People facing criminal tax charges tend to focus on two numbers: the possible prison term and the fine. A third number often ends up mattering just as much. Restitution, the amount a court orders a defendant to repay the victim, which in a tax case is the government.
Since 2010, the Internal Revenue Code has treated certain restitution orders as something the IRS can assess and collect as if they were tax. That makes restitution part of the long-term financial picture, not just the criminal one. This guide explains the framework in general terms. It is not advice for any case.
Where restitution comes from
Restitution in federal criminal cases is governed by Title 18. Under 18 U.S.C. 3556, when sentencing a defendant, the court "shall order restitution in accordance with section 3663A, and may order restitution in accordance with section 3663."
Plea agreements matter here. 18 U.S.C. 3663(a)(3) says "the court may also order restitution in any criminal case to the extent agreed to by the parties in a plea agreement."
The IRS manual describes the practical reality. IRM 25.1.1.3.2 says restitution "may be ordered in criminal tax cases pursuant to a plea agreement or a conviction under Title 18 U.S.C. and may be required as a condition of probation." The CI manual, IRM 9.6.2.4, says "restitution is often ordered in criminal tax cases pursuant to a plea agreement and may be ordered as a component of the sentence or solely as a condition of probation or supervised release."
Prosecutors are told to pursue it
The Justice Manual, JM 6-4.370, says that under section 209 of the Mandatory Victims Restitution Act, prosecutors negotiating plea agreements must give consideration "to seeking that the defendant provide full restitution to all victims of all charges contained in the indictment or information, without regard to the counts to which the defendant actually plead[s]." It notes that standard restitution language for tax plea agreements appears in the Department's Criminal Tax Manual.
The CI manual frames restitution as part of deterrence. IRM 9.6.2.4 says one goal of prosecution "is having the court order restitution," and that "similar to incarceration, restitution acts as a criminal deterrent." It also describes including restitution in the plea agreement as "an effective method for the AUSA to facilitate civil resolution of a criminal case."
Why the form of the order matters
The CI manual makes a point that defendants rarely hear. IRM 9.6.2.4 says it is in the IRS's interest for the plea "to specifically address the criminal restitution amounts as a criminal penalty or component of the sentence and not solely as a condition of probation or supervised release." It explains that for Title 26 offenses and Title 18 offenses for failure to pay a tax, restitution ordered solely as a condition of probation or supervised release can severely restrict assessment and collection, and that special agents and prosecutors should work to have restitution ordered as an independent part of the sentence.
Put plainly: the government cares how the restitution provision is written, because the wording affects what the IRS can do with it afterward. Defense counsel should care just as much.
IRC 6201(a)(4): restitution assessed as tax
The key Code provision is IRC 6201(a)(4), added in 2010 and applicable to restitution ordered after August 16, 2010. It has three parts:
(A) Assessment and collection. "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."
(B) Timing. The assessment "shall not be made before all appeals of such order are concluded and the right to make all such appeals has expired."
(C) No relitigating the tax. "The amount of such restitution may not be challenged by the person against whom assessed on the basis of the existence or amount of the underlying tax liability in any proceeding authorized under this title (including in any suit or proceeding in court permitted under section 7422)."
Subparagraph (C) deserves attention. Once restitution is ordered and assessed, the defendant cannot use Title 26 procedures, including a refund suit, to argue that the underlying tax was not owed. Any argument about the amount has to be made in the criminal case, before the order becomes final.
Assessed as if it were tax, restitution can be collected with the IRS's ordinary collection tools.
Restitution does not end the civil case
Restitution and civil liability overlap but are not the same thing. The Justice Manual, JM 6-4.360, says settlement of civil liability is generally postponed until after sentencing, and encourages plea agreements that include civil admissions: agreed amounts of unreported income or improper deductions, a stipulation to liability for the civil fraud penalty under IRC 6663, an agreement to file correct returns before sentencing and pay taxes, penalties, and interest at sentencing, and an agreement not to seek refunds of those amounts.
On the IRS side, IRM 25.1.6.3 says the civil fraud penalty must be asserted after a successful Title 26 prosecution that involved additional tax assessments, with exceptions requiring Area Counsel approval, and directs examiners in Small Business/Self-Employed cases to contact Area Counsel where criminal restitution can be assessed under section 6201(a)(4). Large Business and International cases with restitution may require special handling. See the civil fraud penalty.
The CI manual also notes in IRM 9.6.2.5.1 that courts sometimes condition the sentence on satisfactory settlement or payment of civil tax liability and payment of restitution, and that the Special Agent in Charge will take steps to initiate legal action when a defendant fails to comply with court-ordered conditions of probation or supervised release.
Restitution is separate from fines and costs
A criminal tax sentence can include several different financial pieces, and they are not interchangeable.
- Fines are set by the offense statute and by 18 U.S.C. 3571, which for an individual convicted of a felony allows a fine up to the greatest of the statutory amount, $250,000, or an alternative amount based on gain or loss.
- Costs of prosecution are part of the penalty language in sections 7201, 7203, and 7206, and JM 6-4.350 says that after a conviction for the principal substantive tax offenses the court must order the defendant to pay them.
- Restitution compensates the victim, here the Treasury, and in tax cases can be assessed under IRC 6201(a)(4).
The IRS tracks restitution administratively as well. The CI manual's closing procedures for whistleblower cases list Form 14104, Notification of Restitution, among the documents forwarded at case conclusion, in IRM 9.4.1.4.1.1.
Restitution and the guilty plea
Because restitution is often set in a plea agreement, the negotiation over its amount and form is part of the plea negotiation. The amount the defendant agrees to may be assessed as tax, may not be challenged later through Title 26 procedures, and may coexist with civil penalties and interest. Those are reasons to understand the full civil picture before agreeing to any number. See criminal tax plea agreements and sentencing.
The broader lesson
Criminal and civil tax consequences are intertwined from the beginning to the end of a case. The decisions made early, about statements, cooperation, and disclosure, shape the restitution and civil numbers years later. That is one more reason to have counsel involved from the first contact. A person who speaks freely to agents early in a case may later find those statements shaping the tax loss, the restitution figure, and the civil admissions in a plea agreement. See civil vs. criminal tax fraud.
Restitution procedures are set by statute too. 18 U.S.C. 3556 says the procedures under section 3664 apply to all orders of restitution, and 18 U.S.C. 3663(d) says an order under that section is issued and enforced under section 3664.
Frequently asked questions
Can the IRS collect criminal restitution like a tax?
Yes, for restitution ordered under 18 U.S.C. 3556 for failure to pay tax. IRC 6201(a)(4) directs the IRS to assess and collect it as if it were tax, after all appeals of the order are concluded.
Can I dispute the underlying tax after restitution is assessed?
IRC 6201(a)(4)(C) says the restitution amount may not be challenged on the basis of the existence or amount of the underlying tax liability in any proceeding under Title 26, including a refund suit.
Does paying restitution settle my civil tax case?
Not necessarily. The Justice Manual encourages plea agreements to address civil liability separately, and the IRS may still assert the civil fraud penalty and collect interest. The relationship between the two should be analyzed before any plea.
Why does it matter whether restitution is a condition of probation?
The CI manual says restitution ordered solely as a condition of probation or supervised release can severely restrict the IRS's ability to assess and collect it, so the government prefers restitution ordered as an independent part of the sentence.
General information only, not legal advice. Reading this page does not create an attorney-client relationship. Laws and IRS procedures change; the sources cited were reviewed on the date shown above.