The Collection Due Process (CDP) procedures, which generally require IRS to give taxpayers a hearing relating to a lien or levy.
A CDP hearing relating to a lien is available in cases where the taxpayer has received notice of IRS’s filing of an NFTL (a notice of federal tax lien). A notice of filing of an NFTL will include a statement notifying the taxpayer of his right to request a hearing relating to the lien. The notice is received on Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320.
A similar method of administrative appeal through CDP procedures is available for levies. A CDP hearing before levy in available where the taxpayer has received a notice of intent to levy. A notice of intent to levy is provided on either Letter 1058,
- Final Notice,
- Notice of Intent to Levy
- and Notice of Your Right to a Hearing,
or LT 11, Final Notice, Notice of Intent to Levy and Notice of Your Right to a Hearing. The notice is accompanied by a notification in writing of the taxpayer’s right to request a hearing before levy. IRS doesn’t have to send a notice of intent to levy
(1) if it determines that collection of tax is in jeopardy,
(2) before levying on a state to collect federal tax liability from state tax refunds,
(3) for “disqualified employment tax levies,” or
(4) for certain “federal contractor levies.”
However, in such cases the taxpayer must be given a chance for a post-levy CDP hearing within a reasonable period of time after the levy.
An important advantage of CDP procedures over other types of administrative review available to taxpayers is the fact that, in CDP procedures, IRS’s final determination isn’t final. A determination in a CDP hearing may be appealed to the Tax Court.
IRS’s notice to the taxpayer informing him of his right to a CDP hearing will generally include Form 12153, Request for a Collection Due Process or Equivalent Hearing, which the taxpayer may use to request a hearing. But a written request in any form is acceptable if it requests a CDP hearing and includes the taxpayer’s name, address, daytime telephone number (if any), and taxpayer identification number (SSN, ITIN or EIN), the type of tax involved, the tax period at issue, a statement that the taxpayer requests a hearing with Appeals concerning the proposed levy or the filing of the NFTL, and the reason or reasons why the taxpayer disagrees with the proposed levy or the filing of the NFTL. The request for a CDP hearing must be signed by the taxpayer or the taxpayer’s authorized representative, and dated.
CDP procedures are only available if the taxpayer requests a CDP hearing within a 30-day period. This 30-day period is calculated, in the case of levies, from the day after the taxpayer receives notice of his right to a hearing, and, in the case of liens, from the day after the end of the five-day period within which IRS must provide notice to the taxpayer of the filing of a notice of federal tax lien. A mailed request must be postmarked within the 30-day period, but doesn’t have to be received within that period. These time limits can’t be waived and a taxpayer who fails to meet them can’t get a CDP hearing. He may, however, still be able to get a so-called “equivalent hearing.” An equivalent hearing is substantially the same as a CDP hearing in its procedures, but has a major flaw in that the hearing determination is not subject to judicial review.
A written request submitted within the 30-day period that does not satisfy content requirements is considered timely if the request is perfected within a reasonable period of time. If the request for a CDP hearing is untimely, either because the request was not submitted within the 30-day period or not perfected within the reasonable period provided, the taxpayer will be notified of the untimeliness of the request and offered an equivalent hearing. In these cases, the taxpayer may obtain an equivalent hearing without submitting an additional request.
Regardless of whether the CDP procedure relates to a lien or a levy, if the taxpayer requests a hearing, the hearing will be conducted by an officer or employee in IRS’s Office of Appeals who did not previously participate in matters involving the taxpayer and the unpaid tax at issue. Both types of CDP hearings are informal and neither the taxpayer nor his representative has the right to subpoena and examine witnesses. A CDP hearing doesn’t require a face-to-face meeting but a taxpayer can ordinarily get one, unless he makes only irrelevant or frivolous arguments. Neither type of CDP procedure is available to nominees of, or persons holding property of, the taxpayer.
The taxpayer may raise at a CDP hearing any relevant issue relating to the unpaid tax or the proposed levy, including appropriate spousal defenses, challenges to the appropriateness of collection actions, and offers of collection alternatives (alternatives usually are installment agreements or offers in compromise). Challenges to the appropriateness of collection actions can include claims that the taxpayer received a discharge in bankruptcy or that the statute of limitations on collection has expired or that the liabilities are currently not collectible. A taxpayer may also challenge the existence or amount of the underlying tax liability for any tax period, but only if he did not receive a statutory notice of deficiency for that liability or did not otherwise have an opportunity to dispute that tax liability.
A $5,000 penalty is imposed upon any person who submits a request for a CDP hearing (or submits any one of certain other types of specified submissions) if any portion of the submission is either based on a position which IRS has identified as frivolous, or reflects a desire to delay or impede the administration of federal tax laws. IRS may also treat that portion of the submission as if it had never been submitted (i.e., dismiss it out of hand). However, the penalty is clearly aimed at those who abuse the process and should not deter taxpayers with legitimate disputes from using the CDP process.
Unless the taxpayer provides IRS with a written withdrawal of the request that IRS conduct a CDP hearing, IRS must issue a notice of determination in all cases where a taxpayer has timely requested a hearing. After the hearing, IRS issues its determination by sending the taxpayer a notice of determination by certified or registered mail. Within 30 days of the determination, the taxpayer may appeal the determination to the Tax Court.