Collection Due Process

IRS Collection Due Process Hearings: An Overview

You have the right to request a Collection Due Process (CDP) hearing if you disagree with the IRS’ decision to file a tax lien or impose a tax levy against you. The right to request a CDP hearing comes from Sections 6320 and 6330 of the U.S. Tax Code and this right exists to make sure the IRS treats you fairly. This includes ensuring the IRS follows the required protocols before taking or encumbering your property. Let’s take a closer look at the CDP hearing process and how and when you might make use of it. 

Key Takeaways

• What is a CDP hearing – These hearings let you appeal collection actions and suggest payment arrangements.
• Requesting a hearing – You can request a hearing if you receive a final notice of intent to levy and notice of your rights to a hearing.
• Form 12153 – Use this form to request a CPD or equivalent hearing.
• What to expect – During the hearing, you explain how the collection action affects you and talk about alternatives.
• What if you disagree with the outcome – You can appeal the results of your CDP hearing.
• Missing the deadline – If you miss the 30-day deadline, you can request an equivalent hearing.
• Representation – A tax attorney, CPA, or enrolled agent can represent you at a CPD hearing.

What Is a Collection Due Process Hearing? 

A CDP hearing allows you to challenge the basis for the lien or levy, dispute the amount owed, and/or propose alternative settlement options for the outstanding tax balance. By allowing you to appeal and challenge tax collection actions (like liens and levies), your constitutionally protected due process rights are honored. 

When Can You Request a CDP Hearing? 

You can request a CDP hearing just before the IRS files a lien or issues a levy to collect unpaid taxes from you. This is usually when the IRS sends you a tax collection final letter or notice concerning a tax lien or levy. Until you get this letter or notice from the IRS, your right to have a CDP hearing will not exist. 

Types of Notices from the IRS Indicating Your Right to a CDP Hearing 

When the IRS notifies you about an impending lien or levy, they’ll often send you a series of correspondences. These will remind you about your outstanding tax balance while maybe mentioning a lien or levy being a possibility. But they’ll soon shift their tone and before you know it, you’ll get a letter warning you that if you don’t immediately pay off your tax bill or make arrangements with the IRS to make payments over time, the IRS will take further action, including placing a lien on your property and/or taking it outright.

When you receive a notice that reflects this shift in tone and warns you about an impending levy or lien, it will also tell you about your right to request a CDP hearing. The precise wording of these notices will vary, but they almost always have the following wording near the top of the notice: Final Notice of Intent to Levy and Notice of Your Right to a Hearing. 

Here are some of the more common IRS notices that will tell you when it’s time to ask for a CDP hearing:

• Notice of Federal Tax Lien Filing (Letter 3172)
• Final Notice of Intent to Levy and Notice of Your Right to a Hearing (Letter 1058)
• Notice of Jeopardy Levy and Right of Appeal (Letter 2439)
• Notice of Levy on Your State Tax Refund and Notice of Your Right to a Hearing (Notice CP92)
• Final Notice Before Levy on Social Security Benefits (Notice CP298)
• Post Levy Collection Due Process Notice
• Notice of intent to levy assets and your right to a hearing — CP77

In addition to explaining that the IRS plans to issue a federal tax lien or levy your assets, these notices will outline how to request the CDP hearing and when you must do so. Generally speaking, you’ll have 30 days from the notice date to appeal the tax lien or levy with a CDP hearing.

In some situations, the IRS may serve the levy before it sends you the notice informing you of your right to a CDP hearing. This might happen if the IRS levies your state tax refund or levies payments you’re to receive as a federal contractor. In these situations, you may end up requesting the CDP hearing after the levy has been served. 

Requesting a Collection Due Process Hearing 

The process begins with completing IRS Form 12153, Request for a Collection Due Process or Equivalent Hearing. You might be able to complete this form yourself, although if you’re having trouble, don’t hesitate to ask a tax professional for help. They might be especially helpful when deciding among various tax collection and settlement alternatives, such as installment agreements, offers in compromise, or hardship. If applicable, you can also request innocent spouse relief.

Form 12153 Instructions 

The 12153 form is four pages long, but you only need to fill out the first two pages as the last two are instructions. In box one, note if you’re appealing a federal tax lien or a levy. In box two, tick that you want an equivalent hearing if you’re filing this form after the 30-day deadline. 

Box three asks for your name, tax ID number, and address, while box 4 wants your phone numbers and the best time to reach you—remember, this hearing will likely happen over the phone. Box five and six collect the name and phone number of the second taxpayer if relevant. 

In box 7, you note the type of tax, tax form number, and tax period. For instance, if you owe $10,000 in income tax from a 1040 return from 2018, you note those details. If you owe money from a payroll tax return, an estate return, or another type of return, note those details.

Box eight is the most important part because that’s where you explain why you’re requesting a hearing. If you’re requesting a CDP hearing because you disagree with the tax owed, you should note one of the following reasons on the form:

• • I am not liable for the tax. You can only use this option if you didn’t receive a deficiency notice explaining why you owe the tax. For example, this may occur if you were subject to an audit but you missed all of the notices and didn’t participate.
  • I want to claim innocent spouse relief. This program provides relief to people who are being held responsible for their current or former spouse’s tax liability that was due to underreporting the tax without their knowledge.

• My taxes were discharged in bankruptcy. Note that bankruptcy doesn’t discharge all taxes, and if you’re unsure of which taxes remained after you filed, you should contact a tax or bankruptcy attorney.

• • I want the notice of the federal tax lien removed. Liens protect the IRS’s interest, and to get them removed, you typically have to prove that you will pay the tax and that the lien is unnecessary.

• I’m unable to pay due to financial hardship. Be prepared to prove that you’re experiencing hardship if you want to stop the lien/levy from going forward.

• I cannot pay in full and would like an alternative. This is where you talk with the IRS about payment plans or settlement offers.
• I have already paid the tax: You should use this option if you believe that the IRS didn’t credit your full payment or one of your previous partial tax payments.
• Other: You can also write in other reasons why you are appealing the collection action, but remember, if you want to appeal the tax, you typically have to take a route other than this hearing.

If you don’t explain the reason for your dispute, the IRS will not grant you a CDP hearing. After you fill out this collection due process form, you’ll send it to the mailing address provided in your IRS notice telling you about your right to a CDP hearing. Don’t send the form to the payment address. 

In section nine, you can request a payment plan or OIC. You will need to fill out additional paperwork to make these requests, but this form lets you alert the IRS about your plans.

What Happens If You Request a Collection Due Process Hearing? 

Once you request a CDP hearing, the IRS will stop its levy collection action on your account. The clock will also stop ticking on the collection statute of limitations. The IRS cannot go through with the levy until you get a hearing. 

Who Conducts the CDP Hearing? 

A Settlement Officer (SO) from the IRS Independent Office of Appeals conducts the CDP hearing. The Settlement Officer has no prior involvement with your tax issue, and they take an impartial look at the situation. 

What to Expect at the Collection Due Process Hearing 

CDP hearings are not formal hearings like those in courtrooms. Most CDP hearings are relatively informal and take place over the phone, but you can request a face-to-face hearing in certain cases.

During the hearing, the SO will go over the facts of the case and the documents you have provided. They typically try to resolve the issue in a single phone call, and they consider the following:

• The timeliness of your request.
• Defenses or challenges you’re making about your tax liability.
• Alternative collection ideas.
• The appropriateness of a lien or levy in relation to how much you owe.

If you’re disputing the tax due, the hearing will focus on the basis for the IRS to collect taxes from you. Otherwise, CDP hearings primarily focus on helping you negotiate a payment plan or find other ways to take care of your tax liability. 

What Happens After a CDP Hearing? 

After the hearing, the IRS Independent Office of Appeal will issue a Notice of Determination. The Notice of Determination will explain whether or not the IRS met procedural requirements while trying to collect the tax. It will also address any issues brought up by you during the hearing. If you and the SO reached an agreement during the hearing, the notice will outline the terms of that agreement.

For example, if you argued that the IRS didn’t follow the correct collection procedures, the Notice of Determination will explain the merits of your argument. Then, it will confirm whether or not the IRS followed the correct procedures. 

What If I Disagree With the Results of a Collection Due Process Hearing? 

If you disagree with the results of your CDP hearing, you have 30 days to file an appeal to the U.S. Tax Court. When you receive the Notice of Determination, it will explain how to submit this appeal. 

What Happens If You Miss the Deadline to Request a CDP Hearing? 

If you miss the deadline to request a CDP hearing, you can request an Equivalent Hearing. You have 12 months from the notice date to request an Equivalent Hearing if you’re appealing a levy and 12 months and five business days if appealing a lien. You’ll use Form 12153 to request an Equivalent Hearing in either situation by ticking the appropriate box.

The drawback of relying on an Equivalent Hearing is that you can’t appeal its decision to the U.S. Tax Court if you disagree with it. In contrast, if you don’t agree with the results of your CDP hearing, you do have the right to appeal. Also, the IRS may continue carrying out its tax levy (assuming that’s what you’re appealing) during the Equivalent Hearing. 

What Are the Benefits of a CDP Hearing? 

The main benefit of a CDP hearing is that it can help you avoid a tax levy or a lien on your assets. Even if you disagree with the outcome of the hearing, going through the CDP hearing process may temporarily halt the IRS’ collection activities, especially if they involve a levy. This may give you enough time to work out an agreement with the IRS and prevent them from taking your property.

A CDP hearing also allows you to talk with someone outside the IRS’s Collection Division. You get to negotiate an arrangement with someone who is impartial about the situation and is seeing it for the first time.

Potential Problems With CDP Hearings

When the Treasury Inspector General for Tax Administration (TIGTA) did an independent review of the IRS’s CDP appeals process, it noted several issues. Here are some of the potential pitfalls you should watch for if you decide to request a CDP hearing.

• Incorrect adjustment of the collection statute expiration date – The IRS has 10 years to collect most tax debts, but when you request a CPD hearing, the clock stops momentarily. Unfortunately, the review discovered that the IRS often processed the delay incorrectly, and sometimes the error benefited the taxpayer, while other times it gave the IRS longer to collect.
• Miscategorization – The IRS miscategorized some CDP appeals requests. While this isn’t a grave error, it may mean that you end up in a hearing with an IRS employee who was expecting to deal with a hearing related to a different topic.

Luckily, these were the only two major issues discovered in the audit. There are several different groups that audit IRS actions and procedures to safeguard the rights of taxpayers and the fairness of the system.

CDP Hearings and Disqualified Employment Tax Levies

There are special rules about requesting CDP hearings related to employment tax levies. Normally, when you request a CDP hearing, the IRS must pause enforced collection actions. Yet this rule doesn’t apply if you’re facing a disqualified employment tax levy.

Who Can Represent You at a CDP Hearing? 

You can represent yourself at a CDP hearing, or you can have one of the following professionals represent you: Certified Public Accountants (CPA), enrolled agents (EA), or attorneys. Although any attorney can represent you, you should choose a tax attorney for the best results, as they have the experience you need.

A member of your immediate family can also represent you, and if you’re dealing with a business tax issue, full-time employees, general partners, or bona fide officers can represent you as well.

Can You Request a CDP Hearing If You Receive CP504 (Urgent Notice)? 

Not yet. Notice CP504 alerts you that the IRS plans to levy your assets for unpaid taxes. But this notice does not outline your right to a CDP hearing. Instead, it typically states that you will receive another notice about your right to a hearing.

Generally, you’ll receive CP504, and then you will receive a final notice about the levy. However, this doesn’t mean that you should ignore CP504. To protect your assets, you should reach out for help as soon as possible.

What If I Disagree With the Amount Due in the IRS Notice?

If you disagree with the amount due on your IRS notice, you cannot appeal that through a CDP hearing. Instead, you can pay the amount due under protest and request a refund. Alternatively, if the amount due is from an audit, you can request an audit reconsideration but only if you have new info. Finally, you can request an offer in compromise based on doubt as to liability, and if you successfully prove that you shouldn’t owe the full balance, the IRS will settle for less than owed.

Regardless of the letter you receive, you generally cannot use the CDP appeals process to dispute the tax due. Instead, if the letter says that you have a right to a hearing, you can use this process to appeal the collection action. For instance, if you receive Letter 3172, you can appeal the pending lien on your account. If you receive LT1058, you can appeal the suggested levy.

What If I Can’t Afford to Pay the Tax Due on the Notice?

If you can’t afford to pay the full tax liability, request a CDP hearing to stop the lien or levy from moving forward. Then, during the hearing, suggest an alternative payment option. If you can afford monthly payments, ask for an installment agreement so that you can pay off the debt slowly in monthly increments. 

Alternatively, if you don’t have much disposal income or equity in your assets, you may want to see if you can pay the debt in a lump sum for less than you owe through an offer in compromise. If you cannot afford anything at this time, currently not collectible status protects you from unwanted collections while you wait for your situation to improve. 

With CNCs, OICs, and some payment plans, you may need to submit a financial disclosure. Form 433-A for individuals and Form 433-B for businesses allows you to prove your financial status to the IRS so that they can determine if they should reduce your tax debt or give you special terms in a payment plan. Both of these forms have a specialized version for offers in compromise. 

Can You Set Up Payments Without Requesting a CDP Hearing?

In some cases, you can just skip the hearing and set up payments. If you qualify for an online payment agreement, you can set that up, and as long as you do so by the deadline, the IRS won’t move forward with the levy. Contact the IRS directly to find out if your installment agreement allows you to avoid a tax lien. 

To qualify to set up payments online, you must owe $50,000 or less in tax, penalties, and interest. If you owe $25,000 or more or have defaulted on a payment plan recently, you must set up automatic payments. You must also have all of your returns filed. Businesses may need to meet additional criteria to qualify.

Need Help Appealing an IRS Lien or Levy Collection Action? 

If you’ve got a good handle on the issues in your case and know what you’re dealing with, you can request a CDP hearing and attend the hearing on your own. However, if you’re unsure about what you’re up against or need to act quickly to stop a tax levy already in progress, it might be worth talking to a tax pro from the W Tax Group. We offer free consultations where we review the facts of your case and help you decide what your options are and which one might help you obtain the best possible outcome.

Sources
– https://www.irs.gov/pub/irs-pdf/p1660.pdf
– https://freemanlaw.com/a-collection-due-process-hearing/
– https://www.nolo.com/legal-encyclopedia/what-is-collection-due-process-hearing-with-the-irs.html
– https://www.taxpayeradvocate.irs.gov/notices/collection-due-process-cdp/