As a result of the 1998 IRS Restructuring & Reform Act taxpayers were given Collection Due Process Hearing rights which they must be advised of before enforced collection action can occur.
When taxpayers request a Collection Due Process Hearing a number of good things happen:
- Collection activity will cease.
- The case is sent to a Settlement Officer to review.
- The taxpayers ensure their ability to take their case to Tax Court.
Despite these important benefits, less than 3% of taxpayers request a Collection Due Process Hearing. In many cases, the failure by taxpayers to request a hearing is due to a lack of understanding of the process.
What Triggers Your Right to a Collection Due Process Hearing?
Taxpayers are given an opportunity to request their Collection Due Process appeal rights when a Notice of Federal Tax Lien (NFTL) is filed or when the IRS issues a Final Notice of Intent to Levy. Upon receipt of either the NFTL or intent to levy, the taxpayer has 30 days to request a hearing by filing Form 12153, Request for Collection Due Process Hearing or Equivalent Hearing.
When you complete Form 12153 you must choose from a list of collection alternatives. If you fail to propose a collection alternative then your request will not be considered valid and the hearing will be over before you ever meet with a Settlement Officer. We recommend that you select all three alternatives. This tells Appeals that you are keeping your options open.
Once the request for a Collection Due Process Hearing is received by the IRS, collection activity ceases for the tax periods contained in the notice. However, if the IRS so chooses, it is permitted to continue collection on tax periods for which the Collection due process rights have expired.
Example: Anna owes taxes to the IRS for tax years 2016 and 2017. She was in an installment agreement but defaulted when she filed her 2020 return with a new balance owed that she was unable to pay. She received a Final Notice of Intent to Levy for the 2020 year and filed Form 12153 to request a Collection Due Process Hearing. Collection will cease for 2020, but the IRS may continue collection activities for the 2016 and 2017 years, which are not covered by the new 2020 request.
When you owe taxes for back years as well as newer tax years that are covered by a Collection Due Process Hearing request, you’ll need to consider contacting IRS collections to avoid levy action against your assets.
Example: While Anna is waiting for her Collection Due Process Hearing hearing with an IRS Settlement Officer, her tax resolution specialist completes a Collection Information Statement and mails it to IRS Collections requesting a new installment agreement. It will also be given to the Settlement Officer once you are notified of the hearing.
By providing Collections with a request for an installment agreement, there should be no enforcement activity by the IRS against Anna for the older tax years. Now Anna must wait to see who will provide her with an installment agreement: Collections or Appeals.
The Collection Due Process (Appeals) Hearing
After receiving your request for a hearing, Appeals will assign your case to a Settlement Officer who will send a letter to you and your representative. The letter will indicate what information the Settlement Officer needs to consider your case.
Typically, you’ll need to provide the following documents in advance of the hearing:
- Any unfiled tax returns
- Proof of your tax compliance regarding current tax payments.
- A Collection Information Statement (Form 433).
- A proposal of the resolution requested
The hearing is normally done by phone, however, if requested, it can be conducted in person at the IRS Appeals Office.
Based on the information provided to the Settlement Officer you’ll explain the taxpayer’s financial condition and present your position why the IRS should accept the taxpayer’s proposal.
The Settlement Officer will issue a Notice of Determination and the taxpayer can either agree or disagree with the determination. If it is an agreed case, the IRS will set-up the agreed-upon proposal, if not the taxpayer can take the case to the United States Tax Court.
Collection cases that go to Tax Court must do so on what is called an “abuse of discretion” standard of review, which means that the taxpayer bears the burden of proving the IRS abused its discretion in not granting the taxpayer the collection alternative requested.
The abuse of discretion standard presents a difficult hurdle for a taxpayer to overcome. In reality, the taxpayer must show that the Settlement Officer who conducted the appeal either did not do the job or failed to consider information that they should have when making the decision.
If a taxpayer misses the 30-day period to request a Collection Due Process Hearing hearing they still have up to one year from the date of the letter to request an “Equivalent Hearing.” An Equivalent Hearing is similar to a Collection Due Process Hearing, with two major differences. In an Equivalent Hearing, the taxpayer does not have the right to go to Tax Court if the IRS and taxpayer disagree. Whatever the Settlement Officer decides is final.
The other significant difference is that the IRS does not have to stop its collection efforts.
Get Help with Your Collection Due Process Hearing
The tax professionals at East Coast Tax Consulting Group have the necessary experience and knowledge to help you reach a successful outcome at your Collection Due Process Hearing. Call us today at 561-826-9303 to schedule your consultation.