The IRS Collection Due Process hearing program has many uses. If you know how to play the game, an IRS Collection Due Process hearing can get an aggressive Revenue Officer off of your back, delay collections to buy you time to get your finances in order, or dispute a lien or other collection action. If the war is just getting underway, you probably have a right to an IRS Collection Due Process hearing… and you should make use of that tool.
You have a right to an IRS Collection Due Process hearing in any of the following circumstances:
- the first time a Notice of Federal Tax Lien is filed on a tax period,
- before the IRS levies your property,
- after the IRS levies your property under a jeopardy levy, and
- after the IRS levies your state tax refund.
Note that the IRS might file numerous federal tax liens on a particular year. You have a right to object to the first lien, not subsequent liens that are filed to cover interest accrued on the primary tax debt.
“On a tax period,” usually means a tax year. So, if the IRS files a lien today on tax year 2012, you have a right to appeal that lien in an IRS Collection Due Process hearing. If the IRS files another lien on tax year 2013, you can get a second IRS Collection Due Process hearing. However, if the IRS files tax liens for 2012 and 2013 at the same time, you have only one appeal right to dispute both.
A tax period can also mean a quarter, rather than a calendar year, when you are dealing with payroll taxes or certain civil penalties. In these cases, you may have multiple opportunities for IRS Collection Due Process hearings.
You also have a right to an IRS CDP hearing if you file the proper forms before the IRS levies your bank account or paycheck. Once the levy has been issued, you are left to deal with the revenue officer.
This is to say that you must file a request for an IRS Collection Due Process hearing within 30 to 45 days of receiving a Final Notice of Intent to Levy, usually referred to as a CP-504 notice. If you don’t respond in time, or you didn’t receive the letter and had no idea that the IRS was about to empty your bank account, that’s too bad. Once the IRS has your cash in hand, you are facing an uphill battle to get it back.
The exception to the above is that you can file an IRS Collection Due Process hearing request after any IRS jeopardy levy. This is because the IRS does not give you notice of a jeopardy levy. These are used when the IRS fears you will send assets out of the country and out of their reach, or that you will sell an asset before they can perfect their lien or control over that property. Jeopardy levies are rare and, if you are the subject of one, you probably have a significant IRS debt and need to hire professional representation.
Like a jeopardy levy, the IRS is not required to send you notice before taking your state tax refund. If you have an IRS tax debt, you should be aware that the government will keep any and all tax refunds.
If you believe an IRS tax lien or levy is an error, you can raise those issues during the IRS Collection Due Process hearing. More often a tax professional will use the IRS CDP hearing to delay the collection process and give his client time to get their financial affairs in order.
It is standard operating procedure to request and negotiate an installment agreement during the IRS Collection Due Process hearing. This keeps it out of the hands of a more aggressive Revenue Officer and prevents a bank levy from “inadvertently” being issued by that RO while you are attempting to negotiate in good faith.
You can also use the IRS CDP process to push back against an aggressive Revenue Office. By filing for an IRS Collection Due Process hearing, you may move your collection matter away from the RO to appeals. From there, you can negotiate an installment agreement.
To request an IRS Collection Due Process hearing, you file Form 12153, Request for a Collection Due Process Hearing, within 30 days. If you miss the deadline, the opportunity is lost. A late petition will get you before an appeals agent, but not a true CDP hearing.
Your IRS CDP hearing request may raise the following issues:
- appropriateness of collection actions,
- collection alternatives, such as installment agreements, Offer in Compromise, penalty abatement, and being listed as temporarily uncollectible,
- innocent spouse claims, or
- dispute the amount owed (available only if this issue has not been determined).
Once the form is filed, the IRS will schedule a haring by phone or in person, usually within 30 – 60 days. The IRS 10 year collection statute will be on hold during this time, so think before you file.
If you disagree with the result of your IRS CDP hearing, you can appeal to the U.S. Tax Court or U.S. District Court, which can keep the IRS from collecting for years, but also delays the 10 year collection statute for just as long. If you file a CDP request, you have no appeal rights – the CDP hearing becomes a more common appeals conference with no legal significance.