In the Revenue Restructuring Act of 1998, Congress provided that taxpayers were to be provided a hearing before the IRS filed a lien or levy on taxpayer property. If filed timely, this involves a collection due process (CDP) hearing; if not filed timely, this involves an equivalency hearing. Typically both hearings are held before the IRS Office of Appeals. After seven years, the IRS Office of Appeals has not yet been able to produce a workable system for processing or managing the collection due process and equivalency hearings.

Earlier this month the Treasury Inspector General for Tax Administration (TIGTA) released its annual audit of the IRS collection due process and equivalency hearing procedures. This audit, which the Office of Appeals agreed with, revealed that:

  • Files could not be located,
  • Files did not contain enough documentation,
  • Files did not document the Appeals prior involvement in the case,
  • Determination letters did not contain explanations of decisions,
  • Determination letters did not communicate results of hearings to taxpayers, and
  • Files did not contain documentation showing that the CDP request was timely.

TIGTA made a number of recommendations in the audit report, all of which are steps in the right direction. However, the audit report missed one major issue: how cases get to the IRS Appeals Office. The audit report should have recommended that taxpayers submit all CDP requests to one Office or to the IRS Service Center that serves the particular taxpayer (i.e., where the taxpayer mails his or her tax returns). As things currently stand, taxpayers are to submit CDP requests to the IRS Officer that they are working with. There are a number of problems with this arrangement.

First, the taxpayer may be working with more than one office. For example, the taxpayer may be actively working with the local field office and the automated collection system office. Second, many IRS employees do not know that they should forward the CDP request to the IRS Office of Appeals and others do not even know what a CDP hearing is. I still run into situations where I have to specifically ask that the CDP request be forwarded to the Appeals Office. Recently I even had one IRS Officer tell me that he does and would not forward the request, that the CDP hearing request has nothing to do with his office, and that he was not sure what it was. In that case I had to forward the CDP hearing request to the appropriate Appeals Office myself. I knew to do this, but I would guess that many taxpayers do not.

Second, recipients of CDP requests often do not understand how to or fail to enter the appropriate code into the IRS computer system to reflect that the CDP request was received. This has the effect of keeping the case in collections status, which can result in the IRS illegally pursuing collections activities (such as levying on taxpayers assets).

Third, some IRS offices/employees are just too busy (or slow) to be able to process CDP hearing requests in a timely manner. Again, this can result in the IRS illegally levying on taxpayers assets long after the CDP hearing request was submitted.

A great number of CDP hearing requests get lost in this process. This highlights another procedural flaw: a flaw in TIGTAs annual audit process. Cases that are lost before they are processed would not even be included in the audit. The audit revealed that the cases that were processed were poorly handled, so just imagine how many requests did not even make it to the point of being processed….

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