Appealing IRS Collection Actions
Taxpayers often have to request a collection due process hearing or collection appeal program consideration to forestall the IRS’s enforced collections actions. This is often used to avoid an IRS levy.
The IRS’s Collection Due Process Hearing
The IRS’s Collection Due Process Hearing (CPP Hearing) gives taxpayers an opportunity to have the IRS Office of Appeals consider collection actions proposed by the IRS collection function.
The CDP Hearing is a right that is afforded to taxpayers in the Code. It applies to the first notice of levy issued by the IRS and the first notice of lien filed by the IRS.
The CDP hearing provisions were designed to give taxpayers an opportunity for an independent review to ensure that the levy action that has been proposed or the lien notice that has been filed is warranted and appropriate.
Taxpayers have 30 calendar days from the date on the Notice of Intent to Levy to request a levy hearing. The IRS is required to notify taxpayers within five business days by certified letter that a notice of federal tax lien (“NFTL”) has been filed. Taxpayers then have 30 calendar days beginning on the day after the five-day NFTL notification period to request a CDP lien hearing.
Taxpayers who timely request a CDP hearing are generally granted a hearing.
After a hearing request is received, Collection function office employees can continue to work with the taxpayer to resolve issues for up to 90 calendar days. If the Collection function office employee cannot resolve the taxpayer’s concerns, the Collection function will send the hearing request to Appeals. However, the Collection function office can refer a hearing request to Appeals immediately if it believes resolution of the taxpayer’s concerns is unlikely or when directed by the taxpayer to do so.
When a CDP hearing request is received, the IRS suspends the 10-year period it has to collect the taxes owed until the date the Appeals determination becomes final.
If the taxpayer timely requests a CDP hearing, levy actions on the assessments that are the subject of the CDP notice generally are suspended during the appeal period and while any court proceedings are pending, unless an exception applies.
Upon receipt in Appeals, the hearing request is assigned to an Appeals Officer. Appeals will then issue a contact letter acknowledging receipt of the request for the CDP or Equivalent Hearing, which provides the taxpayer the opportunity to discuss with Appeals the reasons for disagreement with the collection action or to discuss alternatives to the collection action.
The CDP Hearing can be used to raise issues relating to the collection methods, to propose collection alternatives, or challenge the liability (in limited circumstances). Note that the IRS does not have to consider all open years if they are not included in the CDP hearing request and the hearing may not be used to generate a refund, if you are entitled to a refund.
There may also be no remedy if the IRS does not consider the underlying tax liability if the U.S. Tax Court would not have subject matter jurisdiction over the taxes. This can come up where the taxpayer has an assessable penalty (i.e., a penalty that cannot be challenged in U.S. Tax Court). The law requires the IRS to verify that the penalty is in fact owed, but there is no tax court remedy if the IRS fails to do so (here is a case on point).
At the conclusion of a CDP or Equivalent Hearing, Appeals will generally issue a closing letter to the taxpayer stating whether the disputed lien or levy action is sustained. For CDP hearings, the closing letter is known as a Notice of Determination Letter.
If the taxpayer does not agree with Appeals’ determination from the CDP hearing, they may petition the U.S. Tax Court to request judicial review of the determination. The tax court has held the IRS to a high standard in conducting these hearings, but it does stick to the existing law during these hearings.
The IRS’s Collection Appeal Program
The IRS’s Collection Appeal Program (CAP) allows the IRS Office of Appeals to consider whether the IRS is complying with the collection laws before collection actions are allowed to continue.
The CAP can address a variety of collection actions. But the existence of or amount of liability can’t be considered. Collection alternatives, such as an offer in compromise, also cannot be considered.
Unlike CDP hearings, the determinations from CAPs are final and can’t be appealed.
Taxpayers have to submit Form 9423 to request CAP consideration. This form is submitted after requesting a meeting with the IRS collection’s group manager. The IRS will generally hold off on collections until the CAP is concluded.
The IRS Office of Appeals will then have an expedited review, usually within a few days.
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An experienced tax attorney can help ensure that the IRS and states follow these rules and that the rules are used to your benefit rather than your detriment. If your case is in collections you need to speak to an experienced tax attorney.
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