Collection Due Process
As a general rule, under Internal Revenue Code Section 6330(a), the IRS must first issue notify the taxpayer of their right to an administrative hearing before they can levy (take by force) a taxpayer’s property. After receiving such a notice or letter, the taxpayer may request an administrative hearing (i.e., a collection due process or CDP hearing). The request should be filed within 30 days of the date of the CDP letter or notice.
The CDP hearing will be conducted typically by telephone with a Settlement Officer or Appeals Officer working in the IRS Office of Appeals. Assuming the appeal was timely filed, an unhappy taxpayer who wishes to contest the Appeal’s determination may request a trial in the U.S. Tax Court. During the time of the appeal, including consideration by the U.S. Tax Court if a petition was filed, the IRS will be prevented from enforcing collection during the period from the filing of the appeal thru the date of final determination – plus 30 days. It should be understood that the collection statute of limitations (CSED in IRS lingo) will be suspended for the period of time the IRS is prevented from enforcing collection.
To best understand the CDP process, it would be helpful to provide an overview of how the administrative tax process works.
Code Sec. 6330(a)(1) requires the IRS to give a taxpayer written notice when IRS intends to levy upon the taxpayer’s property. The IRS is only required to send the notice to the last known address. If a taxpayer has moved, they should file Form 8822 to update their address with the IRS. Otherwise, they may not receive this very important notice and be prevented from pursuing relief through a CDP proceeding.
The notice (usually Letter 1058 or LT11) must inform the taxpayer of their right to request an administrative Collection Due Process (CDP) hearing in the Appeals Office. The hearings may in limited circumstances be face-to-face; however, most often, they are conducted by telephone or by mail.
The IRS Office of Appeals has the jurisdiction to make a determination of the appropriateness of the proposed enforcement action. The Appeals Office will consider any issues raised by the taxpayer that relate to the unpaid tax or proposed levy, including offers of collection alternatives, appropriate spousal defenses, and challenges to the appropriateness of the collection action.
At a CDP hearing, a taxpayer may challenge the existence or amount of his or her underlying tax liability only if the person did not receive a notice of deficiency or did not otherwise have an opportunity to dispute such tax liability. However, a taxpayer is otherwise precluded from contesting the existence or amount of the underlying tax liability at the hearing. Appeals must also consider whether the collection action balances the need for efficient collection against the person’s concern that collection be no more intrusive than necessary.
A taxpayer may appeal the Appeals Office’s determination to the Tax Court within 30 days of the date of the written determination letter, and if an appeal is timely filed, the Court will then acquire jurisdiction with respect to the matter.
To be able to challenge a proposed enforcement action in Appeals, the taxpayer must file a Collection Due Process Appeal (form 12153) within 30 days of the date of the Letter 1058 or LT11 mailed to the taxpayer. That letter advises the taxpayer of the intent to enforce collection and the right to a hearing before Appeals. If the taxpayer fails to file the 12153 within 30 days, but does so before 1-year from the date of the 1058 or LT11, they are entitled to an “Equivalent Hearing” before Appeals. However, there are two distinct difference between that type of hearing and a Collection Due Process hearing.
a. There it NO APPEAL to the US Tax Court if the Appeals Office reaches a conclusion in an Equivalent Hearing that the taxpayer wishes to dispute.
b. There is no prohibition by Collection Division (Compliance) employees (such as in ACS or Field Collection) from enforcing collection of the underlying liability. Practically, however, the IRS will back off if Appeals has agreed to accept and review the case in an Equivalent Hearing.
Therefore, it is critical that taxpayers respond timely and file the Form 12153 within the 30-day time period from the date of their Letter 1058 or Notice LT11.