There are quite a few rights taxpayers have, that are disregarded by the IRS, and there is no remedy when it happens. As noted in Butti v. Commissioner, T.C. Memo. 2008-82, the IRS collection due process hearing can be one of those circumstances.
The case involves a collection due process hearing, which is a legal right that taxpayers have, which IRS Appeals may try to disregard by making the hearing inconvenient for the taxpayer. This can result in unpaid taxes being collected even when doing so create hardships or should be avoided for policy reasons.
The Facts & Procedural History
The taxpayer is a former chiropractor that is serving a criminal sentence in a New York prison.
While the taxpayer was serving his sentence, the IRS issued notices of deficiency, assessed tax liabilities, and commenced collections activities. As required, the IRS notified the taxpayer of these actions by sending written correspondence to the taxpayer’s prison address.
After the tax was assessed and when the IRS began collection efforts for the tax, the taxpayer timely-filed a collection due process hearing request alleging that he was never given the opportunity to contest the underlying tax liability.
The IRS settlement officer assigned to the case, knowing that the taxpayer was incarcerated, scheduled the hearing to be held at the IRS Appeals office and asked the taxpayer to let the officer know if the hearing was not “convenient.”
The taxpayer responded with a letter indicating that he could not attend the meeting due to his being incarcerated:
I commence by thanking you for scheduling a conference on this case. Unfortunately, I am faced with two challenges: (1) I am confined to solitary until July 16, 2002 and I do not have access to a telephone, legal documents, and/or transportation to even meet with you at this time. Furthermore and due to my indigency status as granted by both Federal and State courts, I am unable to retain an attorney, certified public accountant or person enrolled to practice before the Internal Revenue Service. I am currently petitioning a professional willing to assist pro bono.
The appeals officer subsequently issued a determination upholding the IRS’s collection activities, without affording the taxpayer a hearing–even though the officer knew that the prior hearing was not “convenient” for the taxpayer.
The taxpayer brought a pro se action in the U.S. Tax Court to secure his right to a collection due process hearing.
The Collection Due Process Hearing
A Collection Due Process (CDP) hearing is a formal hearing that taxpayers can request from the IRS. The request has to be submitted in response to a notice of intent to levy or seize their assets to collect unpaid taxes or a notice of intent to levy.
This type of hearing was established by Congress in 1998 as a result of complaints from taxpayers who felt they were not given adequate opportunity to challenge the IRS’s collection efforts. The primary purpose of a CDP hearing is to provide taxpayers with an opportunity to resolve their tax issues with the IRS before it takes any further collection actions.
When a taxpayer requests a CDP hearing, the IRS must stop all collection activity until the hearing is completed, except in cases of jeopardy or fraud. This gives the taxpayer time to gather documentation and evidence to support their position, and to explore possible alternatives to collection, such as installment agreements, offers in compromise, or innocent spouse relief.
The hearing itself is conducted by an impartial settlement officer from the IRS Office of Appeals, who is tasked with reviewing the taxpayer’s case and determining whether the IRS followed proper procedures in its collection efforts. The settlement officer will consider any arguments or evidence presented by the taxpayer, as well as any documentation or testimony provided by the IRS. If the settlement officer finds that the IRS failed to follow proper procedures, the taxpayer may be able to negotiate a resolution or settlement of their tax debt.
One of the key benefits of a CDP hearing is that it allows taxpayers to challenge the underlying tax liability that is the subject of the IRS’s collection efforts. This means that taxpayers who did not have a prior opportunity to dispute their tax liability, such as those who did not receive a notice of deficiency or who missed the deadline for filing a tax return, may be able to contest the amount of tax owed.
IRS Appeals Must Accommodate Taxpayers
The IRS actually argued that the taxpayer “was given an opportunity to have a hearing in this case.” Naturally, the court did not agree with the IRS. The court found that IRS Appeals denied the taxpayer the opportunity for a hearing on the issues he had identified in his request for a hearing.
How far does IRS Appeals have to go to afford hearings? Does IRS Appeals actually have to hold the hearing at the prison? What if the taxpayer had been at a prison located in a remote area where the IRS does not have an office?
This is a common problem even for those who are not incarcerated. IRS Appeals will often not reschedule hearings, will not grant hearings in person, and its employees NEVER travel outside of their assigned appeals offices. There are numerous examples of these collection problems that end up in the courts.
Taxpayers have a legal right to a CDP hearing, which provides them with an opportunity to challenge the IRS’s collection efforts and explore alternatives to collection. The IRS is required to stop all collection activity until the CDP hearing is completed, except in cases of jeopardy or fraud. However, as seen in this case involving an incarcerated taxpayer, IRS Appeals may try to disregard the taxpayer’s right to a hearing by making the hearing inconvenient for the taxpayer. This highlights the importance of IRS Appeals accommodating taxpayers, including scheduling hearings at convenient locations and times, and allowing rescheduling when necessary.