25.26.1 Criminal Restitution and Restitution-Based Assessments

Manual Transmittal

March 24, 2014


(1) This transmits new IRM 25.26.1, Restitution, Criminal Restitution and Restitution-Based Assessments.

Material Changes

(1) This is a new IRM section that provides guidance with respect to court ordered criminal restitution payments.

Effect on Other Documents



All operating division employees that work with criminal restitution payments.

Effective Date


Mary L. Coleman
Director, Technical Services
Small Business/Self-Employed


  1. In a criminal tax case, a court can require a defendant to pay the losses incurred by the government. The amount of the restitution ordered by the court is calculated from evidence submitted at trial or from information contained in the plea agreement and presented to the court at sentencing.

  2. Public Law No. 111-237 amended IRC 6201 to provide that the Service shall assess and collect the amount of restitution ordered in a tax case for failure to pay any tax imposed under the Internal Revenue Code in the same manner as if such amount were such tax. The law applies to restitution orders entered after August 16, 2010.

  3. The law also amended IRC 6213(b) to stipulate that a notice of assessment of restitution is not a notice of deficiency and may not be petitioned to Tax Court and IRC 6501(c) to address the unlimited assessment period for restitution-based assessments (RBAs).

Restitution Debt

  1. The amount of restitution ordered payable to the Service creates two separate debts for the same liability. These two separate debts provide two different means for collection, but the liability cannot be collected twice. See IRM 21.6.8, Split Spousal Assessments (MFT 31), for more information on splitting accounts and applying payments.

    1. The first debt is the "restitution judgment" which the Department of Justice Financial Litigation Unit (DOJ FLU) is responsible for collecting.

    2. The second debt is the "restitution-based assessment" (RBA) which will be assessed and collected by the Service in the same manner as if it was a tax.

  2. The defendant ordered to pay restitution may be one or more of but is not limited to the following:

    • Individual taxpayer (filing either an individual return, a separate return, or a joint return)

    • Officer or employee of a corporation

    • Partner or employee of a partnership

    • Employee of a sole proprietorship

    • Corporate director

    • Client of a return preparer

    • Return preparer

    • Tax shelter promoter

  3. Because 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 (duplicate civil and/or co-defendant assessments), provided that the RBA relates to that underlying tax liability.


    If the restitution is for tax period X but relates to the defendant’s business’s income tax and not his own personal income tax for the same period, the payment would be credited to his RBA and the business’s income tax liability. It would not be credited to his personal income tax liability for the same period.

  4. Duplicate assessments include the RBA made on the appropriate MFT 31 account, and civil tax and or fraud penalties assessed on each respective parties’ underlying tax account.

  5. Two responsible parties may owe different duplicate assessment amounts for the same period. The duplicate assessment may or may not be equal to the RBA amount. Those accounts include, but are not limited to, the following:

    • Form 1040, U.S. Individual Income Tax Return (MFT 30)

    • Form 941, Employer’s Quarterly Federal Tax Return (MFT 01, 17*)

    • Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (MFT 10)

    • Form 1120, US Corporation Income Tax Return (MFT 02)
      *Indicates Non-Master File (NMF)

  6. RBAs are assessed and collected the same as any civil tax assessment. As such, interest and the failure to pay (FTP) penalty would apply as they would for any other civil tax assessment.

  7. Penalties: For the purpose of the FTP penalty, a restitution-based assessment represents tax required to be shown on a return that was not shown. Thus, this FTP penalty is imposed under IRC 6651(a)(3). See IRM, Failure to Pay Penalty for Restitution-Based Assessments.

  8. Interest: Interest assessed by the Service is mandated per IRC 6601, Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax. Normal interest rules will apply to the RBA, including interest-abatement procedures. See IRM 20.2.7, Interest—Abatement and Suspension of Interest, for procedures on filing claims due to delays because of ministerial or managerial acts. However, the restitution amount ordered by the court is not entitled to an IRC 6601(c) waiver of suspension period (also called a Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment,).

    1. Comments reflected on the Judgment and Commitment Order referring to Title 18 do not have any bearing on the RBA or the Title 26 interest owed. The Service does not have jurisdiction over Title 18 interest. The defendant is required to pay this interest directly to the court, when applicable. The court can waive the Title 18 interest on the restitution ordered, but the court cannot waive the Title 26 interest on the RBA.

    2. Payments made by the defendant for the Title 18 interest can be allocated/applied to Title 26 interest after all the tax and any penalties have been paid. If interest needs to be manually computed, mark the Form 3198, Special Handling Notice for Examination Case Processing, or closing instructions "Restricted Interest." See IRM 20.2.5, Interest on Underpayments, and IRM 20.2.8, Restricted Interest, for reasons interest may need to be manually computed.

Restitution-Based Assessment Functional Responsibilities

  1. Several functions are involved in restitution based assessment. The responsibility for each function is outlined below.

Criminal Investigation

  1. Criminal Investigation (CI) provides evidence to the courts for the amount of the restitution to be assessed as taxes. The evidence presented to the courts depends upon the court proceeding. The amount of restitution may be presented in the following circumstances:

    1. The criminal indictment or information that charges the defendant with a criminal tax offense may contain the specific amount of tax loss to the Service.

    2. During a criminal tax trial, testimony may be introduced and summarized by the special agent or examiner on the amount of tax loss to the Service. Documents that summarize the tax at trial include the following:
      Special agent report (SAR)
      Revenue agent report (RAR)
      Trial exhibits
      Transcript of testimony by the special agent, examiner, or revenue officer

    3. The defendant may provide the amount of tax loss to the Service as well as any of the following:
      A signed plea agreement: The plea agreement is submitted to the court for acceptance by the court. The plea agreement may or may not contain specific information of the amount of tax loss. In some circumstances, the plea agreement may be sealed by the court and cannot be forwarded to any Service civil function.
      A proffer: A proffer is submitted (this is evidence in support of your position) to the government containing a statement of facts.
      A statement of facts: A statement of facts is presented to the court by the Assistant United States Attorney (AUSA).

    4. Prior to the defendant’s sentencing hearing in U.S. District Court, the United States Probation Officer (USPO) requests the amount of tax loss to the government from either the special agent or the AUSA. In both cases, the special agent is responsible for providing the amount of tax loss to the USPO. In some circumstances, the AUSA may fail to obtain the amount of tax loss from the special agent and independently provide the amount of tax loss to the USPO.

    5. During sentencing, the government is required to present a factual basis to the court that contains the amount of tax loss to the Service.

  2. CI is required to close its case and notify the Service civil functions of the amount of restitution ordered no later than 30 days after the court issues and files a Judgment and Commitment Order (J&C). The J&C often only specifies a single amount of restitution that covers multiple tax years or periods. The J&C is issued by the court shortly after the sentencing hearing in court. When notifying the civil functions of the amount of restitution via Form 14104, Notification of Court Ordered Criminal Restitution Payable to IRS, it is the responsibility of the special agent to specify the amount of restitution attributable to each tax year or period.

    1. The amount of restitution as specified should list the type of tax and tax year or period that was included in the calculation of the amount of restitution.

    2. The special agent should specify the amount of restitution attributable to tax, interest, and penalties for each tax period or year.
      The amounts for interest and penalties should only be included when these amounts are included in the amount of restitution ordered by the court.
      Penalties should only be included if the defendant agreed to pay penalties as part of a plea agreement and the penalties are included in the amount of restitution ordered by the court.

    3. For all return preparer project (RPP) cases, the amount of restitution is ordinarily based upon the erroneous tax refunds claimed by the clients of the return preparer. The amount of restitution may be calculated by using a specific group of clients and/or an additional amount computed by extrapolating the pattern of erroneous tax refunds to the total population of the preparer's clients. Therefore, in all RPP cases, the special agent must attach a list of all clients whose tax liability was used to determine the amount of restitution ordered by the court. The clients must be identified by name and social security number. The clients’ liability for each year must be shown separately. The amount of restitution that is based upon the erroneous refunds claimed by the clients is not necessarily assessed on the individual tax returns of the return preparer for each of the respective years.

    4. In questionable return project (QRP) cases, where refunds are fraudulently obtained through the use of stolen, misappropriated, or fictitious identities that do not involve a "real" taxpayer or an actual liability, and are not traceable to a tax imposed under Title 26 on the defendant, restitution ordered cannot be assessed as a tax. For all QRP cases, the amount of restitution is based upon the total amount of tax refunds falsely claimed. These false claims include fictitious tax returns consisting of stolen or fabricated identities and returns filed by the defendant and/or other co-conspirators using their true identity.

    5. For QRP cases, where the amount of restitution ordered by the court is attributable to tax returns filed by the defendant and/or co-conspirators using their own true identity, the amount of restitution is considered a tax imposed under Title 26. Therefore, this amount can be assessed as if it was a tax under IRC 6201(a)(4), Assessment Authority, and should be specified when notifying the civil functions.

    6. In some cases, a reasonable allocation of restitution may be necessary when specifying the amount of restitution. This would be applicable where restitution is not directly determined from a specific document and the special agent needs to determine a reasonable allocation of restitution applicable to each tax year or period. For example, the restitution amount is set by agreement between an AUSA and a defendant and the amount of taxes due is somewhere between the amounts determined by the Service and the amount otherwise shown on the J&C.

  3. The defendant has 14 calendar days in which to file an appeal after the sentencing hearing. If a defendant files an appeal for any reason, CI will not close its case or send any documents to the Service civil functions until there is final adjudication by the court. Final adjudication occurs the day after all appeals have been exhausted.

  4. CI notifies the Service civil functions 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 IRS.

  5. When restitution is ordered by the court, CI is required to send both Form 13308 and Form 14104 to the following civil functions:

    1. Territory Manager, Technical Services

    2. Collection Advisory Probation Liaison

    3. SBSE Technical Services at *SBSE TECH Svs Criminal Restitution

    4. Kansas City Restitution Unit at *W&I Criminal Restitution


      Restitution cases designated as a return preparer project (RPP) investigations should also be sent to the following functions:
      Territory Manager, Planning and Special Programs (PSP)
      Return Preparer Office at *Preparer

Examination Restitution-Based Responsibility

  1. All closed CI investigations are routed to SBSE Examination Technical Services (TS) via a closing package within 30 days of closure by CI for appropriate civil examination disposition. For those investigations with court ordered criminal restitution payable to the Service, a civil audit may be conducted. See IRM, Civil Settlement.

Examination Technical Services Restitution-Based Responsibility
  1. Technical Services (TS) is responsible for the following actions:

    1. Preparing and submitting Form 3177, Notice of Action for Entry on Master File, to Centralized Case Processing (CCP) to establish RBA MFT 31 account(s).

    2. Notifying KC of creation of MFT 31 account(s).

    3. Preparing and submitting Form 3870, Request for Adjustment, and Form 3177 to CCP to make assessment and cross reference related and duplicate assessment accounts/modules.

    4. Issuing the RBA notice and demand (N and D).

    5. Preparing and submitting Form 3177 to CCP to record the issuance of the N and D on IDRS.

    6. Notifying Collection Advisory of the RBA.

    7. Forwarding the case file, where appropriate, for necessary civil actions.

    8. Reviewing the civil examination case file at the conclusion of the examination.

    9. Preparing and submitting Form 3177 to CCP to cross reference related and duplicate assessment accounts/modules, when necessary.

  2. All forms are faxed to Examination CCP in Memphis. A designated team in CCP inputs the Form 3177 and Form 3870, as requested by TS. See IRM (6), Separate Assessments on Joint Taxpayers, for information regarding Form 3177 and IRM, Adjustments—General Procedures, for information regarding Form 3870. Visit http://mysbse.web.irs.gov/AboutSBSE/aboutccs/ccsprog/casepro/cp/cont/default.aspx for CCP fax numbers.

  3. For additional guidance on restitution cases, see SBSE-04-0214-0013, Interim Guidance on Criminal Restitution Procedures, issued 2/5/2014.

Field Examination Restitution-Based Responsibility
  1. Field Examination is responsible for reviewing case files forwarded by TS to complete the following actions:

    1. 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.

    2. Recommending the assertion of any applicable civil penalties.

    3. Forwarding the completed examination case through TS for mandatory review prior to closure.

Restitution Payment Processing

  1. Kansas City (KC) Accounting is responsible for processing restitution payments. Restitution payments are typically submitted to the court and then forwarded to KC.

  2. If an MFT 31 account exists, KC applies the payments directly to IDRS with a Designated Payment Code (DPC) 26. If an MFT 31 account does not exist, the payments are placed in a Revenue Account Control System (RACS) 6400 account until Field Exam advises them that the MFT 31 account is being established.

  3. See IRM, MFT 31 Case Procedures.

Restitution Payment Collection

  1. Prior to enactment, the Service could not assess or take administrative action to collect an assessed or assessable amount of restitution. The Firearms Excise Tax Improvement Act of 2010 (FETI) provides that the assessed amount of restitution can be collected as if it were a tax. The restitution order, however, does not cease to exist, and the Department of Justice (DOJ) retains its authority to collect under Title 18.

  2. Collection is responsible for monitoring compliance with the conditions of probation and supervised release ordered by the court; collecting the restitution-based assessment and other civil assessments owed by the taxpayer; and reconciling taxpayer accounts to ensure there is no overpayment as a result of duplicate assessments or parallel efforts to collect the restitution.

Campus Collection

  1. Each related account may have a liability for different amounts, and each related account may reflect different penalty and/or interest suspension periods. Consequently, MFT 31 accounts are established (TS establishes the account) to separate assessment modules based on the underlying tax liability.

  2. When duplicate assessments have been identified against an individual or responsible party, the duplicate assessment can only be collected once from those individuals or responsible parties.

  3. Campus Collections responsibilities include the following:

    1. Processing RBA transcripts.

    2. Cross-referencing all payments and credits to the related duplicate assessment(s), penalties, and interest for all MFT(s) and tax period(s).

    3. Responding directly to taxpayers, their representatives, or both on inquiries regarding these accounts.

Collection Advisory

  1. Collection Advisory has designated points of contacts that serve as liaisons to coordinate and monitor condition of probation (COP) cases to ensure timely exchange of information.

  2. The advisory probation liaison (APL) performs the following tasks:

    1. Monitors the conditions of probation.

    2. Reports noncompliance with the conditions to the Department of Justice.

    3. Requests collection investigations by field area revenue officers (ROs).

    4. Coordinates civil and criminal aspects of cases.

  3. Issues and procedures relating to field Collection involvement during the criminal investigation of open collection cases are listed in IRM 5.1.5, Balancing Civil and Criminal Cases. It also includes procedures for conditions of probation monitoring and for restitution on cases adjudicated prior to August 17, 2010.

Collection Field Areas

  1. Collection Field Area RO groups investigate balance due and delinquent return cases received systemically or requested by the APL.

  2. ROs may make collectability determinations in restitution cases or may take administrative actions to collect the assessed restitution or other amounts owed by the taxpayer.

  3. Field Collection procedures for working probation and restitution cases are found in IRM 5.1.5.