14
            Internal Controls Related to the New Assessment
            Procedures Did Not Prevent the Issuance of Erroneous
            Refunds ....................................................................................................................................Page 17
            The Criminal Investigation Management Information
            System Contained Numerous Errors Related to
            Restitution and the Monitoring of Probation............................................................Page 18
                         Recommendation 4: ...................................................................Page 20


Appendices
            Appendix I – Detailed Objective, Scope, and Methodology ................................Page 21
            Appendix II – Outcome Measures .................................................................................Page 24
            Appendix III – Summary of IRS Responsibilities for the Assessment
            and Collection of Restitution and the Monitoring of the Conditions
            of Probation or Supervised Release ..............................................................................Page.27
            Appendix IV – Management’s Response to the Draft Report .............................Page 30
            Appendix V – Glossary of Terms ....................................................................................Page 34
            Appendix VI – Abbreviations .......................................................................................... Page 38
                              Criminal Restitution Assessment Procedures Need Improvement




Background
Internal Revenue Service (IRS) Criminal Investigation (CI) enforces the criminal provisions of the
Internal Revenue Code (I.R.C.) and related financial crimes to promote compliance with tax laws
and confidence in the U.S. tax administration system. 1 CI pursues criminal sanctions when
taxpayers (hereafter called defendants) refuse to comply or attempt to evade their tax
obligations. 2 The ultimate goal of every criminal prosecution is not merely to obtain a
conviction but also to obtain a sentence sufficient to discourage similar criminal violations by
other taxpayers.
When a defendant pleads guilty or is found guilty of a tax-related crime, the terms of sentence
can include various combinations of imprisonment, supervised release, probation, special
tax-related provisions, and monetary penalties such as fines and restitution. 3 As part of a
sentence in a criminal case, a court may order a defendant to pay restitution to compensate the
victim for losses suffered as a result of a crime. The IRS seeks restitution because it establishes
some monetary obligation for the defendant at the time of sentencing in order to redress the
loss inflicted (unpaid taxes in the case of the IRS). Although an order of restitution is not a
determination of tax liability, it represents the defendant’s legal obligation to pay a specified
amount to the IRS and can act as a deterrent effect on future criminal violations of the I.R.C.
For Title 26 tax offenses, when a defendant pleads guilty and agrees to pay restitution as part of
the plea, the court may order restitution as a component of the sentence.4 However, the court
may order restitution for Title 26 offenses solely as a condition of probation or supervised
release, regardless of whether the defendant agreed to the restitution in the plea agreement.5
When this happens, the restitution ordered is only collectible during the period of probation or
supervised release. For Title 18 tax offenses, courts must order restitution as a component of
the sentence. 6
The Firearms Excise Tax Improvement Act of 2010
amended I.R.C. Section (§) 6201 and authorizes the IRS to             The Firearms Excise Tax
assess criminal restitution ordered after August 16, 2010,       Improvement   Act allows the IRS to
as if it were a civil tax. Before the Firearms Excise Tax
                          7                                        assess  criminal  restitution in
Improvement Act, the IRS lacked the legal authority to          certain cases as if it were a civil tax.
assess the amount of restitution ordered. Instead, the
IRS could only make an assessment of the defendant’s
tax liability on the appropriate module after completing an examination of the defendant’s
relevant tax period. The IRS would then credit any restitution payments against that tax liability.

1
    See Appendix V for a glossary of terms.
2
 For the purposes of this report, the term “defendant” includes both individuals and tax return preparers who
pleaded guilty to or were convicted of a tax-related crime.
3
    For instance, the defendant can agree to cooperate with the IRS in filing accurate tax returns.
4
 Under 18 U.S.C. § 3663(a)(3), restitution may be ordered as an independent part of the sentence if the defendant
agrees to pay restitution in a plea agreement.
5
    Under 18 U.S.C. §§ 3563(b), 3583(d), restitution may be ordered as a condition of probation or supervised release.
6
    18 U.S.C. § 3663A. This includes restitution ordered pursuant to a plea agreement of a Title 18 tax offense.
7
    Pub. L. No. 111-237 (2009–2010). Specifically, Section 3 – Assessment of Certain Criminal Restitution.
                                                                                                                   Page 1
                               Criminal Restitution Assessment Procedures Need Improvement


As a result of the Act, the IRS can assess the amount of restitution ordered by the court and
collect it as if it were a tax. 8
The amount of restitution ordered payable to the IRS offers two different methods of collection,
but the IRS cannot collect the amount twice.
       •    The first method is the “restitution judgment,” which the U.S. Department of Justice
            (DOJ) Financial Litigation Unit (FLU) is responsible for collecting. According to DOJ
            procedures, the FLU will pursue various means to collect restitution, as the judgment and
            its resources permit, on behalf of identified victims for a period of 20 years from the
            filing date of the judgment or until the death of the defendant.9
       •    The second method is the “restitution-based assessment” (RBA), which the IRS will assess
            and collect in the same manner as if it was a tax.10 The IRS has a 10-year period to
            collect the assessed tax unless the courts ordered the restitution only as a condition of
            probation or supervised release. 11
The Firearms Excise Tax Improvement Act does not allow the IRS to assess restitution in every
instance. The IRS can only legally assess the restitution if the criminal offense is for tax purposes
(e.g., Title 26 cases stemming from an underreporting of income, an inflated credit or expense,
or an alleged overpayment of tax that results in a false refund). In these instances, the
restitution may be assessed as if it were a tax. 12 When the IRS cannot assess the restitution, it
does not have the authority, under Title 18 or Title 26, to administratively collect on a restitution
order because it is not a tax. 13
Each year, defendants convicted of tax and tax-related crimes are subject to conditional terms of
probation relating to the settlement of their civil tax liabilities, such as the filing of tax returns,
payment of tax liabilities, and payment of restitution. Figure 1 shows that, from Fiscal Year
(FY) 2016 to FY 2020, U.S. District Courts ordered defendants to pay over $2.7 billion in
restitution to the IRS.




8
 Because restitution debts stem from the same underlying tax liability, the full amount can be collected only once.
Therefore, any payments that wholly or in part satisfy the restitution-based assessment (RBA) must also be applied
against the underlying tax liability for the same type of tax and tax periods (duplicate civil and/or co-defendant
assessments), provided that the RBA relates to that underlying tax liability. Internal Revenue Manual (IRM) 25.26.1.2
(March 24, 2014).
9
    The U.S. Attorney’s Office, Northern District of Georgia, Understanding Restitution (www.justice.gov/usao-ndga).
10
     IRM 25.26.1.2 (March 24, 2014).
11
  Restitution ordered solely as a condition of probation or supervised release is collectible only during the period of
probation or supervision. It is not collectible either before or after the term of probation or supervised release.
United States v. Westbrooks, 858 F. 3d 317, 328 (5th Cir. 2017).
12
  IRS, Chief Counsel Notice 2011-018, The Assessment and Collection of Restitution (August 26, 2011) (See response
to Question No. 2).
13
     In these instances, the DOJ FLU is responsible for collecting the restitution.
                                                                                                                Page 2
                            Criminal Restitution Assessment Procedures Need Improvement


               Figure 1: Restitution Ordered During FYs 2016–2020 (in millions)
               $900
               $800
               $700
               $600
               $500
               $400
               $300
               $200
                            2016             2017            2018            2019            2020

             Source: Criminal Investigation.
It is important that the IRS collect the restitution amounts assessed so that defendants are held
financially responsible for their crimes. Several IRS functions are involved in the assessment and
collection of restitution and the monitoring of compliance with the conditions of probation or
supervised release. For instance, the Small Business/Self-Employed (SB/SE) Division’s
Examination Technical Services Unit has exclusive responsibility for completing assessment on
criminal restitution cases for which I.R.C. § 6201(a)(4), Assessment Authority, is applicable. 14
Appendix III of this report provides a summary of the IRS function and other agency
responsibilities.
The Treasury Inspector General for Tax Administration (TIGTA) previously conducted an audit on
the monitoring of probation and processing of restitution payments just prior to the law change
and reported that the IRS did not have effective internal controls to ensure that defendants
convicted of tax-related crimes comply with conditions of probation and restitution. Specifically:
     •   The IRS’s inability to properly account for restitution payments resulted in the issuance of
         erroneous refunds totaling approximately *************1***************** and
         16 taxpayers involved in a refund scheme.
     •   The IRS’s systems for monitoring defendants’ compliance with the conditions of
         probation and restitution were neither effective nor reliable. Analysis of data used to
         monitor defendants identified inaccurate tax account data totaling approximately
         $330,000 for 25 defendants.
TIGTA made several recommendations to the Chief, CI, to address internal control weaknesses
regarding accurate accounting for restitution payments, including preventing the issuance of
erroneous refunds. 15




14
   The SB/SE Division has designated a Technical Services Unit (located in Los Angeles, California) to make all of the
criminal restitution assessments.
15
  TIGTA, Report No. 2012-30-012, Procedures Are Needed to Improve the Accounting and Monitoring of Restitution
Payments to Prevent Erroneous Refunds (Jan. 2012).
                                                                                                       Page 3
                              Criminal Restitution Assessment Procedures Need Improvement



Results of Review
Criminal Restitution Was More Likely to Be Paid When the IRS Assessed the
Restitution Ordered
Among the reasons for the Firearms Excise Tax Improvement Act was that the assessment of
criminal restitution would allow the IRS to use existing enforcement techniques to collect
restitution. 16 The law change allows the IRS to assess the amount of restitution ordered by the
courts and use its administrative collection tools, including the filing of Notices of Federal Tax
Lien and levying assets. Prior to the Act, the IRS accepted payments of restitution but lacked the
legal authority to assess the amount of restitution ordered. The IRS could use the examination
process to determine the defendant’s tax liability for the same period to which the restitution
related, which could be years after sentencing or when a defendant agreed to the liability. 17
From FYs 2016 to 2020, the courts ordered defendants to pay over $2.7 billion in criminal
restitution to the IRS. During that same period, a total of $844 million in restitution was paid to
the IRS, only 31 percent of the amount ordered. Figure 2 lists the amounts of restitution
ordered and paid from FYs 2016 to 2020.
              Figure 2: Amount of Restitution Ordered and Paid (FYs 2016–2020)

                                  Restitution Ordered        Restitution Paid 18          % of
                     Fiscal
                                                                                       Restitution
                     Years
                                                                                         Paid

                     2016            $603,400,000              $322,903,345               54%
                     2017            $808,400,000               $98,561,949               12%
                     2018            $444,800,000              $149,900,661               34%
                     2019            $536,800,000              $121,591,601               23%
                     2020            $328,800,000              $151,436,043               46%
                     Total         $2,722,200,000             $844,393,598                31%

                 Source: Information Provided by CI and the SB/SE Division.
The low percentage of restitution paid to the IRS in recent years may not be indicative of the
effectiveness of the law change providing for the assessment of restitution. As we previously
described, the IRS only has the authority to assess the restitution ordered by the courts if the
criminal offense was for a tax-related crime. Since the law change in Calendar Year (CY) 2010, CI

16
   Restitution in Criminal Tax Cases – A Report and Recommendations Prepared by an IRS-Department of Justice
Working Group (April 1, 2004).
17
   For instance, the defendant could have consented to the tax liability using Form 870, Waiver of Restrictions on
Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment.
18
  The amount of restitution paid may not necessarily correspond with the restitution ordered during a given fiscal
year because restitution paid during one year could relate to a restitution ordered from another year. Defendants are
supposed to send restitution payments to the DOJ, which then forwards them to the Wage and Investment Division
Accounting Operations Unit in Kansas City, Missouri. However, there is always the possibility that a defendant may
have sent a restitution payment directly to the IRS and that such a payment may not have been recognized as a
restitution payment. The SB/SE Division believes that would be very rare.
                                                                                                               Page 4
                            Criminal Restitution Assessment Procedures Need Improvement


devoted significant resources investigating cases for which the IRS did not have the authority to
assess any restitution ordered. For instance, the IRS was unable to assess any restitution
ordered if defendants were sentenced for crimes involving identity theft because the restitution
is attributable to fictitious tax returns. 19 During FYs 2013 through 2017, CI initiated over
4,000 investigations involving identity theft. 20
During this audit, we analyzed a sample of cases for which the courts ordered the payment of
restitution in recent years and found that generally a larger percentage of restitution was paid
when the IRS had the authority to assess the restitution ordered. Specifically, we selected a
judgmental sample of 110 criminal investigations for which courts ordered the payment of over
$300 million in restitution during FYs 2016 through 2019 to determine the amount of restitution
paid. 21 We selected these from a population 3,479 investigations for which defendants were
ordered to pay nearly $2.7 billion in restitution to the IRS. 22 Figure 3 provides a breakdown of
the restitution paid when the IRS is able to assess the restitution as opposed to instances when
it is not.




19
  CI defines these types of investigations as “Stolen Identity Refund Fraud.” According to the IRS Office of Chief
Counsel, it could not identify an instance in which the IRS could assess restitution ordered in an identity theft case as
the real taxpayer is not involved and is not liable for any losses to the Government.
20
  TIGTA, Report No. 2019-30-047, Criminal Investigation Should Increase Its Role in Enforcement Efforts Against
Identity Theft (Aug. 2019). We reported that the number of identity theft investigations initiated was declining. From
FY 2013 to FY 2017, the number of identity theft investigations declined from 1,492 to 374. However, the number of
identity theft investigations resulting in sentences increased from 223 in FY 2012 to 550 in FY 2017.
21
   From our analysis of Criminal Investigation Management Information System (CIMIS) data, we judgmentally
selected the investigations if the Conditional Probation Expiration Date ended before October 1, 2019, and had a
significant amount of restitution ordered. We also selected cases for which the restitution ordered included a Report
of Foreign Bank and Financial Accounts (FBAR) penalty. We included Stolen Identity Refund Fraud investigations in
our sample. A judgmental sample is a nonprobability sample, the results of which cannot be used to project to the
population.
22
   The amount of restitution ordered differs slightly from the amount of restitution ordered in Figures 1 and 2. This
could have occurred when CI recorded the same restitution amount in CIMIS multiple times when there was more
than one defendant involved in the same crime. The amount of restitution ordered related to the population of
3,479 investigations was based on the amount recorded in CIMIS and not based on the review of court documents.
                                                                                                                  Page 5
                               Criminal Restitution Assessment Procedures Need Improvement


                        Figure 3: Analysis of Restitution Paid From Sample Cases

       Restitution Assessment Category            Sample         Restitution          Restitution       % of Restitution
                                                   Cases          Ordered               Paid                  Paid

      Assessable                                    68 23       $76,584,581        $36,532,384 24                     48%
      SIRF - Non-Assessable                         28         $152,603,734          $2,112,534                        1%
      Other Non-Assessable                            5         $36,851,281                $8,639          Less than 1%
      Closing Documents Not Sent 25                   6         $35,118,653                    N/A                    N/A
      Restitution Paid at Sentencing 26             *1*           $1,806,202         $1,806,202                     100%
      FBAR Penalties 27                             *1*           $1,894,344                 **1**                    *1*

      Other 28                                      *1*                    N/A                  *1*                   *1*

     Source: TIGTA analysis of the Criminal Investigation Management Information System (CIMIS), Master
     File information from TIGTA’s Data Center Warehouse (DCW), and payment information from the Wage
     and Investment (W&I) Division Accounting Operations. SIRF = Stolen Identity Refund Fraud. FBAR =
     Report of Foreign Bank and Financial Accounts.
In 68 of the 110 cases for which the IRS assessed the restitution, nearly 48 percent of the total
restitution ordered was paid. Conversely, defendants paid a much lower percentage when the
IRS did not have the authority to assess the restitution. 29 For example, in 28 of the 110 cases
that had restitution related to SIRF cases, there was a much smaller percentage (less than
2 percent) paid. There were SIRF investigations in our sample with a significant amount of
restitution ordered but with little restitution paid. For example, ***************1************
********************************************1********************************************************
**********1********** In cases for which the IRS may not assess the restitution, such as those
involving SIRF, the restitution is still paid to the IRS, but the IRS does not have the authority,
under Title 18 or Title 26, to collect on the restitution ordered. When the IRS cannot assess the
restitution, the DOJ FLU is solely responsible for collecting the restitution ordered. These are



23
     **********************************************************1********************************************************.
24
  Includes the amounts paid on the restitution, refund offsets, and credits associated with payments on related
accounts. For instance, if the defendant made payments on a related civil tax assessment, the IRS would also credit
these payments to the restitution account because the amount owed can be collected only once.
25
  According to the SB/SE and W&I Divisions, it did not receive the closing documents needed to track the restitution
payments in these six cases. Therefore, we could not determine the amount of restitution paid by the defendants.
26
  ******************************************1************************************************** The IRS did not assess the
restitution in these cases. See the next section of this report starting on page 8 for a further description of this issue.
27
   According to the IRS, FBAR penalties are not assessable as restitution because they are a nontax debt. SB/SE
Division Specialty Examination is responsible for separately assessing the FBAR penalties, which are tracked on a
database separate from the IRS Master File. The Bureau of the Fiscal Service (a bureau of the Department of the
Treasury) is responsible for their collection. *********1********* courts ordered the defendants to pay FBAR penalties.
********************************************************1*******************************************************************
*****1*****
28
   ******************************************************1**********************************************************
*********************************************************1*************************************************************
*********1***********
29
  The W&I Division Submission Processing Accounting Operations tracks and accounts for restitution paid in cases
for which the IRS cannot make an assessment. These responsibilities are further described in Appendix III.
                                                                                                                      Page 6
                               Criminal Restitution Assessment Procedures Need Improvement


units located within each of the 94 U.S. Attorney’s Offices (USAO). The restitution collected by
the DOJ is then paid to the IRS.
During this audit, we did not evaluate the efforts by the DOJ FLUs to collect the criminal
restitution owed the IRS. However, in previous years, the U.S. Government Accountability Office
(GAO) has conducted several audits on the collection of restitution by the DOJ FLU. 30
In its most recent report on the collection of Federal restitution, issued in February 2018, the
GAO found that the USAOs collected $2.95 billion in restitution debt in FYs 2014 through 2016. 31
However, at the end of FY 2016, $110 billion in previously ordered restitution was outstanding,
with 91 percent ($100 billion) classified as uncollectible due to the defendants’ inability to pay.
The GAO reported that the DOJ has made improving debt collection, including restitution, a
major management initiative in its FYs 2014 through 2018 Strategic Plan.

Most of the unpaid assessed restitution was determined to be currently not collectible
The SB/SE Division Collection function is responsible for collecting the amount of assessed
Federal tax liabilities due from taxpayers. The mission of the Collection function is to collect
delinquent taxes and secure delinquent tax returns through the fair and equitable application of
the tax laws, including the use of enforcement tools when appropriate, and to educate taxpayers
to facilitate future compliance. This is generally achieved through processes and programs that
include the collection notice stream, the systemic processes and work of employees within the
Campus Collection function (including the Automated Collection System), and the work of
revenue officers within the Field Collection function.
The IRS has the ability to use its administrative collection tools to collect the RBAs. Making the
RBA allows the IRS to collect the restitution as if it was a tax. That means that collection actions
allowed under the I.R.C. may be used to collect the RBA. This includes taking enforcement
actions such as levies, Notice of Federal Tax Lien filings, or seizures of property. Cases with RBAs
will generally be worked in the same manner as other balance due cases.32 However, according
to SB/SE Division Collection personnel, if a revenue officer determines that the defendant can
make payments toward the RBA liability that exceed the payment schedule established by the
courts, the revenue officer may not obtain an installment agreement unless it will fully pay the
RBA within the Collection Statute Expiration Date. 33
We evaluated the collection actions taken on 50 of the 68 cases for which the IRS assessed the
restitution and a liability remained (a total of more than $40 million). 34 Our review found
evidence that, in most cases, the IRS filed Notices of Federal Tax Lien, took levy actions, and


30
   GAO, GAO-01-664, Criminal Debt: Oversight and Actions Needed to Address Deficiencies in Collection Processes
(July 2001); GAO, GAO-05-80, Criminal Debt: Court-Ordered Restitution Amounts Far Exceed Likely Collections for the
Crime Victims in Selected Financial Fraud Cases (Jan. 2005); and GAO, GAO-18-115, Federal Criminal Restitution:
Factors to Consider for a Potential Expansion of Federal Courts’ Authority to Order Restitution (Oct. 2017).
31
     GAO, GAO-18-203, Federal Criminal Restitution: Most Debt Is Outstanding and Oversight of Collections Could Be
Improved (Feb. 2018).
32
     IRM 5.1.5.18 (Nov. 4, 2019).
33
     The IRS will notify the DOJ FLU that the defendant can increase their established payment plan with the courts.
34
   We did not evaluate the actions taken in 18 cases for which the IRS assessed the restitution and was fully paid by
the defendant. In our analysis, we compared the amounts collected with the restitution ordered and did not consider
interest and penalties that the IRS assessed in addition to the restitution ordered.
                                                                                                                 Page 7
                              Criminal Restitution Assessment Procedures Need Improvement


assigned cases to the Collection Field function. However, most of the restitution due was
determined to be currently not collectible. Specifically, we found that:
       •   In 43 of the 50 cases, the IRS filed Notices of Federal Tax Lien. ****1**** the seven
           remaining cases for which Notices of Federal Tax Lien were not filed, ********1********
           ************************1************************************* In the other five instances,
           we did not find evidence that the IRS filed a Notice of Federal Tax Lien.
       •   In 38 of the 50 cases, we found evidence the IRS had taken steps to levy the defendant’s
           property. In three of the remaining 12 cases, there were other non-Federal victims
           awarded restitution. By law, all other (non-Federal) victims must receive full restitution
           before the Federal Government receives restitution.
       •   In 33 cases, restitution of more than $21.7 million (54 percent) was determined to be
           currently not collectible. In 27 of the 33 cases, the IRS determined that the collection of
           the liability would create a hardship. The remaining $18.2 million is in the collection
           stream or in bankruptcy status.
According to SB/SE Division Collection function personnel, limited resources have affected their
ability to take necessary collection actions on RBAs. We recently reported that the number of
revenue officers has declined from 2,809 in FY 2014 to 2,168 in FY 2018 (23 percent). 35 RBAs are
assigned to Civil Enforcement Advice and Support Operations and it is required to issue “Other
Investigations” to the Collection field to request investigations on probation and restitution
cases when it becomes aware that an RBA was made. 36 Collection function personnel added
there are areas of the country that do not have revenue officers available to conduct Other
Investigations. Subsequently, the Other Investigations are closed without any collection action
taken by the IRS. RBA accounts are initially graded as higher-grade cases, and most Collection
Field function managers will only assign the Other Investigations to a higher-grade revenue
officer. 37


Steps Need to Be Taken to Ensure That Restitution Is More Timely Assessed
The CY 2010 law change required the IRS to develop policies and procedures for the assessment
and collection of the restitution ordered by the courts. This included creating procedures for
the assessment of restitution, the processing of the restitution payments, and the linking of RBA
accounts to civil tax accounts so restitution payments can also be credited to the underlying tax
liability. 38 The IRS developed new Internal Revenue Manual (IRM) sections specifically related to
the assessment of restitution and updated existing ones related to the processing of restitution


35
     TIGTA, Report No. 2019-30-063, Trends in Compliance Activities Through Fiscal Year 2018 (Sept. 2019).
36
  Other Investigations are issued to the Collection Field function to request investigations on probation and
restitution cases when it becomes aware that an RBA was made. According to the SB/SE Division, the Other
Investigation may be closed once the RBA has been accelerated and assigned to a revenue officer.
37
  Field Collection managers may change the grade level if the case meets certain qualifying factors in accordance
with the Resource Guide for Managers, IRM 1.4.50.10.1 (August 21, 2018).
38
  When restitution debts stem from the same underlying tax liability, the full amount can only be collected once.
Therefore, any payments that wholly or in part satisfy the RBA must also be applied against the underlying tax liability
for the same type of tax and tax periods, provided that the RBA relates to that underlying tax liability, IRM 5.1.5.19.2(1)
(October 6, 2017).
                                                                                                                  Page 8
                              Criminal Restitution Assessment Procedures Need Improvement


payments and collection of restitution. 39 The three primary IRS divisions involved in the process
created guidance and provided training to their employees as follows:
       •   CI developed procedures for the closing of the investigation and monitoring the
           conditions of probation or supervised release, including procedures for completing the
           forms needed for the assessment of restitution. It also developed specific procedures for
           the closing of SIRF investigations. It has provided training to the special agents and
           Conditions of Probation/Supervision (COP) coordinators on the law change, investigative
           closing procedures, the completion of forms sent to the civil functions, and recent court
           decisions relating to the assessment of restitution.
       •   The SB/SE Division issued memorandums containing interim guidance relating to the
           assessment and collection of restitution that it eventually incorporated into the IRM.
           It also developed desk procedures specifically for the assessment of restitution and
           provided training to the Technical Services staff on the assessment of restitution,
           including procedures for linking to related accounts and the impact of recent court
           decisions.
       •   The W&I Division provided training for the processing of restitution payments.
However, our audit did identify areas in which the IRS can take steps to improve the procedures
relating to the assessment of restitution.

CI did not always send the closing package to the SB/SE Division
According to the IRM, CI is required to close its case and notify the civil functions of the amount
of restitution ordered no later than 30 calendar days after final adjudication by a court. 40 CI
notifies the applicable functions within the SB/SE and W&I Divisions of the amount of restitution
ordered by completing Form 13308, Criminal Investigation Closing Report, and Form 14104,
Notification of Court Ordered Criminal Restitution Payable to the IRS, (hereafter we will refer to
these as “closing documents”) and attaching the Judgment and Commitment Order (J&C). 41 The
closing documents sent to the civil functions can also include the plea agreement, indictment,
and Special Agent Report.
We conducted testing to determine if the IRS properly assessed restitution when the courts
sentenced and ordered 3,435 defendants to pay just over $2.5 billion in restitution to the IRS for
tax-related crimes during FYs 2016 through 2019. 42 Our analysis of CIMIS revealed that 418 of
the 3,435 cases for which a total of $244 million in restitution was ordered were SIRF cases with



39
  The new IRM sections include IRM 4.8.6, Technical Services, Criminal Restitution and Restitution-Based Assessments
(August 5, 2015); IRM 25.26.1, Restitution, Criminal Restitution and Restitution-Based Assessments (March 24, 2014);
and IRM 5.19.23, Liability Collection, Restitution-Based Assessments Processing (June 6, 2014). The dates cited
indicate when the IRS initially transmitted the IRM sections. The IRS has subsequently revised IRM 4.8.6 and
IRM 5.19.23.
40
   The defendant has 14 calendar days in which to file an appeal after the sentencing hearing. CI will not send the
closing documents to the civil functions until the sentence is fully adjudicated by the courts.
41
     IRM 25.26.1.3.1 (March 24, 2014).
42
  We identified this information from CIMIS. This differs from the 3,479 investigations noted in the first section of the
report because we used only those investigations with a Taxpayer Identification Number. This allowed us to match
the information to Master File data obtained from TIGTA’s DCW.
                                                                                                                Page 9
                             Criminal Restitution Assessment Procedures Need Improvement


no IRS conditions of probation or supervised release. 43 The restitution ordered in these types of
cases was not assessable. We compared the remaining 3,017 cases, for which restitution of
nearly $2.3 billion was ordered, to Master File data obtained from the DCW. Our testing
determined that the IRS made restitution assessments in 1,958 cases where defendants were
ordered to pay nearly $1.3 billion in restitution. This left 1,059 cases for which the defendants
were ordered to pay nearly $1 billion in restitution that was not assessed. Figure 4 presents the
results of this testing to determine if restitution was assessed.
                 Figure 4: Analysis to Determine If the IRS Assessed Restitution

                         Restitution Assessment      Number of        Total Restitution Ordered
                                Category             Defendants

                     Restitution Assessed               1,958             $1,295,060,577
                     SIRF                                 418                $244,134,937
                     Not Assessed                       1,059                $979,749,303
                     Total                              3,435             $2,518,944,817

                  Source: Analysis of CIMIS and Individual Master File data.
We selected a statistical sample of 140 of the 1,059 unassessed restitution cases and reviewed
the associated Form 14104 to determine if CI indicated that the restitution was assessable.44
Our analysis identified 33 cases for which CI determined that restitution of more than $21.6
million was assessable. For the other 107 cases, among the more prevalent reasons the IRS did
not assess the restitution was that CI determined that the restitution was not assessable
(94 cases) or the case was currently under appeal (seven cases). 45 We provided information for
33 cases to the SB/SE Division, and it responded that:
     •   In 19 cases, the restitution of just over $9 million was not assessed because the Technical
         Services Unit indicated that it did not receive the closing documents from CI. In 12
         instances, CI acknowledged that the closing documents were never sent or were not sent
         timely. In seven instances, CI asserted that the documents were sent. The Technical
         Services Unit had to request the pertinent information from CI.
     •   In seven cases, restitution assessments of more than $10.2 million were delayed because
         of COVID-19. The Technical Services Unit eventually assessed the restitution in all seven
         cases by December 2020.


43
  We were able to identify these because CI issued closing guidelines to field offices for SIRF investigations (SIRF
Restitution Guidelines for CIMIS). This allowed us to identify SIRF investigations with no IRS conditions of probation
or supervised release.
44
   We used a stratified statistical sampling technique for this testing. We dividend the population into two strata:
Stratum 1 of 374 cases with restitution ordered of $295,138,281 were sentenced for a Title 26 violation. Stratum 2 of
685 cases with restitution owed of $684,611,022 were not sentenced for a Title 26 violation. We expected that
Stratum 1 would have a higher error rate. We used a 90 percent confidence level, a ±5 percent precision, and a
50 percent expected error rate for Stratum 1 and 10 percent expected error rate for Stratum 2.
45
  In the other six cases, we determined that the IRS either properly assessed the restitution or the restitution was not
assessable until the defendant’s release from prison and during the period of probation or supervision. Restitution
ordered solely as a condition of probation or supervised release is collectible only during the period of probation or
supervision. It is not collectible either before or after the term of probation or supervised release. United States v.
Westbrooks, 858 F. 3d 317, 328 (5th Cir. 2017).
                                                                                                               Page 10
                              Criminal Restitution Assessment Procedures Need Improvement


       •   In seven cases, restitution of almost $2.4 million was not assessable. This included
           *****1***** for which the restitution was ordered solely as a condition of supervised
           release or probation. In these instances, the Technical Services Unit indicated that it
           would assess the restitution when the defendant is released from prison.
When we projected the results to the population, we estimate that restitution of $69 million was
not assessed in 144 cases because CI did not send the closing documents or the documents
could not be located. 46 When forecast over five years, we estimate that a total of $345 million in
restitution was not assessed in 720 cases. 47
CI needs to develop procedures to ensure that closing documents are sent to the Technical
Services Unit. Without the closing documents, the SB/SE Division cannot make the restitution
assessment and the W&I Division would not be able to apply any restitution payments it
receives to the defendant’s restitution account. This could also delay any collection actions by
the SB/SE Division on the restitution owed to the IRS.

Restitution assessments were not made timely
CI is required to forward the closing packages to the civil functions within 30 calendar days of
final adjudication by a court. According to the IRM, once the Technical Services Unit receives
the closing documents from CI, it can take as long as 75 calendar days for it to assess the
restitution. 48 This includes 10 calendar days to review the closing documents provided by CI, 30
for the establishment of the RBA account on the Master File, and 35 days for the restitution
assessment to post to the RBA account. If the package sent by CI is incomplete or inaccurate, it
could add an additional 59 days to the process.
Our review of the processing of the 68 sample cases for which the IRS assessed the restitution
found that the IRS did not always make restitution assessments in a timely manner. 49 Our
analysis found that it took the IRS an average of 255 calendar days to assess the restitution once
the court filed the J&C. This occurred partly because it took CI at least 57 calendar days to
prepare the closing documents (only 28 of the 68 were transmitted within the 30 days). 50
Once CI prepared the closing documents, it took the Technical Services Unit an average of
198 calendar days to assess the restitution. Technical Services Unit personnel told us they face
barriers in their efforts to timely assess restitution, including receiving incomplete or late
packages from CI and the process of posting the actual assessments, which must pass through
other Campus functions to be established. They indicated that they established a process to
track restitution assessments to evaluate timeliness, but they agreed with the need to conduct


46
  We are 90 percent confident that the total number of cases for which CI did not forward the documents was
between 99 and 190 and the amount of restitution not assessed was between $31,922,171 and $158,572,286.
47
  See Appendix II. The five-year forecast is based on multiplying the base year by five and assumes, among other
considerations, that economic conditions and tax laws do not change.
48
     IRM Exhibit 4.8.6-1 (August 5, 2015).
49
  For this analysis, we reviewed the CIMIS data and court documents on the Public Access to Court Electronic Records
to identify cases for which the defendant filed an appeal of the court’s decision. We made the appropriate changes to
our determinations.
50
  Our analysis was based on the date the special agent in charge signed either the Form 13308 or Form 14104. We
could not determine when CI actually transmitted the documents to the SB/SE Division or when they were received.
This represents the earliest date CI could have transmitted the documents to the SB/SE Division.
                                                                                                           Page 11
                              Criminal Restitution Assessment Procedures Need Improvement


periodic reviews. Figure 5 contains a breakdown of the number of days it took to assess the
restitution.
             Figure 5: Analysis of Days to Assess Restitution for the 68 Sample Cases

                       Restitution Assessment Category            Expected Days    Average Days to
                                                                  to Complete 51      Complete
                From the Date of Final Adjudication by a Court         30                57
                Until the Date CI Forwarded the Closing Package
                to the Technical Services Unit
                From the Date CI Forwarded the Closing                 75               198
                Package Until the Date the Technical Services
                Unit Assessed Restitution
                Total Days From the Date the Court Filed the           105              255
                J&C Until the Date the Technical Services Unit
                Assessed Restitution

             Source: TIGTA Review of CI closing documents, U.S. District Court documents, and the Date of
             Assessment on the Master File.
The IRS needs to take steps to ensure that restitution assessments are made in a timely manner.
Specifically, CI should develop procedures to timely send closing documents to the Technical
Services Unit. The timely assessment of restitution can allow the SB/SE Division Collection
function to initiate collection actions sooner and allows the W&I Division to apply any restitution
payments received directly to the defendant’s assessed restitution. As our analysis has shown,
defendants pay a higher percentage of restitution when the IRS assesses the restitution.

Recommendation 1: The Chief, CI, should develop procedures to ensure that CI is timely
sending closing documents to the Technical Services Unit. This includes receiving
acknowledgement from the SB/SE Division that the documents were received.
           Management’s Response: The IRS agreed with this recommendation. CI has
           procedures in place to ensure that CI is timely sending closing documents to the
           Technical Services Unit to include receiving acknowledgement from the SB/SE Division
           that the documents were received. In the first quarter of FY 2021, CI, in coordination
           with the SB/SE Division, implemented a quarterly reconciliation process. The
           reconciliation process allows CI to identify cases that need to be sent to the SB/SE
           Division. The reconciliation process also identifies closing packages that are potentially
           over-aged and require resolution. As indicated on the Form 13308, the field office COP
           or criminal restitution coordinator receives acknowledgement from the Technical
           Services Unit or Field and Collection Advisory when closing packages are received.

Recommendation 2: The Commissioner, SB/SE Division, should review the existing process
controls to ensure that restitution assessments are made in a timely manner. This review could
be conducted when completing periodic reviews of the restitution program and addressing any
barriers to the timely assessment of restitution.
           Management’s Response: The IRS agreed with this recommendation and will conduct a
           program review to evaluate its work processes.


51
     Based on the criteria developed by the IRS.
                                                                                                     Page 12
                              Criminal Restitution Assessment Procedures Need Improvement


Interest and Penalties Were Sometimes Erroneously Assessed
In response to the Firearms Excise Tax Improvement Act, the IRS Office of Chief Counsel issued a
memorandum providing for the accrual of interest on RBAs made under Title 26. 52 Accordingly,
the IRS assessed interest on unpaid RBAs.
However, in October 2017, the U.S. Tax Court held, in Klein v. Commissioner, that the IRS may
not assess and collect interest and penalties on restitution ordered for a criminal conviction for
failure to pay tax. 53 The Tax Court concluded that, if the Government wanted to assess interest
and penalties, it was free to commence a civil examination. The Government did not appeal the
decision. Subsequently, the IRS Office of Chief Counsel issued a notice instructing IRS personnel
to abate the interest and penalties if contested by the defendant. The notice further stated that,
“Chief Counsel Attorneys should review any case in which interest is included in a module
containing an amount of restitution assessed under I.R.C. Section 6201(a)(4)(A) to determine
whether the interest is improperly accruing on the amount of restitution assessed.” 54 IRS Office
of Chief Counsel attorneys explained to us that the IRS may only assess the amount of
restitution ordered by the courts. The SB/SE Division makes the assessment based on the
composition of the tax loss ordered as restitution.
The notice did not require SB/SE Division personnel to remove interest and penalties incorrectly
assessed in response to the Klein decision. 55 It instructed them to remove the interest and
penalties when challenged by the defendant, thereby placing the burden on the defendant to
initiate the removal of any interest and penalties incorrectly assessed. SB/SE Division personnel
told us that they have taken a more proactive approach and efforts to remove the incorrect
interest and penalties on RBA accounts are currently in process. Specifically, the SB/SE Division
established a cross-functional team in CY 2018 after the Klein decision to address the
application of interest and penalties on the RBA accounts. SB/SE Division personnel told us that,
as of December 2020, they have removed the Failure to Pay Penalties from the RBA accounts
and are continuing to perform analysis to remove the assessed interest. However, their efforts
have been temporarily delayed by COVID-19 work.
We analyzed Individual Master File information and determined the amount of interest and
penalties incorrectly assessed to RBA accounts that were not removed as of March 2020. We
analyzed CIMIS and Individual Master File data for 3,435 cases in which defendants were
ordered to pay just over $2.5 billion in restitution to the IRS for tax-related crimes during
FYs 2016 through 2019. Our analysis identified 676 cases for which it appears that the IRS may
have incorrectly assessed $66.7 million in interest and penalties that have not been removed. 56


52
  IRS, Office of Chief Counsel Notice CC-2011-018, The Assessment and Collection of Criminal Restitution
(Aug. 26, 2011). See Question No. 12 on page 6.
53
     Klein v. Commissioner, 149 T.C. No. 15 (2017).
54
   IRS, Office of Chief Counsel Notice CC-2019-004, Interest and Penalties on Restitution-Based Assessments
(June 27, 2019).
55
  The IRS Office of Chief Counsel explained that this notice was written in order for Chief Counsel attorneys to advise
the IRS if they had a question in a particular case after the Klein decision.
56
   These could include instances where the IRS properly assessed interest and penalties to the account used for the
RBA. This same account code is also used to identify assessments against an individual taxpayer on a joint module
and is generated by certain triggering events including when an innocent spouse files a request for innocent spouse
relief during an open examination of the joint civil tax account. In these instances, the interest and penalties cannot
                                                                                                               Page 13
                               Criminal Restitution Assessment Procedures Need Improvement


This includes several instances in which defendants fully paid the restitution ordered but were
assessed additional interest and penalties. In some cases, the defendants made additional
payments that exceeded the restitution ordered. Our analysis found that only 31 of the 676
cases may have contained incorrectly assessed penalties, which lends support for the SB/SE
Division’s statements that it was taking steps to remove the interest and penalties from RBA
accounts. It is important that the SB/SE Division continue its efforts to remove the interest and
penalties that were incorrectly assessed to RBA accounts to ensure that the IRS is not
overcompensated for the restitution owed.
Technical Services personnel explained to us that they have established a process to prevent the
accrual and assessment of interest and penalties when they establish RBA accounts. We
evaluated the effectiveness of these procedures by analyzing Individual Master File data for
cases for which the Technical Services Unit assessed restitution for a judgmental sample of
19 cases in which defendants were sentenced during CY 2019.57 Our analysis found that the
new procedures were effective in preventing the accrual of interest and penalties on RBA
accounts established after the Klein decision. For 16 defendants, the IRS took steps to prevent
the accrual and assessment of interest and penalties, and for the remaining three defendants,
the interest and penalties assessed were appropriate and did not exceed the amount of
restitution ordered.

Recommendation 3: The Commissioner, SB/SE Division, should establish monitoring
procedures to provide reasonable assurance that all interest and penalties incorrectly assessed
to RBA accounts are removed.
           Management’s Response: The IRS agreed with this recommendation. The SB/SE
           Division had taken a proactive approach to abate interest and penalties asserted on RBA
           accounts before the decision of the United States Tax Court in Klein v. Commissioner,
           149 T.C. No. 15 (2017). As the report notes, the IRS abated Failure to Pay Penalties from
           RBA accounts as of December 2020. Collection and the Office of Service-wide Interest
           will continue to develop and implement a systemic process to abate interest that was
           applied to RBA accounts prior to the Klein decision. Accounts that cannot be
           systemically corrected will be referred to the Examination function.


Limited Resources Have Diminished the Capacity to Monitor Compliance With
the Conditions of Probation or Supervised Release
Public confidence in the tax system requires that the IRS exercise due diligence to ensure
taxpayer compliance with any tax-related conditions of probation or supervised release imposed
by the courts. To ensure that any noncompliance with IRS-related conditions of probation or
supervised release is detected and appropriate parties are timely notified, coordination between
the SB/SE Division, CI, and the Department of Justice is required. 58




be assessed to the civil tax account and must be assessed to the RBA account. The account is also used when a
spouse files for bankruptcy and the non-bankrupt spouse has defaulted.
57
     We identified these 19 cases from the CIMIS data.
58
     IRM 5.1.5.14 (Nov. 4, 2019).
                                                                                                          Page 14
                               Criminal Restitution Assessment Procedures Need Improvement


According to the IRS, the revocation of probation or supervised release can be a powerful tool in
motivating a defendant to pay restitution. Because periods of probation or supervised release
are often fairly short, difficulties may arise in timely seeking revocation based on the failure to
make restitution payments. Thus, compliance should be closely monitored and noncompliance
reported immediately upon discovery. 59
The courts may impose a variety of conditions of probation or supervised release. Some of the
more common include paying restitution to the IRS, paying or making arrangements to pay past
due taxes, filing past due and current tax returns, and cooperating with the IRS in a collection
investigation or examination. The lack of cooperation with the IRS can include:
       •   Failing to file returns or filing frivolous returns.
       •   Failure to schedule or appear at scheduled appointments.
       •   Failing to provide complete records in a timely manner.
       •   Putting assets beyond the reach of the IRS.
       •   Any actions causing unwarranted delays in resolving tax compliance issues.
The SB/SE Division’s Examination and Collection functions are responsible for monitoring
defendants’ compliance with the conditions of probation or supervised release. The SB/SE
Division is required to provide a 180-day (calendar days) memorandum to notify CI that a
defendant is not in compliance six months before the end of the probation or supervised
release. 60 The IRM instructs the SB/SE Division not to wait until six months before the end of the
probationary period to provide the 180-day memorandum but to provide it as soon as
noncompliance is identified.
It is important for the SB/SE Division to timely notify CI of any noncompliance because it is the
responsibility of the Special Agent in Charge to take whatever steps are necessary to initiate
proper legal action in any instance in which a defendant failed to comply with the conditions of
probation or supervised release. During the audit, we contacted three Special Agents in Charge
and each indicated that, when notified of noncompliance, they would contact the USAO, and the
USAO would ultimately decide whether the revocation of probation would be pursued. The
courts then decide if probation or supervised release should be revoked.61
A total of 67 of the 110 sample cases we reviewed had IRS conditions of probation or supervised
release that the IRS needed to monitor. 62 We reviewed each of those cases to determine if the
defendant was compliant with the terms of probation by focusing on the payment of restitution
and whether CI communicated with the SB/SE Division, W&I Division, or a U.S. Probation Officer




59
     IRM 5.1.5.24 (Dec. 16, 2014).
60
  IRM 5.1.5.20.1 (October 6, 2017). This requirement was changed in October 2017 to limit the circumstances when
the memorandum was required. Prior to that, the memorandum was required in all cases with IRS conditions of
probation or supervised release.
61
     IRM 9.5.11.8 (Nov. 1, 2011).
62
   We did not include 30 cases that did not appear to have IRS conditions of probation or supervised release, and
most of those were SIRF cases. We also did not include 13 cases for which the defendant was still on probation at the
time of our review, CI did not send the closing documents to the civil function, or the defendant had died or was
diagnosed with terminal cancer during the probationary period.
                                                                                                           Page 15
                               Criminal Restitution Assessment Procedures Need Improvement


on the status of compliance with the conditions of probation or supervised release. 63 Our review
found:
       •   30 cases for which it appeared the defendant complied with the conditions of probation
           or supervised release, which included making restitution payments according to a
           court-approved payment plan. In those cases, the 180-day memorandum would not
           have been required.
       •   20 cases for which it appeared that the defendant did not comply with the terms of
           probation. *************1*********** did we find a 180-day memorandum prepared by
           the SB/SE Division. In five cases (including the case with the 180-day memorandum),
           there was evidence that CI communicated with the SB/SE Division on the probation
           status (such as restitution payment histories). 64
       •   17 cases for which we could not make a definitive conclusion on the defendant’s
           compliance with the conditions of probation or supervised release. This included cases
           for which the courts ordered the defendant to make periodic restitution payments based
           on a percentage of the defendant’s gross income. *************1************ did we find
           that a 180-day memorandum was prepared.
Figure 6 summarizes the results of our analysis of compliance with the conditions of probation
or supervised release:
            Figure 6: Compliance With Conditions of Probation or Supervised Release

      TIGTA Conclusion on                             180-Day                  Other
                                                                                                  Communication
        Compliance With            Cases           Memorandum              Communication
                                                                                                 With U.S. Probation
     Conditions of Probation      Reviewed       Prepared by SB/SE          With IRS Civil
                                                                                                       Officer
     or Supervised Release                            Division               Functions

     Complied With the               30                  *1*                       5                       *1*
     Terms of Probation
     Did Not Comply With             20                  *1*                       5                       *1*
     the Terms of Probation
     Could Not Make a                17                  *1*                     *1*                       *1*
     Definitive Conclusion

Source: TIGTA review of information provided by CI and Individual Master File data.
Because the 180-day memorandums are rarely prepared even when it appears a defendant is
not in compliance, CI cannot assume a defendant is compliant when one is not prepared.
According to SB/SE Division Collection function personnel, the 180-day memorandums were
seldom prepared because they do not have the resources to timely monitor cases involving the
payment of restitution and compliance with other conditions of probation or supervised release.
SB/SE Division Collection personnel told us that a team of 10 employees within Collection’s Civil
Enforcement Advice and Support Operations is solely responsible for monitoring the conditions
of probation or supervised release and payment of restitution. As of September 2020, the
average caseload for each of the 10 employees was 650 cases, which created a backlog in their

63
  We requested from CI all 180-day memorandums prepared by the SB/SE Division, all communication with the
SB/SE Division regarding compliance with the conditions of probation or supervised release, and communication with
a U.S. Probation Officer regarding compliance.
64
     The W&I Division processes restitution payments, and it prepared the restitution payment histories.
                                                                                                                 Page 16
                             Criminal Restitution Assessment Procedures Need Improvement


ability to monitor the conditions of probation or supervised release. 65 SB/SE Division Collection
function personnel indicated that their biggest delay was processing the 180-day memorandum
in cases for which the taxpayer was not compliant with the terms of probation. CI indicated that
limited resources have also affected its ability to monitor the conditions of probation or
supervised release, primarily due to the increase of administrative tasks placed on personnel
involved in the program, such as COP coordinators.
The inability to properly monitor the conditions of probation or supervised release could be a
contributing factor for why U.S. courts rarely revoked the probation or supervised release for
defendants sentenced for tax-related crimes. The courts revoked probation in only 12 of the
over 9,000 CI criminal investigations for which a defendant was sentenced for tax-related crimes
during FYs 2016 through 2019. Courts will generally not revoke probation unless the failure to
comply was willful. Because this can be hard to prove, this remedy is not widely invoked. One
Special Agent in Charge we contacted also indicated that the resources of the USAOs are also
limited, and *******************************2*****************************
Because of the current resource issue, we are not making a formal recommendation. However,
the IRS should be mindful of any alternatives to monitoring compliance with the conditions of
probation or supervised release. For instance, one Special Agent in Charge we contacted during
our audit indicated that, instead of CI making ad hoc requests to the W&I Division for restitution
payment histories, a recurring automated report could be prepared periodically and distributed
to the field offices allowing them to identify defendants that have not made restitution
payments.


Internal Controls Related to the New Assessment Procedures Did Not Prevent
the Issuance of Erroneous Refunds
Our review of a sample of RBA accounts that contained refunds determined that internal
controls could be improved to prevent the IRS from issuing erroneous refunds in the accounting
for restitution payments. During our previous audit, we concluded that the IRS did not have
effective internal controls to prevent issuing erroneous refunds when it receives restitution
payments and a tax assessment was not made to the defendant’s tax account. We indicated
that the law change to allow the IRS the ability to assess an ordered amount of restitution as if it
was a tax would provide for the opportunity for a better accounting of restitution payments, but
effective internal controls were still needed to prevent the issuance of erroneous refunds.66
We reviewed Master File information and identified 204 refunds totaling more than $1.7 million
issued to defendants that the courts ordered to pay restitution during FYs 2016 through 2019. 67
We reviewed all 55 refunds that exceeded $5,000 that the IRS issued to 31 defendants to
determine if they were appropriate.68 These funds totaled more than $1.5 million. Most of the

65
  Specifically, 2,175 civil tax modules were being monitored by 10 employees for compliance with the terms of
probation and eight advisors were also responsible for monitoring 4,900 restitution modules for payment of
restitution. A module is part of a taxpayer’s account that reflects tax data for one tax class and one tax period.
66
  TIGTA, Report No. 2012-30-012, Procedures Are Needed to Improve the Accounting and Monitoring of Restitution
Payments to Prevent Erroneous Refunds (Jan. 2012).
67
     These refunds were issued both manually and systemically.
68
  For this testing, we reviewed Master File transactions and court documents and considered input from IRS
personnel.
                                                                                                               Page 17
                              Criminal Restitution Assessment Procedures Need Improvement


refunds we analyzed were correct, but we identified ****************1****************** that were
erroneously issued back to defendants, indicating that internal controls could be improved. *1*
****************************************************1************************************************
****************************************************1************************************************
***********1************. According to the SB/SE Division, it cannot try to recapture these
erroneous refunds because they exceed the Erroneous Refund Statute Expiration Date of two
years. 69
There should not be refunds emanating from defendant restitution accounts because they are
generally used by the IRS to assess restitution and process payments and related credits.
However, the transfer of credits between a defendant’s tax and restitution accounts can
sometimes lead to credit balances on restitution accounts and the issuance of refunds. The
Standards for Internal Control in the Federal Government requires that all transactions be
authorized, clearly documented, and readily available for examination. 70 Control activities such
as accurate and timely recording of transactions and events help ensure the completeness and
accuracy of refunds.
SB/SE Division Collection function personnel indicated that the RBA program does have a
process in place whereby each account showing a zero or credit balance is reviewed for
accuracy. However, **************1************** were issued after this control was first
developed in June 2014. 71 The SB/SE Division needs to ensure that this control is working as
intended and is preventing the issuance of erroneous refunds.


The Criminal Investigation Management Information System Contained
Numerous Errors Related to Restitution and the Monitoring of Probation
During our review, we identified numerous errors in the CIMIS data relating to defendants who
were sentenced for tax-related crimes and ordered to pay restitution. For the 110 sample cases,
we compared the information in CIMIS to court documents, such as the J&C, and prison release
information on the U.S. Bureau of Prisons website. A total of 91 (82.7 percent) of the
110 sample cases contained one or more errors in the following data fields.
       •   Conditional Expiration Probation Date – 32 (29 percent) with inaccurate dates. We
           believe this could have occurred because the field was not updated when the defendant
           was released from prison. This information is used to identify defendants with pending
           expiration of probation or supervised release. After the expiration of probation or
           supervised release, the courts cannot revoke or modify the terms of supervision.
       •   Conditional Probation Results – 56 cases (51 percent) for which the field office did not
           input the results. According to CI Field Office Procedures, this field should be completed
           once the probation or supervised release expires to indicate whether the terms of
           probation were met. This field is important because CI management can use the
           information to determine the number of defendants that had met the terms of
           probation.


69
     IRM 21.4.5.4.1 (October 1, 2006).
70
     GAO, GAO-14-7046, Standards for Internal Control in the Federal Government (Sept. 2014).
71
     IRM 5.19.23.6 (June 6, 2014). The IRS has since revised that IRM section.
                                                                                                Page 18
                              Criminal Restitution Assessment Procedures Need Improvement


       •   Months to Serve or Months’ Probation – 16 cases (14.6 percent) for which either the
           months to serve or months of probation was incorrect. It is important this information
           be accurately input and updated (if courts amend the J&C) because it can be used to
           help determine when the defendant’s probation expires.
       •   Amount of Fines – 25 cases (22.7 percent) for which the amounts were incorrect. This
           occurred in most instances because the amount of assessment ordered by the courts was
           entered instead of the fine. According to CI Field Office Procedures, this field should
           contain fines only, not assessments. 72
In addition, as we indicated in a previous section of the report, we identified 19 instances in
which the closing package was not sent to the Technical Services Unit so the restitution could be
assessed. In 15 of the 19 instances, the CIMIS status field indicated that the field office had sent
the closing package to the SB/SE Division. 73 This could lead CI personnel reviewing information
on CIMIS to mistakenly believe that the closing package had already been sent to the civil
functions for processing.
The Standards for Internal Control in the Federal Government requires that all transactions be
authorized, clearly documented, and readily available for examination. Control activities, such as
accurate and timely recording of transactions and events, help ensure the completeness and
accuracy of all transactions. CI’s special agents are responsible for entering the CIMIS
information related to defendants sentenced for tax-related crimes and ordered to pay
restitution. For instance, they are responsible for computing the Conditional Expiration
Probation Date. The COP coordinators in each CI field office are responsible for reviewing the
applicable information entered on CIMIS. During the audit, we contacted COP coordinators
from three CI field offices. Each of the coordinators indicated that they compare the information
entered on CIMIS to court documents.
In addition, CI indicated that it has several quality review mechanisms in place to ensure the
accuracy of CIMIS information. This includes administrative officers within each field office
conducting CIMIS accuracy reviews on 25 percent of open investigations every year. Supervisory
special agents also review the accuracy of CIMIS data during their workload reviews with each
special agent. 74 In addition, CI’s Office of Review and Program Evaluation reviews the accuracy
of CIMIS data during its evaluation of each field office. 75 CI also indicated that the Office of
Financial Crimes recently developed a monthly process to ensure that criminal restitution and
the conditional probation results are entered correctly in CIMIS.
However, these quality review measures did not ensure the accuracy of the CIMIS information
related to restitution and the conditions of probation or supervised release. It is important that
the information in CIMIS related to the monitoring of the conditions of probation or supervised
release be accurately input and updated timely. An effective management information system is
also necessary for measuring program results and making management decisions. Without

72
     Field Office Procedures – Investigation Closing and Conditions of Probation (Nov. 21, 2016).
73
   Each of the 15 investigations contained the status in CIMIS, “Form 13308 CI Closing Report Forwarded to Small
Business/Self-Employed Division.” According to the CI Field Offices Procedures, if restitution is ordered, the field
office is required to send the Form 14104 along with the Form 13308.
74
     According to CI, supervisory special agents conduct three workload reviews per year.
75
  According to CI, a Review and Program Evaluation of each field office is conducted once every two years. These
evaluations assess field office operations and managerial effectiveness.
                                                                                                               Page 19
                      Criminal Restitution Assessment Procedures Need Improvement


accurate information, CI personnel may be unable to take timely actions related to the
defendants’ probation, and CI management may be relying on incorrect data for making
management decisions.

Recommendation 4: The Chief, CI, should ensure that reviews of CIMIS information related to
restitution and the monitoring of the conditions of probation or supervised release are included
in existing quality review mechanisms.
       Management’s Response: The IRS agreed with this recommendation. CI has several
       mechanisms in place to ensure that reviews of CIMIS information related to restitution
       and the monitoring of the conditions of probation or supervised release are included in
       existing quality reviews. Specifically, the CI Field Office administrative officers perform
       administrative reviews, which includes CIMIS accuracy reviews of each field office group.
       Supervisory special agents also perform CIMIS accuracy reviews at least once per year
       during workload reviews conducted with special agents. Additionally, CIMIS accuracy
       reviews are required for all cases at case closing. CI’s Office of Review and Program
       Evaluation is ultimately responsible for ensuring that CI is compliant with established
       policies including CIMIS entries and the accuracy of those entries during field office
       reviews. CI Headquarters has also developed a monthly process that samples conditions
       of probation or supervised release and criminal restitution cases to ensure that
       conditions of probation or supervised release results are entered correctly and criminal
       restitution amounts are reported accurately.




                                                                                          Page 20
                           Criminal Restitution Assessment Procedures Need Improvement


                                                                                                  Appendix I
                     Detailed Objective, Scope, and Methodology
Our overall objective was to determine if defendants convicted of tax-related crimes are held
responsible for the payments of the taxes associated with the offenses they committed. To
accomplish our objective, we:
    •    Determined if the IRS has established internal controls, procedures, and processes to
         effectively monitor and track compliance with conditions of probation or supervised
         release and restitution. We reviewed current IRMs, I.R.C. sections, and other guidance
         developed by the IRS. We interviewed SB/SE Division personnel responsible for
         assessing restitution and W&I Division personnel responsible for processing restitution
         payments. We also corresponded with CI management and other personnel from
         three field offices on the process for monitoring the conditions of probation or
         supervised release.
    •    Evaluated the effectiveness of the IRS’s procedures for assessing criminal restitution that
         defendants were ordered to pay as part of their sentences for tax-related crimes. We
         determined if the IRS properly assessed restitution when the courts sentenced and
         ordered 3,435 defendants to pay just over $2.5 billion in restitution to the IRS for
         tax-related crimes during FYs 2016 through 2019. From 1,059 cases for which we could
         not determine if the IRS assessed the restitution, we selected a statistical sample of
         140 cases to conduct additional testing and determined if the IRS should have assessed
         the restitution. 1 We developed all sampling plans and projections with the assistance of
         the TIGTA’s contracted statistician.
    •    Determined if defendants fully complied with the conditional terms of probation as part
         of their sentences and if the IRS took appropriate actions if they did not comply. From
         the CIMIS, we judgmentally selected a sample of 110 criminal investigations for which
         courts ordered the payment of over $300 million in restitution to the IRS during FYs 2016
         through 2019 from a population 3,479 investigations for which defendants were ordered
         to pay nearly $2.7 billion in restitution to the IRS. 2 We analyzed information provided by
         CI field offices, court documents from the Public Access to Court Electronic Records,
         Master File data using both the Integrated Data Retrieval System and the TIGTA DCW,
         and the U.S. Bureau of Prisons website.
    •    Determined if interest and penalties were properly assessed. From the same judgmental
         sample of 110 cases previously noted, we analyzed Master File data using both the


1
 We used a stratified statistical sampling technique for this testing. We dividend the population into two strata:
Stratum 1 of 374 cases with restitution ordered of $295,138,281 were sentenced for a Title 26 violation. Stratum 2 of
685 cases with restitution owed of $684,611,022 were not sentenced for a Title 26 violation. We expected that
Stratum 1 would have a higher error rate. We used a 90 percent confidence level, a ±5 percent precision, and a
50 percent expected error rate for Stratum 1 and 10 percent expected error rate for Stratum 2.
2
 For our analysis of CIMIS, we judgmentally selected investigations if the Conditional Probation Expiration Date
ended before October 1, 2019, and the defendant had a significant amount of restitution ordered. We also selected
cases for which the restitution ordered included an FBAR penalty. We also included SIRF investigations in our sample.
A judgmental sample is a nonprobability sample, the results of which cannot be used to project to the population.
                                                                                                             Page 21
                      Criminal Restitution Assessment Procedures Need Improvement


       Integrated Data Retrieval System and the TIGTA DCW. For additional analysis, we
       Identified 3,435 cases, from CIMIS data provided by CI, for which the defendant was
       sentenced during FYs 2016 through 2019, restitution was ordered, and a Taxpayer
       Identification Number was present. We matched this information to Master File data
       from TIGTA’s DCW and conducted analysis to identify cases for which interest and
       penalties were assessed, including fraud penalties.
   •   Identified 204 refunds totaling $1,741,662 from Master File information issued to
       defendants who the courts ordered to pay restitution during FYs 2016 through 2019. We
       reviewed all 55 refunds that exceeded $5,000 issued to 31 defendants to determine if
       they were appropriate. These funds totaled $1,553,324.

Performance of This Review
This review was performed with information obtained from CI, the SB/SE Division, and the W&I
Division during the period of October 2019 through January 2021. We were limited during this
audit to conducting conference calls and requesting information via electronic mail because the
COVID-19 pandemic curtailed our plans to make visitations to audit sites. We believe we were
still able to conduct this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objective. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objective.
Major contributors to the report were Matthew A. Weir, Assistant Inspector General for Audit
(Compliance and Enforcement Operations); Christina Dreyer, Director; Timothy Greiner, Audit
Manager; and Jeff K. Jones, Lead Auditor.

Validity and Reliability of Data From Computer-Based Systems
During this review, we relied on information obtained from CIMIS related to the restitution
ordered and the monitoring of the conditions of probation or supervised release. As
documented in the audit report, we identified numerous errors with the information obtained.
For instance, during the audit, we determined that we could not rely on the accuracy of the
Conditional Probation Expiration Date. However, we found that information such as the
sentencing date and restitution amount were largely accurate. Therefore, for purposes of this
audit, we relied on the CIMIS information we believed to be accurate. We also used Master File
data obtained from the TIGTA DCW. We compared the amount of restitution assessed on the
DCW to the amount of restitution assessed on the Integrated Data Retrieval System for 10 cases
and determined that the information was sufficiently reliable for purposes of this audit.

Internal Controls Methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance. We determined that the
following internal controls were relevant to our audit objective: controls related to the
assessment of restitution, the processing of restitution payments, and the monitoring of the
conditions of probation or supervised release. We evaluated these controls by interviewing and
                                                                                        Page 22
                     Criminal Restitution Assessment Procedures Need Improvement


corresponding with key personnel and analyzing criminal investigation documents provided by
CI, restitution payment information provided by the W&I Division, court documents obtained
from the Public Access to Court Electronic Records, and Master File data.




                                                                                     Page 23
                            Criminal Restitution Assessment Procedures Need Improvement


                                                                                                    Appendix II
                                           Outcome Measures
This appendix presents detailed information on the measurable impact that our recommended
corrective actions will have on tax administration. These benefits will be incorporated into our
Semiannual Report to Congress.

Type and Value of Outcome Measure:
    •    Increased Revenue – Potential; more than $68.9 million related to 144 cases in which CI
         did not forward the closing documents to the Technical Services Unit for restitution
         assessment. When forecast over five years, this is more than $344.8 million for 720 cases
         (see Recommendation 1). 1

Methodology Used to Measure the Reported Benefit:
We conducted tests to determine if the IRS properly assessed restitution when the courts
sentenced and ordered 3,435 defendants to pay just over $2.5 billion in restitution to the IRS for
tax-related crimes during FYs 2016 through 2019. 2 Our analysis of the CIMIS revealed that
418 of the 3,435 cases for which $244 million in restitution was ordered were SIRF cases with no
IRS conditions of probation or supervised release. 3 The restitution ordered in these types of
cases was not assessable. We compared the remaining 3,017 cases for which restitution of
nearly $2.3 billion was ordered to Master File data obtained from the DCW. Our testing
determined that the IRS made restitution assessments in 1,958 cases in which defendants were
ordered to pay nearly $1.3 billion in restitution. This left 1,059 cases for which the defendants
were ordered to pay nearly $1 billion in restitution and for which the restitution was not
assessed.
We selected a stratified statistical sample of 140 of 1,059 cases and reviewed the Form 14104 to
determine if CI indicated that the restitution was assessable. We divided the population of
1,059 cases into two strata: Stratum 1 of 374 cases with restitution ordered of $295,138,281
were sentenced for a Title 26 violation. Stratum 2 of 685 cases with restitution owed of
$684,611,022 were not sentenced for a Title 26 violation. We expected that Stratum 1 would
have a higher error rate. We used a 90 percent confidence level, a ±5 percent precision, and a
50 percent expected error rate for Stratum 1 and 10 percent expected error rate for Stratum 2.
Figure 1 details the population and sample data for each stratum.




1
 The five-year forecast is based on multiplying the base year by five and assumes, among other considerations, that
economic conditions and tax laws do not change.
2
  We identified this information from CIMIS. This differs from the 3,479 noted in the first section of the report starting
on page 1 because we only used those defendants with a TIN. This allowed us to match the information to Master
File data obtained from TIGTA’s DCW.
3
 We were able to identify these because CI issued closing guidelines to field offices for SIRF investigations (SIRF
Restitution Guidelines for CIMIS). This allowed us to identify SIRF investigations with no IRS conditions of probation
or supervised release.
                                                                                                                Page 24
                              Criminal Restitution Assessment Procedures Need Improvement


                                 Figure 1: Population and Sample Data for
                                   Cases (Restitution Was Not Assessed)

                Categories               Stratum 1 –        Stratum 2 – Cases                Total
                                        Cases With Title     Without Title 26
                                         26 Violation            Violation

        Population Accounts                  374                   685                       1,059
        Population Percentage               35.3%                 64.7%                      100%
        Population Restitution Total    $295,138,281          $684,611,022              $979,749,303
        Sample Cases                          49                    91                        140
        Sample Restitution Total         $21,740,612          $111,201,454              $132,942,066

    Source: Analysis of CIMIS and Individual Master File data.
We found that, in 19 cases, restitution of $9,049,945 was not assessed because the Technical
Services Unit indicated that it did not receive the closing documents from CI. In 12 instances, CI
acknowledged that the closing documents were never sent or were not sent timely. In
seven instances, CI asserted that the documents were sent. The SB/SE Division had to request
the pertinent information from CI. For these 19 cases, TIGTA’s statistician calculated the error
rate for each stratum by multiplying the stratum number of errors by the stratum sample cases.
The computed error rates were 28.57 percent (14/49) for Stratum 1 and 5.5 percent (5/91) for
Stratum 2. TIGTA’s statistician multiplied the error rates to the stratum population cases to
determine the projected number of cases for which CI did not forward the closing documents to
the SB/SE Division—a total of 107 cases (28.57 percent x 374) for Stratum 1 and 38 cases
(5.5 percent x 685) for Stratum 2.
TIGTA’s statistician projected that CI did not forward the closing documents to the Technical
Services Unit for restitution assessment for 144 cases (720 cases when forecast over the next five
years). 4 We are 90 percent confident that the total number of cases for which CI did not forward
the documents was between 99 and 190. For the 19 cases, a total amount of $9,050,945 in
restitution was not assessed because CI did not forward the documents to the Technical Services
Unit. TIGTA’s statistician projected this to the population, and we estimate that the SB/SE
Division did not assess restitution of $68,963,402 ($344,817,010 forecast over the next five years)
because CI did not forward the documentation. We are 90 percent confident that the amount of
restitution not assessed is between $31,922,171 and $158,572,286.

Type and Value of Outcome Measure:
    •     Taxpayer Burden – Potential; more than $66.6 million for 676 defendants for whom the
          IRS assessed interest and penalties in addition to the restitution ordered (see
          Recommendation 3).




4
  The Stratum 1 projected number of cases was 106.85711 and the Stratum 2 projected number of cases was
37.637325. When added, the total number of projected cases is 144.49443. This would account for the difference
from the totals in the prior sentence.
                                                                                                        Page 25
                      Criminal Restitution Assessment Procedures Need Improvement


Methodology Used to Measure the Reported Benefit:
We identified 3,435 cases from CIMIS data provided by CI for which the defendant was
sentenced during FYs 2016 through 2019 and ordered to pay restitution and for which a
Taxpayer Identification Number was present. We matched this information to Master File data
from TIGTA’s DCW and conducted an analysis to identify cases for which interest and penalties
was assessed.
Our analysis identified 676 cases for which it appears that the IRS assessed $66,670,106 in
interest and penalties in addition to the restitution ordered. This includes several instances in
which defendants fully paid the restitution but were assessed interest and penalties and, in some
cases, made additional payments for which they were not liable.




                                                                                         Page 26
                              Criminal Restitution Assessment Procedures Need Improvement


                                                                                            Appendix III
    Summary of IRS Responsibilities for the Assessment and Collection
    of Restitution and the Monitoring of the Conditions of Probation or
                            Supervised Release
Criminal Investigation
CI special agents should devote the same attention and energy to the sentencing process as to
the investigation. The special agent should emphasize to the Assistant United States Attorney
responsible for the prosecution, and to the U.S. Probation Officer who may be responsible for
preparing a presentencing report, the importance that CI attaches to the sentence imposed and
should point out the effect that the sentence may have on the IRS’s compliance efforts among
similarly situated individuals. 1 CI’s responsibilities include:
       •   Contacting the U.S. Probation Officer in the presentencing and sentencing stages of the
           case when appropriate.
       •   Timely inputting and reversing Transaction Code 910 that establishes that the tax
           account has special conditions of probation or supervised release. CI will not release the
           Transaction Code 910 until the special conditions of probation or supervised release
           have been satisfied, the probationary period has expired, or the conditions are otherwise
           terminated by the court.
       •   Obtaining the J&C and plea agreement, if any, at the conclusion of every sentencing.
       •   Determining the applicability of I.R.C. § 6201(a)(4) on whether the restitution can be
           assessed.
       •   Notifying the IRS civil functions of the amount of restitution ordered by completing
           Form 13308 and Form 14104.
       •   Monitoring the defendant’s incarceration status and making any necessary changes to
           the conditional probation expiration date in CIMIS.
       •   Reporting to the U.S. Probation Officer and the prosecutor the defendant’s compliance
           or noncompliance with IRS-related conditions of probation or supervised release.
       •   Sharing joint responsibility with the SB/SE Division in ensuring compliance with court
           orders.
SB/SE Division Collection and Examination functions
Responsibilities of the Technical Services Unit include:
       •   Exclusive responsibility for completing assessment on criminal restitution cases for which
           I.R.C. § 6201(a)(4), Assessment Authority, is applicable.
       •   A centralized Technical Services group has been designated to make all of the criminal
           restitution assessments.


1
    IRM 9.6.2.5.1 (August 11, 2008).
                                                                                                  Page 27
                           Criminal Restitution Assessment Procedures Need Improvement


    •    Preparing and submitting Form 3177, Notice of Action for Entry on Master File, to
         Centralized Case Processing to establish restitution-based assessments on the Master
         File Tax Account Code 31 account. 2
    •    Tracking and monitoring criminal restitution inventory by establishing Examination
         Returns Control System collateral records for all taxpayers against whom assessable
         restitution payable to the IRS has been ordered by the court.
    •    Notifying the W&I Division Submission Processing Accounting Operations of Master File
         Tax Account Code 31 accounts.
    •    Issuing the restitution-based assessment notice and demand.
    •    Forwarding the case file, where appropriate, for necessary civil actions.
    •    Reviewing the civil examination case file at the conclusion of the examination.
Specific responsibilities of the Field Examination, in coordination with Technical Services
(Examination), include:
    •    Taking appropriate civil actions, including the recommendation not to take further civil
         action, to conduct a limited or in-depth civil examination, and/or prepare applicable
         audit reports as warranted based on the facts and circumstances of the case.
    •    Determining whether civil assessment of tax, interest, and/or penalties is appropriate
         after a defendant is convicted of a tax crime or related offense and making such
         assessments.
    •    Forwarding the completed examination case to Technical Services for mandatory review
         prior to closure.
    •    Reporting any noncompliance with conditions of probation or supervised release relating
         to assessments.
    •    Monitoring the defendant’s conditional probation expiration date.
    •    Responding to CI regarding the taxpayer’s level of compliance with the IRS conditions of
         probation or supervised release that are examination related.
Responsibilities of the advisory (Collection), in coordination with Field Collection, include:
    •    Following up with CI if the Transaction Code 914 is not reversed after receipt of Form
         13308 or the Transaction Code 910 is not input on a case involving IRS conditions of
         probation or supervised release.
    •    Taking appropriate enforcement actions, including collecting the RBA and other civil
         assessments owed by the taxpayer.
    •    Maintaining case files and inventory for post-probation and non-probation restitution
         cases and providing guidance regarding collection of restitution-based assessments and
         restitution judgments.
    •    Monitoring the conditional probation expiration date.


2
  Master File Tax 31 is a Master File Account Code used to identify assessments against an individual taxpayer on a
joint module and is generated by certain triggering events including restitution-based assessments.
                                                                                                             Page 28
                      Criminal Restitution Assessment Procedures Need Improvement


   •   Reporting any noncompliance with the conditions of probation or supervised release
       throughout the term of the probationary period.
   •   Preparing a 180-day memorandum reporting that the IRS-related conditions of
       probation or supervised release have not been met.
Accounting Operations (IRS)
The Accounting Operations is responsible for receiving all restitution payments from the Clerk of
the Court or other sources, including directly from the defendant or other IRS functions.
Payments are credited to the defendant’s RBA account if the Technical Services Unit made the
restitution assessment. The Accounting Operations is instructed to apply the payment(s) to the
RBA account, with a freeze code, in cases for which the restitution assessment has yet to be
made. Any payments that cannot be applied to an account or resolved are input to Treasury
Account 6400. In the past, the IRS has received restitution payments from the Clerk of the Court
with no identifying information. The Accounting Operations is required to periodically contact
the Clerk of the Court to resolve these situations. If no assessment is made, the payment will
remain in Treasury Account 6400. This W&I Division function is located at the Kansas City,
Missouri, Campus.




                                                                                         Page 29
   Criminal Restitution Assessment Procedures Need Improvement


                                                                 Appendix IV
Management’s Response to the Draft Report




                                                                       Page 30
Criminal Restitution Assessment Procedures Need Improvement




                                                              Page 31
Criminal Restitution Assessment Procedures Need Improvement




                                                              Page 32
Criminal Restitution Assessment Procedures Need Improvement




                                                              Page 33
                        Criminal Restitution Assessment Procedures Need Improvement


                                                                                       Appendix V
                                      Glossary of Terms

Term                            Definition
Accounting Operations           IRS function responsible for recording and monitoring restitution
                                payments received from defendants.

Automated Collection System     A telephone contact system through which telephone assistors collect
                                unpaid taxes and secure tax returns from delinquent taxpayers who
                                have not complied with previous notices.

Campus                          The data processing arm of the IRS. The campuses process paper and
                                electronic submissions, correct errors, and forward data to the
                                Computing Centers for analysis and posting to taxpayers accounts.

Collection Statute Expiration   Each tax assessment has a Collection Statute Expiration Date. I.R.C.
Date                            § 6502 provides that the length of the period for collection after
                                assessment of a tax liability is 10 calendar years. This date ends the
                                Government’s right to pursue collection of a liability.

Criminal Investigative          A database used by CI to track the status and progress of investigations
Management Information          and the time expended by special agents.
System (CIMIS)
Currently Not Collectible       Tax accounts can be declared currently not collectible for numerous
                                reasons, including bankruptcy, hardship, and inability to locate the
                                taxpayer.
Data Center Warehouse           An online database maintained by TIGTA. The DCW pulls data from IRS
                                system resources, such as IRS Collection files and IRS Examination files,
                                for TIGTA access.
Defendant                       In the context of this report, a defendant is defined to include both
                                individual taxpayers who were convicted of a tax-related crime and tax
                                return preparers who were convicted of a tax-related refund scheme.
Erroneous Refund                Incorrect refunds issued to taxpayers due to processing errors,
                                misapplied payments, incorrect tax adjustments, taxpayers filing
                                fraudulent tax returns, or using an incorrect Taxpayer Identification
                                Number.
Fiscal Year                     Any yearly accounting period, regardless of its relationship to a
                                calendar year. The Federal Government’s fiscal year begins on
                                October 1 and ends on September 30.
Freeze Code                     Alpha codes that identify specific conditions in the Master File that can
                                be generated systemically during processing operations or input
                                manually.
Integrated Data Retrieval       IRS computer system capable of retrieving or updating stored
System                          information. It works in conjunction with a taxpayer’s account records.



                                                                                                    Page 34
                        Criminal Restitution Assessment Procedures Need Improvement


Term                            Definition
Internal Revenue Code           Federal tax law enacted by Congress in Title 26 of the United States
                                Code (26 U.S.C.). It is the codified collection of U.S. laws on income,
                                estate and gift, and employment and excise tax, plus administrative and
                                procedural provisions.
Internal Revenue Manual         Contains the policies, procedures, instructions, guidelines, and
                                delegations of authority that direct the operation for all divisions and
                                functions of the IRS. Topics include tax administration, personnel and
                                office management, and others.
Levy                            A method used by the IRS to collect outstanding taxes from sources
                                such as bank accounts and wages.
Lien                            An encumbrance on property or rights to property as security for
                                outstanding taxes.
Master File                     The IRS database that stores various types of taxpayer account
                                information. This database includes individual, business, and employee
                                plans and exempt organizations data.
Master File Tax Account Code    The two-digit number codes that identify the type of return filed by the
                                taxpayer.
Plea Agreement                  Agreements between defendants and prosecutors in which defendants
                                agree to plead guilty to some or all of the charges against them in
                                exchange for concessions from the prosecutors.
Probation                       Sentencing option in the Federal courts. With probation, instead of
                                sending an individual to prison, the court releases the person to the
                                community and orders him or her to abide by certain conditions and
                                complete a period of supervision monitored by a U.S. Probation Officer.
Probation Officer               Officers of the Probation Office of a court. Probation Officer duties
                                include conducting presentence investigations, preparing presentence
                                reports on defendants, and supervising released defendants.
Report of Foreign Bank and      Filed by a U.S. person who has a financial interest in or a signature
Financial Accounts              authority over foreign financial accounts when the aggregate value of
                                the foreign financial accounts exceeds $10,000 at any time during the
                                calendar year.
Restitution                     A legal remedy that can be ordered in a criminal court case. A
                                restitution order requires the defendant to pay money to the victim(s) in
                                order to compensate for the loss inflicted. It is generally imposed
                                during sentencing as a condition of probation or supervised release in
                                tax-related crimes.
Revenue Officer                 Employees in the field who attempt to contact taxpayers and resolve
                                collection matters that have not been resolved through notices sent by
                                the IRS campuses or the Automated Collection System.
Sentence                        The punishment ordered by a court for a defendant convicted of a
                                crime.
Special Agent                   A law enforcement employee who investigates potential criminal
                                violations of the Internal Revenue laws and related financial crimes.
                                                                                                 Page 35
                          Criminal Restitution Assessment Procedures Need Improvement


Term                              Definition
Special Agent in Charge           A law enforcement employee responsible for directing, monitoring, and
                                  coordinating the criminal investigation activities within a field office’s
                                  area of responsibility.
Special Tax-Related Provisions    Requirements included in criminal sentences, such as filing past due
                                  and current tax returns and paying or making arrangements to pay past
                                  due taxes.
Supervised Release                Term of supervision served after a person is released from prison. The
                                  court imposes supervised released during sentencing in addition to the
                                  sentence of imprisonment. Supervised release does not replace a
                                  portion of the sentence of imprisonment but is in addition to the time
                                  spent in prison. Probation officers supervise people on supervised
                                  release.
Supervisory Special Agent         A supervisory law enforcement employee who oversees the overall
                                  criminal investigation, including the undercover operation.
Tax Case                          A criminal tax case involves tax offenses and tax-related offenses. A tax
                                  offense refers to criminal offenses under the I.R.C. Tax offenses include,
                                  but are not limited to, willful attempt to evade or defeat tax, willful
                                  failure to collect or pay over taxes, willful failure to file or failure to pay,
                                  and willfully making a false declaration under penalties of perjury or
                                  willfully assisting in the preparation of a false document.
Tax Gap                           The estimated difference between the amount of tax that taxpayers
                                  should pay and the amount that is paid voluntarily and on time.
Tax-Related Crime                 A tax-related crime may fall under either Title 18 or Title 31 of the
                                  United States Code when the offense is associated with a tax crime or
                                  the offense impedes the administration of the Internal Revenue laws.
                                  Examples of tax-related crimes include, but are not limited to, false
                                  statements on a tax return; presenting a false, fictitious, or fraudulent
                                  claim for a refund; conspiracy to defraud the IRS; and willful violations
                                  of reporting requirements.
Tax Year                          A 12-month accounting period for keeping records on income and
                                  expenses used as the basis for calculating the annual taxes due. For
                                  most individual taxpayers, the tax year is synonymous with the calendar
                                  year.

Taxpayer Identification           A nine-digit number assigned to taxpayers for identification purposes.
Number                            Depending upon the nature of the taxpayer, the Taxpayer Identification
                                  Number is an Employer Identification Number, a Social Security
                                  Number, or an Individual Taxpayer Identification Number.




                                                                                                         Page 36
                         Criminal Restitution Assessment Procedures Need Improvement


Term                             Definition
Title 18                         Title 18, United States Code, Crimes and Criminal Procedure. Various
                                 sections of Title 18 apply to violations that are within the jurisdiction of
                                 CI. Examples include § 286, Conspiracy to Defraud the Government
                                 With Respect to Claims; § 287, False, Fictitious, or Fraudulent Claims;
                                 § 371, Conspiracy to Commit Offense or to Defraud United States; and
                                 §§ 1956 and 1957, Laundering of Monetary Instruments and Engaging
                                 in Monetary Transactions in Property Derived From the Specified
                                 Unlawful Activity. The most common section investigated under this
                                 statute is money laundering.

Title 26                         Title 26, United States Code, Internal Revenue Code.

United States Attorney           A lawyer appointed in each judicial district to prosecute and defend
                                 court cases for the Federal Government. The U.S. Attorney employs a
                                 staff of Assistant U.S. Attorneys who appear as the Federal
                                 Government’s attorneys in individual court cases.




                                                                                                     Page 37
         Criminal Restitution Assessment Procedures Need Improvement


                                                                       Appendix VI
                          Abbreviations

CI             Criminal Investigation
CIMIS          Criminal Investigation Management Information System
COP            Conditions of Probation
CY             Calendar Year
DOJ            Department of Justice
DCW            Data Center Warehouse
FBAR           Report of Foreign Bank and Financial Accounts
FLU            Financial Litigation Unit
FY             Fiscal Year
GAO            Government Accountability Office
I.R.C.         Internal Revenue Code
IRM            Internal Revenue Manual
IRS            Internal Revenue Service
J&C            Judgment and Commitment Order
RBA            Restitution-Based Assessment
SB/SE          Small Business/Self-Employed
SIRF           Stolen Identity Refund Fraud
TIGTA          Treasury Inspector General for Tax Administration
USAO           U.S. Attorney’s Office
W&I            Wage and Investment




                                                                             Page 38
             To report fraud, waste, or abuse,
                call our toll-free hotline at:
                         (800) 366-4484


                              By Web:
                      www.treasury.gov/tigta/


                             Or Write:
         Treasury Inspector General for Tax Administration
                            P.O. Box 589
                        Ben Franklin Station
                   Washington, D.C. 20044-0589




Information you provide is confidential, and you may remain anonymous.