Collection Due Process Hearings – Opportunity to Settle Tax Debts
September 2, 2016 1:53 am
By Patrick Binakis, Esq., LL.M (Tax), and Karen Tenenbaum, Esq., LL.M (Tax), CPA
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The Internal Revenue Service (“IRS”) Restructuring and Reform Act of 1998 (“RRA 98”) celebrated its 18th anniversary this July. This groundbreaking piece of legislation is important for many reasons, perhaps the most notable of which is its grant to taxpayers of collection due process (“CDP”) rights in connection with enforced collection action by the IRS.
In its 18-year history, CDP has had (and continues to have) a lasting impact on tax litigation. The frequency with which CDP cases are litigated are far-reaching as they account for more than one-third of all of the nation’s tax litigation.
This article provides an overview of a taxpayers’ CDP rights, including the procedure on how to request a CDP hearing and how a CDP hearing is conducted under the Internal Revenue Code (“IRC”).
Notification to the Taxpayer
Before the IRS can pursue collection by lien or levy, the IRS must first notify the affected taxpayer in writing of his or her right to a hearing under the IRC with an impartial Appeals officer. As applied to liens and levies, these notices have historically taken the form of a Notice of Federal Tax Lien and Your Right to a Hearing Under I.R.C. 6320 or a Notice of Intent to Levy and Notice of Your Right to a Hearing.
Requesting a Hearing
As to the procedure to request a hearing, a taxpayer requests a CDP hearing by filing with the assigned revenue officer or to the IRS Service Center issuing the final notice (if no revenue officer is assigned) a Form 12153, Request for a Collection Due Process or Equivalent Hearing. The filing of the Form 12153 is the mechanism by which a CDP case can be transferred from the IRS’s Collection division to Appeals, and in turn, the only means by which a taxpayer can obtain judicial review of Appeals’ determination.
Where a hearing is requested in response to the filing of a final CDP notice, the revenue officer or IRS Service Center will forward the Form 12153 and all supporting documents to Appeals, which will then assign the CDP hearing request to an Appeals officer. Importantly, a taxpayer is allowed only one hearing with respect to the taxable period to which the unpaid tax specified in the final notice relates, so it is important that all defenses and arguments are raised in the Form 12153 or a properly filed supplement.
Assignment to Appeals
After a CDP hearing request is assigned to Appeals, the assigned Appeals officer determines whether the proposed collection action may proceed. The Appeals officer’s determination in this regard is governed by standards set forth in the IRC. These standards require the assigned Appeals officer to consider appropriate spousal defenses, challenges to the appropriateness of the collection action, and potential collection alternatives such as an installment agreement, and offer in compromise, among others.
Notice of Determination
Following the hearing, Appeals issues a notice of determination setting forth the Appeals’ officers findings and decisions as to whether the proposed collection action may proceed. Importantly, this determination must (A) verify that the requirements of applicable law and administrative procedure have been met, (B) consider relevant issues raised by the taxpayer concerning the collection actions, and (C) whether the proposed collection action balances the need for efficient collection of tax with the taxpayer’s legitimate concern that the collection action be no more intrusive than necessary. The taxpayer, in turn, may petition the Tax Court for judicial review of the notice of determination. Appeals retains jurisdiction over CDP cases even though a petition was filed with the Tax Court. This concurrent jurisdiction is the means by which the Tax Court may remand a case to Appeals to conduct a supplemental or new hearing.
Benefit to the Taxpayer
CDP procedures can provide tremendous benefits, providing a fair and equitable process for both the IRS and taxpayers. These benefits, as with many things, do not come without issues, as CDP routinely appears in annual reports to congress identifying the most serious problems encountered by taxpayers. As a result, it is important that taxpayers or their representatives know their CDP rights, and preserve their ticket to tax court if necessary.
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This post was written by Patrick Binakis