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Restitution in tax evasion cases: price tag can be hefty

A Congressman from New York has resigned after pleading guilty to filing a false tax return. Rep. Michael Grimm was found to have hidden income from a health-food restaurant he owned before entering Congress.

Grimm will not be sentenced until June. But his conviction on the tax evasion charge for hiding hundreds of thousands of dollars in income from his restaurant could land him in prison for up to three years. Under the plea deal, the convicted ex-Congressman will also be required to pay restitution to the U.S. government for unpaid taxes on the hidden income.

In this post, we will focus on the restitution part of the sentence. Our goal will be to provide context on the use of restitution in criminal tax sentences.

In criminal tax cases involving substantial sums, restitution awards can be quite sizable. This is especially true when the charge is against a large financial institution. For example, consider the recent tax evasion case against Credit Suisse for facilitating tax evasion by U.S. taxpayers through undisclosed offshore accounts.

As we noted in our November 28 post, the combined amount of fines and restitution ordered by a federal judge against the Swiss bank came to nearly $1.8 million in that case. 

That amount is dwarfed, however, by the $780 million in fines and restitution (along with penalties and interest) that another Swiss bank, UBS, was required to pay in an earlier offshore case. As we noted in our October 15 post, the UBS settlement with U.S. authorities in 2009 continues to reverberate in the offshore tax compliance community.

There are only two examples of how restitution awards can run into very significant amounts in tax evasion cases. When individuals are charged, it is easy to pay attention primarily to the prospect of prison time. But it is also important to realize that restitution awards can also exact a hefty price.

Source: NY1, Time Warner Cable News, "Rep. Michael Grimm to Resign in Wake of Guilty Plea," Dec. 30, 1014

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