The Treasury Inspector General for Tax Administration (“TIGTA”) recently released a report on the IRS Office of Appeals program for its Collection Due Process (“CDP”) hearings. CDP hearings are an administrative procedure that allows taxpayers to appeal the filing of a lien or a notice of intent to levy by the IRS.
The government audit found that a significant portion of the IRS Appeals CDP and equivalent hearing closed case files requested by TIGTA could not be located or did not contain sufficient documentation. The report also noted that determination letters that did not clearly explain the hearing officer’s decisions or did not address all issues raised by taxpayers may cause confusion and increase taxpayer burden. Furthermore, in some cases, IRS Appeals did not consistently verify the suspension of collection activity when a CDP hearing request was received timely.
This article delves into the details of the TIGTA report and its implications for taxpayers.
About Treasury Inspector General for Tax Administration
The stated mission of TIGTA is to support and promote fair tax administration and good government by providing independent oversight of IRS activities. The organization aims to achieve this mission through the provision of audit and investigative services that promote economy, efficiency, and integrity in the administration of the internal revenue laws.
TIGTA’s audits and investigations are designed to identify and address areas of vulnerability and risk within the IRS, with the ultimate goal of improving IRS operations and ensuring that taxpayers receive fair and efficient service. TIGTA also works to prevent fraud, waste, and abuse within the IRS, and to ensure that IRS employees comply with the law and adhere to high ethical standards.
This usually culminates in audit reports, which is what the current post covers. This particular report covers the IRS Office of Appeals program for its CDP hearings.
About CDP Hearings
CDP hearings are an administrative procedure that allows taxpayers to appeal the filing of a lien or a notice of intent to levy by the IRS. The CDP hearing is a legal right afforded to taxpayers under the tax code. These rights are set out in Sections 6320 and 6330.
When the IRS files a notice of lien or a notice of intent to levy, it must notify the taxpayer of their right to a CDP hearing. The purpose of the hearing is to allow the taxpayer to contest the filing of the lien or levy and to propose alternative collection arrangements. The CDP hearing is conducted by an independent office of the IRS called the Office of Appeals.
During the hearing, the taxpayer has the opportunity to provide additional information and documents, and to discuss payment options and other alternatives to the lien or levy. The hearing officer will consider the taxpayer’s arguments and evidence and will issue a determination letter that sets out the Appeals office’s decision.
If the taxpayer disagrees with the determination, they may have the right to challenge it in court. The CDP hearing is an important safeguard for taxpayers to ensure that the IRS follows proper procedures and that taxpayers are treated fairly in the collection of taxes.
TIGTA’s Audit Findings
This brings us to TIGTA’s audit findings.
The audit found that a significant portion of the IRS Appeals CDP and equivalent hearing closed case files requested by TIGTA could not be located or did not contain sufficient documentation. The IRS could not even produce the files. This made it difficult for TIGTA to even determine whether all IRS Appeals actions were appropriate and whether IRS Appeals complied with legal guidelines and required procedures to protect taxpayer rights.
In the cases where the IRS produced files, TIGTA noted that most were missing records and were incomplete. The audit also showed that there were instances where hearing officers did not comply with the procedural and legal requirements to document whether they had any prior involvement with the unpaid tax. Moreover, some IRS Appeals determination letters did not even contain clear and detailed explanations of the basis for the hearing officers’ decisions and did not adequately communicate the results of the hearings to the taxpayers.
No Evidence of IRS Determinations
There is nothing worse than having an IRS collection issue and having to pursue an appeal, only to have the appeal closed with no explanation. This is an injury-on-top-of-injury situation. The TIGTA audit report found that this is common with CDP hearings.
The report found that several IRS determination letters, which are required by law, did not contain explanations of the hearing officer’s decision or did not address all the issues raised by taxpayers in their hearing requests. Specifically, the report estimated that 307 CDP cases did not include determination letters with clear explanations of the hearing officers’ decisions, and an additional 461 CDP cases did not include determination letters that addressed all specific issues raised in the taxpayers’ hearing requests. That is nearly 1,000 taxpayers who did not get the attention that is required by law.
The report noted that determination letters that do not clearly explain the hearing officer’s decisions or do not address all issues raised by taxpayers may cause confusion and increase taxpayer burden. Moreover, such determination letters may not adequately communicate to the taxpayer that the proposed collection action balances the need for efficient collection of taxes with the concerns of the taxpayer.
The report recommended that the Chief of IRS Appeals, remind hearing officers and managers conducting case reviews of the procedure to provide a clear and complete explanation in determination letters and to adhere to guidance such as that contained in the Determination Letter Guide. According to the TIGTA Report, the management of IRS Appeals agreed with the recommendation and incorporated an example of how to prepare the determination letter in both the Determination Letter Guide and the latest revision of Appeals procedures.
IRS Continues Collections Even After Appeal Filed
When we said there is nothing worse than not getting notice of the IRS collection decision, well, there is something worse. That is filing a collection appeal, when the law says that all collection actions have to stop, only to have the IRS continue its collection actions.
The TIGTA audit found that in some cases, IRS Appeals did not consistently verify the suspension of collection activity when a CDP hearing request was received timely. Suspension of collection activity is initiated by the entry of a code into the taxpayer’s account on the IRS computer system, which is generally entered by IRS Collection function employees before and after the IRS Appeals hearing. In 10 of the 80 cases sampled by TIGTA, the IRS Appeals case files did not contain documentation to indicate verification of the timeliness of the hearing request and the date suspension of collection activity should begin. In 2 of the 10 audit cases, the IRS computer codes were not entered into the taxpayers’ accounts when IRS Appeals received the hearing requests.
It does not stop there. The report estimated that 1,534 CDP cases in the review period did not contain the verification statement and supporting documentation, and of these, an estimated 307 did not have collection activity suspended for the duration of the IRS Appeals hearing. In addition, an estimated 154 CDP cases did not have the expiration date for the collection statute recalculated.
The report recommended that the Chief of IRS Appeals, remind hearing officers and managers conducting case reviews of the procedure to verify hearing requests are properly screened for timeliness and correctness of the collection activity suspension, and to include a statement and supporting documentation in the Appeals case file to indicate verification was conducted. The TIGTA Report notes that IRS Appeals management agreed with the recommendation and is planning to assume full responsibility for the initial input of the computer codes that signal the suspension of collection activity and the recalculation of the expiration date for the collection statute. Until IRS Appeals assumes this responsibility in late 2005, employees will apparently be reminded of the verification and documentation requirements through meetings and training.
The IRS Appeals function is arguably the most important function in our system of tax administration. Unfortunately, CDP hearing cases often get pushed to the back and not enough attention is put on them. This is unfortunate not only as there are instances where the IRS is not living up to the letter of the law, it is also unfortunate in that those who file these appeals are the ones that likely need the most help from the IRS. Since the IRS is not taking its obligations seriously, taxpayers who owe back taxes have to be extra vigilant. This may include actively asking IRS employees whether these issues have been addressed in their cases.