The Collection Due Process Hearing is your best opportunity to finally resolve your tax liabilities in the most favorable terms.
Your timely request for a CDP hearing will prohibit levy action in most cases. A timely request for CDP hearing will also suspend the 10-year period the IRS has, by law, to collect your taxes. The 10 year period known as the collection statute starts from the date the tax liability is assessed.
Both the prohibition on levy and the suspension of the 10-year period will last until the determination the IRS Office of Appeals makes about your disagreement is final. The amount of time the suspension is in effect will be added to the time remaining in the 10-year period. For example, if the 10-year period is suspended for six months, the time left in the period we have to collect taxes will be extended by six months. You can go to the United States Tax Court to appeal the CDP determination made by the IRS Office of Appeals on your case.
When the IRS mails to you the Notice of Federal Lien Filing or the Final Notice of Intent to Levy; you have the right to a Collection Due Process Hearing.
Liens and levies are two different collection actions. A lien is a claim used as security for your tax debt, while a levy actually takes the property from you to satisfy the tax debt. A levy is a legal seizure of your property to satisfy a tax debt.
If you have just received Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, means that the IRS has filed a Notice of Federal Tax Lien against you for the unpaid tax liability. If you believe that the Federal Tax Lien filing was inappropriate, you need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your lien notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.
If you have just received Letter L-1058 or LT11, “FINAL NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING UNDER IRC 6330,” means that the IRS will seize your property to satisfy the unpaid tax liability unless the liability is paid in full.
Other letters known as notices are mailed by the IRS to taxpayers to inform them of the IRS’s Final Notice of Intent to Levy. Notice CP 90 is a Final Notice of Intent to Levy letter. Notices CP 92 and CP 242 are final notices to inform you of the intent to levy your state tax refund. CP 91/298 is the final notice that the IRS intends to levy fifteen (15) percent of your monthly Social Security benefits.
If you believe that the intent to levy is inappropriate, you need to file a Form 12153, Request for A Collection Due Process Hearing and send it to the address shown on your levy notice within 30 days from the date of the letter in order to appeal the action with the Office of Appeals.
When you receive Letters 3172, 1058, 11 or any other notice from the IRS that offers a Collection Due Process Hearing, do not ignore them! You need to protect your Collection Due Process Hearing rights by submitting Form 12153 to the IRS within the time frame indicated in the letters or notices. Generally, this is your last chance to resolve your case in the Appeals Division with the right of appeal to the United States Tax Court.
The Collection Due Process hearing is conducted either by telephone or face-to-face with an Appeals Settlement Officer. Under most circumstances, you have the right to attend the Collection Due Process Hearing in person with an Appeals Settlement Officer.
At the Collection Due Process Hearing for a Notification of Federal Tax Lien, you will always be allowed to discuss the appropriateness of the lien filing. You may request for a lien withdrawal which means you are asking the IRS to remove the Notice of Federal Tax Lien (NFTL) from public records because you believe the NFTL should not have been filed. For example, you may ask for a withdrawal of the filing of the NFTL if you believe the IRS filed the NFTL prematurely or did not follow procedures, or you have entered into an installment agreement and the installment agreement does not provide for the filing of the NFTL. You may request withdrawal of the NFTL if it will speed collecting the tax, or withdrawal would be in your best interest (as determined by the Taxpayer Advocate), and in the best interest of the government.
At the collection due process hearing, you may ask for the amount of the unpaid balance and pay it in full. Then you may request that the NFTL be released. A released NFTL stays on your credit report for 7 years from the date released. If the NFTL is withdrawn, the NFTL will be removed from your credit report. Then, after the NFTL is released, you may request that the NFTL be withdrawn.
You may also request a lien subordination or discharge.
When you request lien subordination, you are asking the IRS to make a Federal Tax Lien secondary to a non-IRS lien. For example, you may ask for a subordination of the Federal Tax Lien to get a refinancing mortgage on your house or other real property you own. You would ask to make the Federal Tax Lien secondary to the mortgage, even though the mortgage came after the tax lien filing. The IRS Office of Appeals would consider lien subordination, in this example, if you used the mortgage proceeds to pay your taxes.
When you request a lien discharge, you are asking the IRS to remove a Federal Tax Lien from a specific property. For example, you may ask for a discharge of the Federal Tax Lien in order to sell your house if you use all of the proceeds to pay your taxes even though the sale proceeds will not fully pay all of the tax you owe.
You may also request for a lien discharge on property that the interest of the United States in the property has no value. Such an example would be a piece of property that the purchase money mortgage exceeds the fair market value of the property and you are attempting to sell it in a “short” sale.
At the Collection Due Process Hearing for a Final Notice of Intent to Levy, you will always be allowed to discuss the appropriateness of the intent to levy. You may be able to argue that a levy on your assets may cause undue hardship, such as not being able to pay your medical bills or the medical bills of a sick child.
At either the due Collection Due Process Hearing for a Notice of Federal Tax Lien Filing or the Collection Due Process Hearing for a Final Notice of Intent to Levy. Under the proper circumstance, you will be able to raise many issues that if resolved favorably will first reduce your unpaid tax liability and then allow you an alternative method of paying your remaining unpaid tax liability.
Generally, an increase in tax can only be assessed with a signed waiver from the taxpayer, a defaulted Notice of Deficiency or and entered decision document with the United States Tax Court.
If the Notice of Deficiency was not mailed to the last known address, the assessment of the tax is not valid. If the tax was assessed after the statute of limitation for the assessment has expired, the assessment of the tax is not valid.
If the unpaid tax is attributable to your filed original return, but you have evidence that it was computed incorrectly, you may provide evidence at the Collection Due Process Hearing that the return was completed incorrectly and you be held liable only for the correct tax. If you did not receive the Notice of Deficiency and you can prove that you did not receive the Notice of Deficiency; you have the right to raise the issue that the additional tax is incorrect and provide evidence to recompute the tax to a lower amount. If the IRS can’t prove that you received the Notice of Deficiency at the Collection Due Process Hearing, you will have the right to raise the liability issue and show that the adjustments made to your tax return are not correct. An example would be a Notice of Deficiency showing the full disallowance of your charitable deductions, but you have the records to prove the disallowed amounts. Then the tax would be recomputed to a lower amount. If penalties were applied based on the Notice of Deficiency that you did not receive, you may raise the issue that the penalties were not applicable due to reasonable cause.
If you meet the requirements of the innocent spouse provisions, you will not be held liable for the unpaid liability to the extent the tax is attributable to your spouse.
At the Collection Due Process Hearing, you can raise the issue that the failure to file and/or failure to pay penalties should be abated due to reasonable cause, such as sickness, natural disasters or excess medical bills.
The IRS has the authority to abate the amount of interest that accrued during the period in which there was an unreasonable error or delay in performing a ministerial or managerial act. It applies only when an unreasonable error or delay occurred after the date the IRS contacted the taxpayer in writing with respect to an audit.
A person with specific experience with the Collection Due Process Hearing procedures would be able to make a determination whether the above issues can be properly raised.
At the Collection Due Process Hearing, you will always be allowed to raise collection alternatives, even if you previously raised them with the Collection Division and they rejected them.
You can make monthly payments through an installment agreement if you’re not financially able to pay your tax debt immediately. During the Collection Due Process Hearing, the IRS will determine the amount of monthly payment based on your income and expenses.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a viable option, if you can’t pay your full tax liability, or doing so creates a financial hardship. During the Collection Due Process Hearing, the IRS will determine an acceptable amount of the offer by taking into account your assets and your future income potential.
If you can prove during the Collection Due Process Hearing that you do not have the funds to pay the tax liabilities, no assets for the IRS to levy and no income above the amount to cover your necessary living expenses; the IRS will consider you to be “currently uncollectible.” This means the IRS will temporarily stop collection actions against you based on hardship. The IRS will review your financial situation to determine if it is improving to the point that they will start collection enforcement.
During the Collection Due Process Hearing, request that the Settlement Officer provide you with transcripts of your account. From transcripts, you will be able to determine the remaining statute of limitation for collections. The statute of limitations for collecting the tax liability is generally 10 years from the date the IRS assessed the tax liability. During the time that the case is in “currently uncollectible” status, the statute of limitation for collecting the tax liability is still tolling. Once the 10 year period for collecting the tax liability has expired, the IRS can no longer collect the unpaid tax liability.
At the conclusion of the CDP hearing, the Appeals Division will issue a determination letter. If you do not agree with the determination, you may request judicial review of the determination by petitioning the United States Tax Court within the time period provided for in the Appeals’ determination letter.
Appeals will retain jurisdiction over its determination. You may return to Appeals, if you believe that the Collection Division did not carry out the Appeals’ determination as it was stated or if there is a change in your circumstances that affects Appeals’ determination. However, you must first try to work with Collection to resolve the problem.
Make sure you make a TIMELY request!