Third Circuit Limits Restitution in Tax Conspiracy Convictions to Unreported Bribe Payments Made by Persons with the Requisite Intent To Defraud the IRS

July 15, 2013Articles White Collar Defense & Compliance Blog

In United States v. Munchak, 2013 WL 2382618 (3d Cir., May 31, 2013), defendants Munchak and Cordaro, two Lackawanna County, Pennsylvania commissioners, were charged with demanding thousands of dollars in payments from entities seeking county contracts. Each was convicted of multiple offenses, and Cordaro in particular was convicted of conspiracy to defraud the United States and the IRS. Cordaro was also ordered to pay restitution of $98,856 in connection with the count of conviction relating to his conspiracy to defraud the United States and IRS in relation to income taxes, brought under 18 U.S.C. § 371.

On appeal, Cordaro argued that the District Court should not have imposed restitution at all, because restitution is not permissible for tax offenses under Title 26, and so should not be permissible for tax conspiracy offenses brought under Title 18. Cordaro further argued that, even if the District Court could impose restitution, the District Court abused its discretion by imposing restitution in an amount that exceeded the loss resulting from the conspiracy for which he was convicted.

The Third Circuit agreed that Title 26 makes no provision for restitution as a penalty, but noted that Cordaro was convicted for a tax conspiracy offense under Title 18, which of course allows restitution to be ordered. Thus, the sentencing judge did not err in imposing restitution. However, the appeals court agreed that the government had calculated the actual restitution amount too broadly. The government’s restitution calculation, adopted by the sentencing judge, determined that Cordaro owed $98,856 in taxes based on illegal, and unreported, payments he received between January 2005 and January 2008 from multiple hopeful contractors.

But the Third Circuit held that, as to two of the four individuals and entities from whom Cordaro received illegal payments during the relevant time period, there was no evidence that those persons had the requisite intent to enter into a conspiracy or to agree to defraud the IRS.

Accordingly, since the loss caused by the conduct underlying an offense of conviction – here, conspiracy to defraud the IRS — establishes the outer limits of a restitution order, Cordaro could not be assessed a restitutionary obligation for other payments made by non-conspirators since those payments did not fall under the offense of conviction. The case was remanded for a more accurate restitution calculation.

[To be continued in Part II]