Collection Due Process
The Collection Due Process (CDP) hearing procedure was created by the 1998 Reform Act to give taxpayers rights to appeal lien and levy actions.
Section 6321 provides for an automatic lien in favor of the United States upon all property, and rights to property, belonging to the taxpayer if, after notice and demand, the taxpayer neglects or refuses to pay the tax for which the taxpayer is liable. This lien is not valid as against any purchaser, holder of a security interest, mechanic’s lien or judgment lien creditor until notice is given by recording the lien. Notice is given by recording the lien in the public records office in the county where the taxpayer lives or in the county where the taxpayer owns property. § 6323. If the state does not have a county recording system, the IRS sends the notice to the Secretary of the State. Even if the taxpayer does not own property when the lien is filed, the lien will attach to any property that the taxpayer may own in the future, if the lien has been recorded.
The IRS is required to notify a taxpayer in writing within five days after it files a Notice of a Tax Lien. IRC §6320. The IRS must also send the taxpayer written notice at least 30 days prior to a Notice of Levy. IRC §6330. These statutory notices must specify the amount of the tax liability and must state that the taxpayer has a right to request a CDP hearing within 30 days. The notice must also outline the administrative appeals rights of the taxpayer and the provisions and procedures to obtain the release of the levy or lien. These notices are called the Collection Due Process Hearing Notices (CDP Notices). Unlike decisions in CAP hearings, the determination of the Appeals Officer following a CDP hearing is subject to judicial review.
If a taxpayer wishes to dispute the IRS’s proposed collection action, the student attorney should complete and have the client sign the Form 12153. The Form and an explanation of the proposed collection alternative (if there is time) should be sent to the IRS office which sent the CDP notice. A taxpayer has this right to appeal attached to the first collection due process notice for each year. In some cases, the CDP notice is a second or third notice issued over a number of years. The subsequent notices do not contain the CDP rights. However, the taxpayer can request an “equivalent” Collection Appeal Request (CAP) hearing. The only difference in the two hearings is that the taxpayer has the option to appeal to the United States Tax Court the final determination only if a decision was rendered after a CDP hearing , not after the “equivalent” hearing.. The Tax Court’s jurisdiction is limited to whether the taxpayer’s due process rights were violated.
If a taxpayer or a third party has property impacted by the IRS Notice of Federal Tax Lein or a collection action, that party can also pursue a right to appeal by sending a completed Form 9423 (Collection Appeal Request) signed by the taxpayer or third party to the IRS office proposing to take the action by certified mail.
The IRS is required to serve the Notice of Levy or Notice of Lien in person, either at the taxpayer’s home or office or send a notice to the taxpayer’s last known address by certified or registered mail, return receipt requested. If a taxpayer does not receive a properly transmitted notification, the 30-day period to request a hearing does not begin to run. If the notice is not received because it was improperly transmitted, the IRS must provide a substitute notice, and the 30 day period starts the day after the date of the correct notice.
Once a hearing has been requested, the IRS may not execute the levy on the taxpayer’s property. If a deficiency that generated the liability is at issue, the collection activity is also suspended while the judicial appeal is pending. However, the IRS is permitted to seize property immediately following the issuance of a Notice and Demand for payment under IRC § 6331 (d)(3)if the collection of the tax is in jeopardy. If the collection of tax is in jeopardy or the IRS is levying on a state tax refund, a CDP Notice prior to the levy is not required. However, the IRS will provide a post-levy CDP notice, and the taxpayer will be entitled to a hearing.As a general rule, a student attorney should request on Form 12153 a face-to-face conference in Atlanta. In many situations the settlement officer initially assigned the case will require that the client prepare a Form 433-A (Not OIC) before the request will be granted.
A CDP hearing is conducted by an impartial employee of the IRS Office of Appeals. The Appeals Officer should have no prior involvement in the issue that resulted in the collection of the unpaid liability. CDP hearings are conducted informally at the Appeals office. No transcript is taken of the conference and no oath or affirmation is taken. At the conference, the Appeals Officer will consider:
- The validity, sufficiency, and timeliness of the CDP Notice and the request of the CDP hearing
- Any relevant issue relating to the unpaid tax raised by the taxpayer at the hearing
- Any appropriate spousal defenses raised by the taxpayer at the hearing
- Any challenges by the taxpayer to the appropriateness of the collection action
- Any offers for collection alternatives made by the taxpayer and
- Whether the proposed collection action balances the need for the efficient collection of taxes and the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary.
At the hearing, the taxpayer may also challenge the existence of the liability or the amount of the liability only if he (1) did not receive a Statutory Notice of Deficiency, (2) did not receive it in time to file a Tax Court petition or (3) did not have any opportunity to dispute the liability. The taxpayer may not raise an issue that was raised and considered at a prior administrative or judicial hearing.
Prior to issuing a determination, the Appeals Officer is required to obtain verification from the IRS office collecting the tax that the requirements of any applicable law or administrative procedure have been met.
Generally, the IRS will not grant an installment agreement or accept an offer-in-compromise if any tax return for which the taxpayer has a filing requirement has not been filed. I.R.M. 22.214.171.124.1(4)-(6) (Sept. 26, 2008) (installment agreements): 126.96.36.199(1),(2),(4) (Sept 23, 2008) (offers-in-compromise);As to reporting an account currently not collectable the IRS no longer will automatically decline a request if all the other indicators show that the client cannot meet the living standards. 188.8.131.52.9 (05-22-2012).
However, the client should file delinquent returns as compliance is still required to submit an offer in compromise or enter into an installment agreement., 184.108.40.206.3 (June 2, 2004 (general procedures).
The Appeals Office will issue its findings in a dated Notice of Determination sent by certified mail or registered mail to the taxpayer. While there is no time limit on when the IRS must issue its findings, the regulations require the Appeals Officer to conduct the hearing “as expeditiously as possible.” Once the finding is issued, the taxpayer has 30 days to request judicial review by filing a petition in Tax Court or U.S. District Court. Student attorneys should assume that judicial review should be requested; however, the decision to do so is made by the Clinic Director.
The Notice of Determination is required to:
- State whether the IRS met the requirements of any applicable law or administrative procedure;
- Decide any allowable issue raised by the taxpayer at the hearing (for example, challenges to the liability, spousal defenses, the appropriateness of the collection action);
- Decide whether the levy is required for the efficient collection of taxes in light of a taxpayer’s concern that the collection action be no more intrusive than necessary;
- Set forth any agreements reached with the taxpayer, any relief given to the taxpayer, and any actions that the taxpayer or IRS are required to take; and
- Advise the taxpayer that the judicial review to the Tax Court or a U.S. District Court must be sought within 30 days of the date of the Notice of Determination (Temporary Reg. §301.6330-1T(e)(3), Q&A -E7)
Request for Judicial Review
A request for judicial review of a finding in a Notice of Determination is in the form of a petition ot the Tax Court and it must be filed within 30 days of the date appearing on the Notice of Determination.
The court will apply a de novo review standard if the amount of the liability is at issue. All other issues are reviewed under an abuse of discretion standard.
While a judicial appeal is pending, the IRS may levy if (1) the underlying tax liability is not at issue and (2) the IRS shows good cause for not suspending the levy.
In no event shall the IRS commence the levy process until the ninetieth day after the day on which there is a final determination in such hearing. If the IRS proceeds during this time of suspension, the taxpayer can petition the U.S. Tax Court for an injunction, enjoining the IRS from proceeding.
If the taxpayer has gone through the appeals process and has either paid the taxes or the IRS has conceded that the taxes are not owed, the IRS must then issue a Certificate of Release of Lien within thirty days after either the taxes have been paid, set aside, or the statute of limitations on collections has expired. Once the taxpayer receives a Certificate of Release of Lien, the taxpayer should mail photocopies to the credit bureaus.
If a tax lien has been filed in error, either because the taxpayer never owned anything, or more likely, the tax bill has previously been paid, the student attorney should notify the IRS that the lien has been filed in error and request a Certificate of Release of lien. If after thirty days the IRS has not sent a Certificate of Release of Lien, the student attorney should write to the Chief of Special Procedures at the IRS office where the lien was filed explaining the circumstances. Finally the student attorney should be aware that certain property is exempt from a levy proceeding, the exempt property is described in section 6334.
If the Settlement Officer and client reach an agreement, no final determination is issued. The Setltement Officer will request that the taxpayer sign a “Withdrawal of Request for Collection Due Process or Equivalent Hearing” (Form 12256) in conjunction with the resolution of the matter. For instance, if as a collection alternative the taxpayer submits an offer in compromise, agrees to an installment agreement or the settlement officer agrees to place the account in currently not collectable then the taxpayer will execute the Form 12256 as part of the resolution of the matter.
IRC §6015(e): Petition for review by Tax Court
IRC §6330: Notice and opportunity for hearing before levy
IRC §6320: Notice and opportunity for hearing upon filing of notice of lien
TD 2002FED ¶ 47,017: Treasury Decision 8979, (Jan. 17, 2002)
Temp. Reg. §301.6330-1: Notice and opportunity for hearing prior to levy
Documents on IRS.gov
Request for Due Process Hearing
IRS Form 12153
Collection Appeal Rights
IRS Publication No. 1660