Klein v. Comm'r, 149 T.C. 341

Background

Zipora and Samuel Klein pled guilty to tax-related crimes and the District Court ordered $562,179 restitution (2003–2006 tax-loss calculation) plus title 18 statutory additions; petitioners paid the full restitution and title 18 interest and received release of the title 18 lien.
Under I.R.C. § 6201(a)(4), the IRS assessed the $562,179 restitution as an amount it could "assess and collect... in the same manner as if such amount were such tax," and also assessed underpayment interest (I.R.C. § 6601(a)) and failure-to-pay additions (I.R.C. § 6651(a)(3)).
Petitioners did not pay the assessed interest/additions; the IRS filed Notices of Federal Tax Lien and issued CDP hearing rights; petitioners timely requested CDP hearings and petitioned the Tax Court after Appeals sustained the liens.
At the CDP hearing petitioners argued they had paid restitution in full; the IRS Appeals officer treated restitution as paid but maintained assessed civil interest and additions remained unpaid.
Tax Court framed the legal question as one of first impression: whether § 6201(a)(4) authorizes the IRS to assess and collect title 26 underpayment interest and failure-to-pay additions on amounts assessed under that provision.

Issues

Issue	Petitioners' Argument	Commissioner’s Argument	Held
Whether § 6201(a)(4) allows IRS to assess/collect I.R.C. § 6601 interest on restitution assessed under § 6201(a)(4)	§ 6201(a)(4) creates only an accounting mechanism; restitution is not a "tax imposed by" title 26, so § 6601 does not apply	§ 6201(a)(4) makes restitution "assessable/collectible in the same manner as a tax," which activates civil interest rules	Court held § 6201(a)(4) does not authorize assessment/collection of § 6601 interest on restitution assessed under that provision
Whether § 6201(a)(4) allows IRS to assess/collect I.R.C. § 6651(a)(3) additions-to-tax on restitution assessed under § 6201(a)(4)	Restitution is based on a sentencing "tax loss" estimate (not final civil tax liability); § 6651(a)(3) applies only to taxes required to be shown on returns	Similar to interest argument: civil additions follow because collection machinery is engaged	Court held § 6201(a)(4) does not authorize assessment/collection of § 6651(a)(3) additions on restitution assessed under that provision
Whether petitioners preserved right to dispute assessed interest/additions in CDP proceeding	Petitioners preserved the issue by disputing the balance at CDP and in petitions	IRS argued underlying liability not properly before Appeals	Court reviewed de novo and found issue properly preserved for Tax Court review
Whether IRS could rely on IRM and historical practice to impose civil interest/additions on restitution	§ 6201(a)(4) is limited to creating an account receivable; IRM does not override statute	IRS relied on IRM and policy that activation of civil collection tools implies interest/additions	Court held IRM persuasive only to limited extent; it cannot override plain statutory text and grammar of "as if" clause

Key Cases Cited

United States v. Tilford, 810 F.3d 370 (5th Cir.) (criminal restitution is not literally a tax)
United States v. Wanland, 830 F.3d 947 (9th Cir. 2016) (agency manuals lack force of law)
Fargo v. Commissioner, 447 F.3d 706 (9th Cir. 2006) (Internal Revenue Manual does not bind courts)
United States v. Booker, 543 U.S. 220 (2005) (Advisory Sentencing Guidelines context)
Flores-Figueroa v. United States, 556 U.S. 646 (2009) (statutory interpretation presumes ordinary grammar)
Lamie v. United States Trustee, 540 U.S. 526 (2004) (every word of a statute must be given meaning)
Weinberger v. Rossi, 456 U.S. 25 (1982) (floor statements are not controlling legislative history)
United States v. Mays, 430 F.3d 963 (9th Cir. 2005) (FDCPA enforcement of restitution limited to terms of the restitution order)
United States v. Black, 815 F.3d 1048 (7th Cir.) (discussion of including interest/penalties in tax loss for restitution purposes)