The IRS provides administrative appeals procedures for a variety of situations. The focus of this blog is IRS appeals as they relate the resolution of an assessed federal tax debt. I will save for another day appeals procedures applicable to other issues like appeals of audit determinations or FBAR penalties. Here is a brief overview of common appeals procedures in the collections arena.
Collection Due Process Hearing
The Collection Due Process hearing (CDP) allows the taxpayer to present his/her objection to the IRS’ proposed collection action in a conference with an IRS Appeals Officer. In a CDP appeal, the taxpayer can oppose the IRS’ proposed collection efforts, and propose an alternative to enforced IRS collection of a tax debt such as an Installment Agreement, Offer in Compromise, or Currently Not Collectible Status. Additionally, taxpayers can in very limited circumstances, dispute the amount of the tax debt the IRS is attempting to collect.
A taxpayer’s right to a CDP arises upon the receipt of specific IRS notices. The notices that trigger the right to file for a CDP hearing are:
1. Notice of Federal Tax Lien and Your Right to a Hearing
Under IRC 6320;
2. Final Notice – Notice of Intent to Levy and Your Right to a Hearing;
3. Notice of Jeopardy Levy and Right of Appeal;
4. Notice of Levy on Your State Tax Refund.
A taxpayer only has 30 days from the date of the triggering notice to file for the appeal. Once the 30-day window lapses, the right to file for a CDP hearing is lost. Taxpayers with complex collection issues will want to pay close attention to this timeline if there is a chance that the taxpayer will need to seek a higher level of review beyond Appeals by petitioning the United States Tax Court. A CDP appeal is often the only mechanism for a taxpayer to get into the U.S. Tax Court to litigate a collection matter.
An Equivalent Hearing is very similar to a CDP hearing. The three primary differences are: 1. A request for an equivalent hearing can be submitted more than 30 days after a notice giving the right to a CDP is received; 2. The IRS can continue collection efforts while an Equivalent Hearing is in progress; and 3. A taxpayer cannot file a petition with the U.S. Tax Court if the Appeals decision is adverse.
Both the CDP hearing and Equivalent Hearing are requested by completing Form 12153 Request Collection Due Process or Equivalent Hearing.
Collection Appeal Program
The Collection Appeals Program (CAP) is much broader in terms of when the procedure is available. Unlike a CDP hearing, if a taxpayer receives an adverse decision from the IRS Appeals Officer, the IRS decision will generally stand and the taxpayer cannot continue the fight in U.S. Tax Court. In addition, a taxpayer cannot under any circumstance dispute the amount of a tax debt. The situations for which a CAP is available are:
1. Before or after filing of a Notice of Federal Tax Lien;
2. Before or after an IRS levy or seizure of property;
3. Termination or proposed termination of an installment agreement;
4. Rejection of an installment agreement.
In order to appeal through the CAP, a taxpayer must make an attempt to resolve a disagreement with an IRS manager. If the issue is still not resolved after speaking with or corresponding with an IRS manager, the taxpayer my submit Form 9423 Collection Appeal Request. Like the CDP, there are time frames within which the CAP must be filed and those time frames vary depending on the situation.
Appeal of an Offer in Compromise
A rejected Offer in Compromise may be appealed in one of two ways. A taxpayer may complete and submit Form 13711 Request for Appeal of Offer in Compromise. Or, a taxpayer can simply draft a letter with the following information:
1. Name, address, SSN, and daytime telephone number;
2. A statement that you want to appeal the IRS findings to the Appeals office;
3. A copy of your rejected offer letter Tax period or years involved;
4. A list of the specific items you don’t agree with and a statement of why you don’t agree with each item;
5. Any additional information you want Appeals to consider;
6. The facts supporting your position on any issue that you do not agree with;
7. The law or authority on which you are relying;
8. Sign the written protest stating this it is true under the penalties of perjury.
Regardless of the method used to request an appeal, the appeal must be requested within 30 days from the date of the IRS’s letter rejecting the Offer in Compromise. That letter will usually include instructions about how to file an appeal.
There are options available to appeal many different types of IRS determination such as the appeal of a proposed Trust Fund Recovery Penalty, appealing the denial of a request for the abatement of penalties, denial of a claim for refund, or denial of innocent spouse relief. The CDP, Equivalent Hearing, CAP and Appeal of a rejected Offer in Compromise are just a few of the common types of appeals available to taxpayers and their representatives working to resolve an assessed federal tax debt.