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

Chicago, IL, USA,Tuesday, March 31, 2026

The Seventh Circuit has ruled that the Internal Revenue Service (IRS) may file a civil lawsuit against an individual who has already been convicted of a federal tax crime. This decision follows a Tax Court ruling that enabled the agency to seek $371 million from former tax lawyer Paul Daugerdas under Section 6201(a)(4)(A) of the Internal Revenue Code.

Key Points

  • Daugerdas’s Conviction
  • Found guilty in 2013 for creating and selling tax shelters that produced more than $7 billion in losses.
  • First appellate confirmation that the IRS can pursue restitution even after a criminal judgment.
  • Comparison with Prior Rulings
  • The Second Circuit had upheld a criminal restitution order for the same amount but did not address civil claims.

  • The Seventh Circuit clarified that civil proceedings run independently and can coexist with criminal penalties.

  • Implications for Future Cases
  • Could affect other tax‑fraud cases where criminal fines or prison time do not fully recover losses.

  • Highlights the IRS’s ability to use multiple enforcement avenues to compensate victims.

  • Broader Impact
  • May encourage more aggressive civil recovery efforts.
  • Raises questions about the limits of IRS power and the balance between criminal and civil enforcement.
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