In the Greek dramatist Euripides’ tragedy, Phrixus, there is the following line: “The gods visit the sins of the fathers upon the children.” Such words are no more applicable than in the case of Bontrager v. Commissioner. According to the Tax Court, the Internal Revenue Service (“IRS”) was authorized (under I.R.C. § 6201(a)(4)) to assess restitution against Mr. Bontrager, the son, after Mr. Bontrager was ordered to pay upon his conviction of violating I.R.C. § 7201 for aiding and abetting the evasion of his father’s income tax liability. Put simply, the IRS may assess restitution against an individual for another person’s tax liability.
Background
In the events leading up to Bontrager v. Commissioner,[1] Winston Bontrager (“the father”) was convicted of conspiracy to commit wire fraud, ordered to pay restitution in the amount of $687,000, and sentenced to prison in 1994. Upon his release, the IRS assessed against him $185,346 of federal income tax for 1994.
His son, Jason Bontrager (“the son”), established his own real estate firm in Washington. Soon after his release from prison, the father moved close to the son and offered to help with the real estate firm. The son accepted. Thereafter, the father exercised substantial control of the business operations, negotiating deals and financing arrangements.
The father, the son, and other individuals became the subjects of a federal investigation, involving tax crimes and mortgage fraud. In particular, the federal investigation revealed that the father had used the real estate firm to conceal his income and assets and thereby evade payment of his outstanding federal tax and restitution liabilities.
The Department of Justice filed a criminal information against the son for one count of violating Section 7201 (i.e., willfully attempting “to evade or defeat any tax imposed by this title or the payment thereof.”). The allegations described the son as using corporate funds to purchase assets for the father and allowing the father to charge personal expenditures to a corporate credit card, among other things. The son pleaded guilty. Two years later, the district court issued its judgment, sentencing the son to one year of prison and only 10 percent of the father’s restitution obligation ($72,710).
A few months later, the IRS assessed the amount of restitution ($72,710) against the son under Section 6201(a)(4) and underpayment interest in the amount of $165,508 under Section 6601(a). The son did not pay. The IRS filed a Notice of Federal Tax Lien, and the son timely filed a request for CDP hearing. At the hearing, the son challenged the legal validity of the assessment (both the restitution amount and the interest), and the settlement officer rejected his arguments. As a result, IRS issued a notice of determination, and the son petitioned the Tax Court.
Analysis Under I.R.C. § 6201(a)(4)
The IRS may only make a restitution-based assessment as authorized under Section 6201(a)(4)(A). According to I.R.C. § 6201(a)(4)(A):
(4) Certain orders of criminal restitution
(A) In general
The Secretary shall assess and collect the amount of restitution under an order pursuant to section 3556 of title 18, United States Code, for failure to pay any tax imposed under this title in the same manner as if such amount were such tax.
Further, 18 U.S.C.S. § 3556 provides as follows:
The court, in imposing a sentence on a defendant who has been found guilty of an offense shall order restitution in accordance with section 3663A, and may order restitution in accordance with section 3663. The procedures under section 3664 shall apply to all orders of restitution under this section.
(emphasis added). Still further, the son was found guilty of an offense under I.R.C. § 7201, which states:
Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.
However, the main crux of the son’s argument was that the restitution was related to a tax imposed on his father, not on him. Therefore, according to his argument, the restitution falls outside the scope of Section 6201(a)(4).
The Tax Court did not agree. In part, the Court recognized that the textual construction of Section 6201(a)(4)(A) contained no limiting language—“any taximposed under this title” must be read expansively. Thus, the “tax that [the son] was convicted of willfully attempting to evade the payment of [the father’s income tax liability for 1994] was ‘[a] tax imposed under this title.’” Consequently, the statute does not state that restitution may only be assessed or collected against the person who failed to pay the underlying tax. To allow otherwise, according to the Court, would create a gap in Section 6201(a)(4)(A)’s statutory scheme and undermine the problem Congress sought to resolve in 2010.
Conclusion
Ultimately, the Tax Court was persuaded by the statutory construction and underlying Congressional policy of Section 6201(a)(4)(A). As a result, taxpayers should be aware that the IRS can assess restitution against them for the tax liability of another. Here, the taxpayer was charged with “aiding and abetting” the evasion of payment of income tax, and, consequently, was ordered to pay restitution on a percentage of his father’s tax debt. One of the underlying principles in this case is that a person who “aids, abets, counsels, commands, induces or procures” the commission of an offense against the United States “is punishable as a principal.”[2]Thus, much like the trust fund recovery penalty, a person may be held liable for the (tax) obligations of another.
[1]Bontrager v. Comm’r, 2018 U.S. Tax Ct. LEXIS 55, *1 (2018).
[2]United States v. Snider, 957 F.2d 703, 706 (9th Cir. 1992).
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