Tenants by Entireties Exemption From Federal Criminal Restitution

When a court finds that a client has improperly taken money from consumers or investors in violation of federal or state laws the court may order restitution to the “victims” . Restitution orders require the debtor to pay money to the government agency on behalf of the victims. Ordinary asset protection may not protect against restitution.

One of my clients recently was subject to a criminal restitution order to compensate victims of his violation of a federal consumer protection law. The client wanted to know whether property owned by client and spouse as tenants by entireties is exempt from U.S. government restitution orders against one spouse.

Federal agencies may impose criminal restitution pursuant to 18 U.S.C. 3663. Restitution awards are enforceable by the IRS. The IRS may collect restitution using all tools available to collect income tax. The IRS may disregard common law tenants by entireties exemption in the collection of taxes owed by either spouse. The U.S. Supreme Court has ruled that the IRS may take one-half of the taxpayer’s interest in entireties property to collect taxes owed individually by either taxpayer. Similarly, the IRS may liquidate entireties property to collect criminal restitution judgments against either spouse.

Page last updated on May 22, 2020

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