IRS Can Demand Money From Tax Fraud Convict in New Legal Twist

The Seventh Circuit court said the IRS can pursue a civil claim against a person who has already been found guilty of a federal tax crime. The decision follows a Tax Court ruling that allowed the agency to collect $371 million from former tax lawyer Paul Daugerdas under Section 6201(a)(4)(A) of the Internal Revenue Code. Daugerdas was found guilty in 2013 for creating and selling tax shelters that together produced more than $7 billion in losses. The case is the first time a federal appellate court has confirmed that the IRS may seek restitution in a civil action even after a criminal judgment.Earlier, the Second Circuit had supported the criminal restitution order for the same amount, but it did not address whether a separate civil claim could be filed. The Seventh Circuit clarified that the IRS has an independent right to recover funds through civil proceedings, which can run alongside criminal penalties. This ruling could affect other tax‑fraud cases where the government wants to recover losses that were not fully satisfied by criminal fines or prison time. It also highlights how federal tax law lets the IRS pursue multiple avenues to enforce compliance and compensate victims. The decision may encourage more aggressive civil recovery efforts, but it also raises questions about the limits of IRS power and the balance between criminal and civil enforcement.