Challenging IRS Collection Action via the Collection Due Process Appeal

When tax liabilities remain unpaid, the IRS may file a Notice of Federal Tax Lien or, after meeting applicable requirements, levy wages, bank accounts or other property. Taxpayers have rights to notice and an opportunity to challenge specified collection actions. A timely Collection Due Process (CDP) request generally restricts covered levies, subject to statutory exceptions, and provides a forum to consider collection alternatives. It does not categorically prevent filing a notice of lien. This article explains which notices offer CDP rights, how to request a hearing, what Appeals considers, and the benefits and consequences of using this procedure.

Appeal of IRS Collection Actions

A federal tax lien is the government’s legal claim against a taxpayer’s property when the statutory conditions for the lien are met. Filing a Notice of Federal Tax Lien gives public notice of that claim; the filing is distinct from the lien itself. A levy actually takes property or rights to property, such as money in a bank account or wages. These different actions have different CDP notice and hearing rules.

CDP generally gives taxpayers an opportunity to request a hearing before the first levy for a particular unpaid tax and period. For a lien, the IRS must provide the CDP notice within five business days after filing the first Notice of Federal Tax Lien for that tax and period. Certain levies instead carry a right to a hearing after the levy: jeopardy levies, state tax refund levies, disqualified employment tax levies and federal contractor levies. The IRS Independent Office of Appeals is separate from the IRS Collection office that took or proposed the action, but remains part of the IRS. Its role is to review disputes impartially; a hearing does not guarantee agreement or avoid all litigation.

A CDP hearing addresses specified IRS tax lien notice filings and levy actions. Read the actual notice for a statement of CDP rights and its deadline. Examples include:

• Letter 1058 or LT11: a final levy notice with hearing rights;
• CP90: a final notice of intent to levy with hearing rights;
• CP92 or CP242: notice of a levy on a state tax refund with post-levy hearing rights;
• Letter 3172: notice that a federal tax lien notice was filed, with hearing rights under section 6320;
• Letter 2439: notice of a jeopardy levy and appeal rights;
• Other notices expressly offering a post-levy CDP hearing, including qualifying employment tax or federal contractor levy notices.

CP298 warns of a levy on Social Security benefits. Do not assume that this warning creates a new CDP request period: check the notice and any earlier CDP notice for the same liability. A hearing request must state legitimate reasons for disagreement or proposed alternatives. For example, explain financial hardship or propose an offer in compromise or installment agreement. A request based only on frivolous arguments or an intent to delay collection can be disregarded. Proposing an alternative does not establish eligibility or require the IRS to accept it.

A timely CDP request does not stop every kind of IRS collection activity. Covered levy action is generally suspended during the hearing and related judicial review, subject to statutory exceptions. The special post-levy categories described above remain important, and a court may permit levy in specified circumstances while an appeal is pending. Filing a CDP request does not automatically withdraw an existing Notice of Federal Tax Lien or bar a new filing. At a lien hearing, the taxpayer can challenge the filing and seek appropriate lien relief, but withdrawal, discharge, subordination and release are different remedies with different conditions.

The IRS generally has 10 years from assessment to collect an unpaid tax, subject to extensions and suspensions. A timely CDP request suspends the applicable collection period from the IRS’s receipt of the request until withdrawal or a final determination, including related litigation. If fewer than 90 days remain when the determination becomes final, the collection period is extended to leave 90 days. This gives the IRS additional time to collect; a hearing request does not erase the debt or stop ordinary interest and applicable penalty accruals. Review the account’s actual assessment dates and all other suspension events before calculating an expiration date.

How to Request a CDP Hearing and What to Expect

Use IRS Form 12153 or a signed written request containing the required information. For a levy CDP notice, the 30-day request period generally begins the day after the notice date. For a lien CDP notice, it begins the day after the five-business-day period following the filing of the Notice of Federal Tax Lien. Follow the notice’s stated filing deadline and check any applicable weekend, legal-holiday or other deadline rules. Do not count from the day you happen to open the envelope. Identify the disputed taxes and periods, your reasons, and any proposed alternatives. Related guidance: tax lien.

Issues that may be considered, depending on the facts and applicable restrictions, include:
• Economic hardship caused by collection;
• The existence or amount of the underlying tax liability, generally only when the taxpayer neither received a statutory notice of deficiency in time to petition Tax Court nor otherwise had a prior opportunity to dispute that liability;
• Withdrawal of the Notice of Federal Tax Lien, or discharge of particular property from the lien or subordination of the lien;
• Collection alternatives, such as an installment agreement, offer in compromise or currently not collectible status;
• Appropriate spousal defenses, including qualifying innocent spouse relief.

Mail the signed request to the address on the CDP notice and retain the notice, a copy of the request and reliable proof of timely mailing. Identify every tax and period for which a hearing is requested, and attach a copy of the notice. If both lien and levy actions are involved, identify both. Discussions with Collection do not extend the hearing deadline. A separate injured spouse allocation request generally concerns recovery of a taxpayer’s share of a refund applied to a spouse’s debt; it is not interchangeable with innocent spouse relief from liability. Issues already raised and considered in a prior administrative or judicial proceeding in which the taxpayer meaningfully participated may be barred from reconsideration in CDP.

Appeals will arrange a conference, which may proceed by telephone, correspondence or, when the requirements are met, face to face. CDP hearings are informal rather than trials. To evaluate a collection alternative, Appeals may require financial statements, supporting records and delinquent returns, as well as compliance with applicable current filing, payment or deposit requirements. The requirements vary by alternative; hardship-based currently not collectible treatment has distinct rules. Supply the requested evidence and raise relevant issues during Appeals, because later court review may be limited to the issues and record developed there.

Unless the CDP request is withdrawn or the applicable closing procedure provides otherwise, Appeals issues a Notice of Determination. It addresses verification of legal and administrative requirements, issues properly raised, and whether collection appropriately balances efficient tax collection against unnecessary intrusiveness. It also explains the result, any collection alternative or agreement, and relevant next steps. An equivalent hearing ordinarily ends with a Decision Letter instead.

A taxpayer seeking review of a CDP determination generally must petition the U.S. Tax Court within 30 days after issuance of the Notice of Determination. This is different from the deadline to request the IRS hearing. In Boechler, P.C. v. Commissioner, the Supreme Court held that the Tax Court petition deadline under section 6330(d)(1) is not jurisdictional and can be subject to equitable tolling. That does not create an automatic extension or excuse an ordinary late filing. Follow the determination’s deadline and promptly obtain advice if it has been missed; separate statutory suspension rules or review periods for other claims may also matter.

CDP, Equivalent Hearings and the Collection Appeals Program

A timely CDP request preserves the statutory hearing process and the possibility of Tax Court review of its determination. It generally restricts covered levies and suspends the collection period under the applicable rules. Lien and levy request periods differ, and a later reminder ordinarily does not restart an expired period for the same tax liability. Additional assessments or a valid substitute notice can require separate analysis.

If the CDP request is late, ask specifically for an equivalent hearing, including by checking the appropriate box on Form 12153. The request generally must be made within one year after the levy notice date or, for a lien matter, within the one-year period beginning the day after the five-business-day period following the lien notice filing. An equivalent hearing considers similar issues but does not itself trigger CDP’s statutory levy prohibition or collection-period suspension. The IRS may pause levy as an administrative matter, subject to exceptions. Its Decision Letter generally does not carry CDP judicial-review rights; separate review may be available for qualifying innocent spouse or interest-abatement determinations, or a dispute about whether the original CDP request was timely.

The Collection Appeals Program (CAP) is a separate procedure for a broader range of collection decisions, including proposed lien filings, levies, seizures and certain installment-agreement decisions. It generally moves faster, but it does not provide a forum to contest the underlying tax liability or a right to court review of the CAP decision itself. Its procedures and short deadlines vary by action. Consult Publication 1660; do not treat a CAP request as a substitute for a timely CDP request.

Do You Need a Tax Attorney?

A tax attorney can assess the notice, deadlines, available issues and evidence, and help propose a collection alternative. Representation cannot guarantee that a lien will be withdrawn, a levy prevented or a payment proposal accepted. You may represent yourself before Appeals or use an eligible representative, such as an attorney, certified public accountant or enrolled agent; representation ordinarily requires an appropriate power of attorney. Tax Court representation has separate admission requirements.

Services to discuss with Segal, Cohen & Landis (SCL), depending on the engagement and your circumstances, include:

• Obtain and review account and wage-and-income transcripts to help identify filing and collection issues;
• Prepare a timely request for a Collection Due Process hearing;
• Request an equivalent hearing when available;
• Represent the taxpayer at the Appeals hearing;
• Evaluate and request an offer in compromise, installment agreement, currently not collectible status or penalty abatement, where the applicable eligibility and procedural rules permit;
• Assess and, where appropriate, file a Tax Court petition to challenge a CDP determination through counsel admitted to practice there.

For a complimentary consultation with one of our partner attorneys, contact (310) 285-3999. Bring the IRS notices and any filing deadlines so that we can discuss available options, the proposed scope of representation and fees.