Challenging IRS Collection Action via the Collection Due Process Appeal

When you have outstanding tax liabilities, the IRS has the authority to pursue collection of your tax debt by filing a tax lien against you, garnishing your wages, or taking money out of your bank account. Taxpayers have federally recognized due process rights which require that the IRS provide taxpayers with notice and an opportunity to be heard with respect to IRS collection action.
A Collection Due Process Appeal can prevent the IRS from placing a lien on your assets or garnishing your wages while at the same time providing a forum to establish an affordable, alternate means of resolution. This article explores the kinds of IRS notices that trigger a taxpayer’s due process rights, how to request a hearing, what to expect at the hearing, and provides an overview of the benefits and consequences of pursuing this type of appeal.

Appeal of IRS Collection Actions

When you have outstanding tax liabilities that remain unsatisfied or unresolved, the IRS may pursue collection via the filing of a tax lien (public notice of the government’s legal claim to your property in the amount of the tax debt) and the issuance of a tax levy (seizure of assets whether via bank levy or garnishment).

Taxpayers have due process rights which require fair treatment in the tax collection process. This requires that they be given sufficient notice of IRS collection action and then have the opportunity to challenge it, before it occurs in the case of a levy or at the time it occurs in the case of a tax lien. Taxpayers may appeal IRS collection action or proposed action to the IRS Independent Office of Appeals. The IRS Office of Appeals is a separate and independent body from IRS Collections, which was established to provide a distinct and impartial forum for tax dispute resolution that is fair to the taxpayer and avoids litigation.

A Collection Due Process (CDP) Appeal is reserved specifically to challenge IRS tax liens and tax levies. Taxpayers can request a CDP Hearing if they receive any of the following notices or letters from the IRS:

• Letter 1058 Final Notice of Intent to Levy and Notice of Your Right to a Hearing;
• Letter 11 Final Notice of Intent to Levy and Notice of Your Right to a Hearing;
• CP90 Final Notice of Intent to Levy;
• CP92 and Cp242 Notice of Levy Upon Your State Refund;
• Letter 3172 Notice of Federal Tax Lien Filing and Your Right to a Hearing;
• CP298 Final Notice Before Levy of Social Security Benefits;
• Letter 2439 Notice of Jeopardy Levy and Right of Appeal.

You can request this type of appeal if the collection notice that the IRS sends you informs you specifically of your fight to request a Collection Due Process Hearing and provides instructions as to how to make such a request. While you cannot request a CDP hearing to appeal IRS collection action for frivolous reasons, if your current financial circumstances prevent you from paying the tax debt or if you seek to resolve your tax debt via one of the IRS programs (e.g., offer in compromise/irs-offer-in-compromise/, installment arrangement) this would be an appropriate basis for a CDP Appeal.

One of the benefits of filing a CDP Appeal is that it stops IRS Collection activity pending the outcome at the appeals hearing. If the IRS has sent a notice of intent to levy and the taxpayer timely files a request for CDP Hearing, the IRS will not be able to move forward with its levy. If the IRS has sent a notice of filing of federal tax lien, the tax lien has already been filed however, the taxpayer can challenge the filing of the lien or seek removal of it at the CDP Hearing.

One perceived negative consequence of the CDP Appeal is that it tolls the collection statute of limitations. The IRS typically has 10 years to collect an unpaid tax which runs from the date the tax was originally assessed. When a taxpayer files a request for a CDP Hearing within the 30-day statutorily prescribed time period, the IRS must suspend all collection activity until the taxpayer has an opportunity to challenge the same at the hearing. This has the effect of extending the time that the IRS has to collect unpaid tax (i.e., it delays the expiration of the 10-year collection period).

How to Request a CDP Hearing and What to Expect

Taxpayers looking to appeal an IRS notice of tax lien or levy must complete IRS Form 12153 Request for a Collection Due Process Hearing or Equivalent Hearing within 30 days from the date on the notice. The Form must identify the reasons for disagreeing with the tax lien or tax levy and identify alternatives to the lien or levy.

The IRS guidelines provide examples of acceptable reasons to pursue a request for CDP hearing which include:
• Collection of the tax liability will cause an economic or other hardship;
• Challenge of the existence or amount of the tax where the taxpayer did not receive a notice of deficiency;
• Withdrawal of notice of federal tax lien;
• Subordination or discharge of tax lien;
• Collection alternatives such as an installment agreement or not collectible status;
• Spousal defenses such as innocent spouse relief or injured spouse relief.

Form 12153 should be mailed to the address on the notice of tax lien or tax levy. Taxpayers are encouraged to retain proof of mailing in case there is any issue regarding the date of mailing which is necessary to determine whether you are eligible for CDP Appeal or Equivalency Appeal (discussed in the next section). Each notice pertains to a specific kind of tax and a specific tax period. Your request for appeal must similarly identify the same tax and tax period that relate to the notice on which the request for appeal is based.

The IRS Office of Appeals will notify you upon receipt of the request and will schedule a hearing with an Appeals Officer which may be held by telephone, correspondence, in person, however informal, telephonic hearings are most common. If you are requesting a collection alternative such as an IRS payment plan, the Appeals Officer may require that you submit evidence of filing compliance (tax returns) and information relating to your financial circumstances (collection information statement).

At the conclusion of the hearing, the Appeals Office will send the taxpayer a Notice of Determination letter which explains:
• Whether the IRS met procedural requirements while trying to collect the tax;
• Issues raised by the taxpayer during the hearing;
• Terms of any agreement reached between the Appeals Officer and the taxpayer.

If the taxpayer disagrees with the results of the hearing, he or she will have 30 days from the date on the Notice of Determination by appeal the findings by filing a petition in U.S. Tax Court.

Statutory Appeal vs. Equivalency Appeal

A statutory appeal in the context of a request for a CDP Hearing is one that is filed timely within the statutorily prescribed 30-day time period following receipt of a notice of filing a federal tax lien or a final notice of levy. In these situations, the statute requires that IRS Collection action be suspended pending the outcome of the appeals hearing, where the taxpayer will have an opportunity to challenge the tax lien or levy and/or propose collection alternatives.

If you miss the 30-day window, you can file late and request an equivalency appeal using the same Form 12153. However, a request for an equivalency hearing must be made within 1 year from the date on the notice of tax lien or tax levy. Also, the IRS is not legally required to suspend collection activity pending the outcome of an equivalency hearing, although it sometimes does. The equivalency hearing is identical to a statutory hearing in other respects.

Do You Need a Tax Attorney?

A tax attorney can help you understand whether you can legally request an appeal to challenge IRS collection activity and what kind of appeal you are eligible to pursue. A successful appeal can avoid unwanted tax liens or levies while establishing a collection alternative, such as an affordable payment plan.

The experienced tax attorneys at Segal, Cohen & Landis have helped clients avoid IRS collection activity by providing the following services:

• Obtain IRS account transcripts and wage and income transcripts to assist clients with filing compliance;
• File Request for Collection Due Process Hearing;
• File Request for Equivalency Hearing;
• Represent clients on appeal at the Hearing;
• Establish offer in compromise, installment arrangement, not collectible status, and/or penalty abatement on appeal;
• File a Petition in the U.S. Tax Court to challenge a Notice of Determination.

If you are interested in having a complimentary consultation with one of our partner attorneys regarding your tax matter, please feel free to contact us at 866-505-1872. We would be happy to advise you as to how we can resolve your case and how much it would cost.