Restitution Order Based on Taxes Owed Is "Debt Due for Federal Tax" Under Federal Debt Collection Procedures Act & Consumer Credit Protection Act

United States v. Clayton, No. 09-31025 (5th Cir. Aug. 2, 2010) (Davis, Smith, Haynes)

How much of one's earnings may be garnished to satisfy a restitution order based on a failure to pay federal income taxes? All of them.

Clayton pleaded guilty to three misdemeanor counts of failing to file federal income tax returns for the tax years 1999 through 2001. His tax liability for those three years was $608,727. His sentence included an order that he pay restitution in that amount to the IRS.

As it turns out, Clayton was a retired riverboat pilot with the New Orleans Baton Rouge Steamship Pilots Association (NOBRA). Among other types of payments, "NOBRA . . . owed Clayton monthly payments of between $15,000 and $16,000 for life, which it described as half-pay inactive status benefits."

So after Clayton was shipped off to BOP, the United States obtained a writ of garnishment from the district court, pursuant to the Federal Debt Collection Procedures Act (FDCPA, and not to be confused with that other FDCPA, the Fair Debt Collection Practices Act). It ordered NOBRA to pay to the United States 100% of Clayton's half-pay inactive status benefits, as well as 25% of other payments, to satisfy the restitution order. Clayton appealed the 100% portion of the order.

As a threshold matter, the court had to figure out the standard of review for such an appeal. The answer: abuse of discretion. In this case, the matter was one of statutory interpretation, so that was reviewed de novo.

Onward to the merits . . . .

The United States is authorized to enforce any restitution order imposed as part of a criminal sentence by using its powers under the FDCPA. See 18 U.S.C. § 3664(m)(1)(A) (2006); 18 U.S.C. § 3613(a), (f) (2006); see also United States v. Phillips, 303 F.3d 548, 550–51 (5th Cir. 2002) (explaining the statutory scheme in detail). The FDCPA in turn authorizes the government to garnish property “in which the debtor has a substantial nonexempt interest and which is in the possession, custody, or control of a person other than the debtor, in order to satisfy the judgment.” 28 U.S.C. § 3205(a) (2006). However, the government’s power to collect restitution in general is expressly made subject to the restrictions on garnishment of section 303 of the Consumer Credit Protection Act (“CCPA”), 15 U.S.C. § 1673 (2006). See 18 U.S.C. § 3613(a)(3).

The principal restriction imposed by the CCPA is that garnishment of an individual’s disposable earnings is limited to twenty-five percent of the debtor’s weekly earnings. 15 U.S.C. § 1673(a)(1). Clayton argues that this restriction applies here to limit the garnishment of his half-pay inactive status benefits. The United States contends that 15 U.S.C. § 1673(b)(1)(C) expressly removes the garnishment order obtained here from the protection of the CCPA altogether: that subsection provides that, without qualification or exception, “[t]he restrictions of subsection (a) do not apply in the case of . . . (C) any debt due for any State or Federal tax.” 15 U.S.C. § 1673(b)(1)(C).

The question then becomes whether the restitution order constitutes a debt “due for any Federal tax.” We agree with the government that the unequivocal plain language of 15 U.S.C. § 1673(b)(1)(C) operates to eliminate the twenty-five percent garnishment limit as to this order.

The chain of reasoning is this: "any" is broad, a restitution order is a "debt", and it's "due for any Federal Tax" because it's payable to the IRS and "[o]ther circuits and the United States Tax Court have explained that the payment of criminal restitution based on taxes owed constitutes the payment of tax." And "[w]hile no state or federal court has apparently ever addressed this provision before,'[w]hen the plain language of a statute is unambiguous and does not lead to an absurd result, our inquiry begins and ends with the plain meaning of that language.'"

By the way, if like me you wonder how a riverboat pilot could rack up a $600K tax liability in three years, read this.