irs collection appeal procedures & defense strategy

IRS Collection

Appeal Procedures

&

Defense Strategy

Presented by

Sidney Goldin, CPA

Internal Revenue Service

Restructuring and Reform

Act of 1998

A. Single Most Important Change 

1. Opportunity and right to Collection Due Process (CDP) Hearing - effective January 19, 1999 before any collection or levy action can occur

2. Request must be made within 30 days of date on final notice (Form 1058 or CP90)

B. “Game Changer” for IRS Collection & Enforcement Activities

1. Cannot take levy action, e.g. bank or wage levies while CDP Hearing is pending in IRS Appeals division

2. Tax Court Proceedings – No IRS enforcement allowed subsequent to a filing of tax court petition until decision is final

C. CDP Notice Requirements 

1. Federal Tax Lien – can issue lien notice after lien is filed

2. Levy notice must issue prior to levy action

3. Exception for jeopardy levies, refund offsets (federal or state)

C. CDP Notice Requirements – continued 

4. Disqualified employment tax leviesa. No requirement of pre-levy notice

b. Purpose – No pyramiding of employment taxes

c. Two year rule1) Must not have requested CDP hearing for unpaid

employment taxes arising in two year period prior to beginning of taxable period for which levy is served

2) Example – unpaid payroll taxes in current period – 6/30/13  

  Disqualified EmploymentTax Levy

Unpaid payroll taxes for period ending June 30, 2013 - $50,000

Two year period prior to beginning of taxable period forwhich levy is served 4/1/2011 – 4/1/2013

Levy can be served any time during period of 4/1/2013 – 6/30/2013 without issuing final CDP notice, if CDP hearing request was made during above two year period for any quarters in that period.

C. CDP Notice Requirements - continued 

5. Must be hand delivered, left at taxpayer’s business or residence or mailed certified to taxpayer’s last known address

6. Nominees and other third parties

a. Only available to delinquent taxpayer – liable person

b. Nominee or other person holding property of taxpayer not entitled to CDP hearing

C. CDP Notice Requirements - continued

7. Partners and Partnershipsa. State law – general partners automatically liable

when partnership assessedb. Partner and partnership entitled to CDP (Final)

Notice, if general partner’s or partnership property to be levied

8. Owners – Single Member LLCs (disregarded

entities)c. Prior to 8/16/2007 – Owner liabled. Post 1/1/2009 – Owner NOT liable

D. Filing of CDP Request 

1. Must file written request (no phone calls) within 30 days of final notice date (postmark date is good) 

2. Request must state reason(s) why taxpayer doesn’t agree with proposed levy (or lien) action

D. Filing of CDP Request - continued 

3. Frivolous arguments will be grounds for termination of CDP proceeding and/or imposition of penalties

4. When to contest a lien:

a. If prematurely filed

b. Otherwise erroneous, wrong periods, period(s) tax paid off, etc.

E. CDP Hearings 

1. One hearing opportunity per tax and period

2. Exception – additional assessment of tax in audit or new penalty assessment

3. New CDP Notice must be given

F. Procedures for Requesting Hearing1. Form 12153

2. Must contain required information

G. Effect of Requesting CDP Hearing 

1. 10 year collection statute is suspended

2. Levy action suspended unless

a. Taxpayer raises frivolous arguments

b. Service files motion with tax court showing good cause to proceed with levy

H. Hearing Requirements1. Hearings are informal

H. Hearing Requirements - continued

2. Taxpayer can request recording of face-to-face conference, but face-to-face not required to be given if:

a. Financial statements (Form 433-A or B) not prepared

b. Taxpayer not in filing compliance

H. Hearing Requirements - continued

3. Appeals officer must be impartial - No prior involvement

a. Same taxpayer, tax liability and period participated in by same appeals officer

b. Example – Trust fund tax hearing and subsequent assessment. CDP hearing for same periods for employment taxes

c. Examination appeals included as “prior involvement”

H. Hearing Requirements - continued

4. No ex-parte communications

a. Appeals and collection or examination

b. Appeals and IRS counsel

1) Generally ok

2) Legal issues only – no advice on settlement ranges – appeals officers responsibility to assess strengths and weaknesses of case (hazards of litigation)

I. Matters Considered at Hearing

1. Computer transcripts – errors

2. Invalid assessments

3. Spousal defenses (innocent spouse issues)

4. Liability – only if no prior opportunity existed

a. Statutory notice of deficiency

b. 1153 – Trust Fund letter

I. Matters Considered at Hearing - continued

5. Collection Alternativesa. Installment agreement (general requirements – compliance)

b. Offer-in-Compromise (general requirements – compliance)

c. Request for non-collectible status – financial statements required

6. Non-CDP Years Can Be Considereda. NOLs from non-CDP years that affect liability of CDP

year(s)

b. All non-CDP years in which there is a liability must be included in an installment agreement or an offer in compromise

J. Appeals Resolution1. Determination notice must be issued

2. Taxpayer has 30 days (after determination notice date) to file tax court petition if no agreement reached

K. Tax Court Review of CDP Cases1. Abuse of discretion standard

2. No new issues can be raised not covered in administrative hearing

K. Tax Court Review of CDP Cases -

continued

3. Can request remand if abuse exists

a. Proper procedure not followed

1) No 14 day “last chance” letter issued

2) Internal Revenue manual not adhered to or

followed

L. Equivalent Hearings (for CDPs filed late)1. Similar procedures

a. Must be filed within one year of date on levy notice

b. Must be filed within one year plus five business days of date on lien notice

2. Exceptions

a. No right to judicial review – tax court

b. No suspension of 10 year collection statute

M. Collection Appeal Program – C.A.P. (“Emergency Appeal”)

1. Installment Agreement to be terminated by ACS or Revenue Officer

2. Installment agreement not granted (rejected) by ACS or Revenue Officer

3. IRS modifies or proposes to modify installment agreement (e.g. to increase payments)

4. Levy or lien action is eminent as result of above action

M. Collection Appeal Program – C.A.P. (“Emergency Appeal”) - continued

5. Filed on Form 9423

6. Requires managerial review, conference, and routing to appeals if manager rejects

7. Entitled to appeals conference

8. Decision binding – not appealable to any court

9. Enforcement generally withheld during appeal process

Key to successful IRS defense is knowing what to do and when to do it

If you have questions regarding this

presentation or other IRS issue

please feel free to contact Sidney at:

Sidney Goldin, CPA

214-635-2509 or

sgoldin@gppcpa.com