Dougherty Electric: Criminal Restitution Did Not Erase the Company’s Civil Tax Assessments

Dougherty Electric preserved one refund theory well enough to obtain a remand, but that theory failed on the merits. In Dougherty Electric, Inc. v. United States, No. 20-1254 (Fed. Cl. Oct. 16, 2026), the court distinguished the owner’s criminal restitution obligation from the company’s civil tax assessments. A rule limiting additions to a restitution-based assessment did not invalidate interest and penalties arising from a separate civil examination.

The owner’s restitution and the company’s examination were separate

The owner pleaded guilty to tax evasion in 2008 and was ordered to pay $1,633,471 in restitution. The restitution included corporate employment-tax losses, personal income-tax losses and interest on specified amounts. A separate civil examination of the company covered 17 quarters, with nine quarters at issue in this refund litigation. The IRS assessed civil fraud penalties, and the company paid $1,534,504.37 in tax, penalties and interest on December 11, 2015. Opinion, pages 1–3.

The company later relied on Klein v. Commissioner, 149 T.C. 341 (2017). As the October opinion explained it, Klein limited interest and penalties added to a criminal restitution-based assessment under section 6201(a)(4), while leaving the IRS free to pursue civil interest and additions through a separate examination. The company attempted to use that limitation to obtain a refund from its civil tax account.

Two refund theories took different procedural paths

A December 7, 2017 protective claim raised the Klein theory. An April 2018 modified claim added an argument concerning supervisory approval of penalties under section 6751(b)(1); the opinion notes that this submission came more than two years after payment and was untimely. Nine formal Forms 843 followed in August 2018, and the IRS disallowed the claims. Pages 2–3.

The trial court initially dismissed for lack of jurisdiction under the substantial-variance doctrine. On appeal, the Federal Circuit separated the two grounds. It held that the general claim doctrine allowed the timely Klein ground to proceed after the later formal claims cured defects. The later supervisory-approval ground was not rescued by the asserted exceptions. The partial vacatur and remand therefore did not reopen every argument the company wanted to pursue. Pages 3–5, discussing 182 F.4th 963 (Fed. Cir. 2026).

Rehearing was denied October 2, and the appellate mandate issued October 9. The October 16 opinion addressed the preserved Klein theory on remand. A successful jurisdictional argument had opened the door to that issue; it had not established a right to a refund.

The complaint gave notice, but notice did not make the theory viable

The government argued both that the complaint inadequately pleaded the theory and that it failed on the merits. The court declined to dismiss merely because the theory was not repeated expressly in each count. Read liberally, the complaint’s discussion of Klein and section 6201(a)(4) gave fair notice under the pleading rules. Pages 5–6.

That ruling did not cure the substantive problem. An adequately described legal theory still must apply to the assessment being challenged. The court then examined the statute, the timing of the restitution order and the nature of the company’s payment.

The restitution-assessment limitation did not govern these civil assessments

Section 6201(a)(4) concerns assessing and collecting specified criminal restitution as if it were tax. The opinion noted that its effective-date provision applied to restitution ordered after August 16, 2010, while the owner’s order dated from 2008. But the court identified a clearer defect: The company was challenging its civil tax liability, not an IRS assessment of the owner’s restitution. Pages 6–7.

The company’s reading also overlooked Klein’s distinction between a restitution-based assessment and a separate civil examination. As quoted and discussed in the October opinion, Klein left the IRS free to examine returns and seek civil interest and additions to tax through that process. The company had paid liabilities produced by just such a civil examination. The asserted limitation on additions to restitution did not supply the requested refund.

This reasoning concerns the legal basis of the challenged amounts. It should not be restated as a universal rule that restitution payments receive no credit, or that duplicate collection is permissible. The opinion did not perform a general reconciliation of every possible criminal and civil account.

The court dismissed the remaining theory on the merits

The court granted the government’s Rule 12(b)(6) motion and directed judgment for the United States. This was not another dismissal of the preserved theory solely for lack of jurisdiction. The distinction matters when describing the appeal: The company obtained review of the theory but did not show that the governing law entitled it to relief. Page 7.

The supervisory-approval ground remained outside the remand. Nothing in this October merits ruling establishes that the penalties satisfied—or violated—the approval requirement on the underlying facts.

What to compare before making a similar refund argument

Identify the taxpayer, assessment basis, periods and components of the amount challenged. Then compare the criminal judgment, civil examination report, account records, payments and refund submissions. A case about additions to restitution is useful only if it fits the actual charge being disputed.

Also separate preservation from merits. A timely protective claim can preserve an identified ground in appropriate circumstances without preserving every later theory or proving the ground correct. Our protective-claim guide addresses that filing task. Our restitution and civil-account guide addresses the different practical task of reconciling the two sets of records.