This is the first in a series of posts dedicated to options for taxpayers to deal with outstanding tax obligations. This and future posts will be categorized as Collection Options.

Appeal of Collection Action. The taxpayer has the right to appeal a determination relating to the assessment of the original tax, the assessment of the Trust Fund Recovery Penalty, rejection of an Offer in Compromise, rejection or default of an installment agreement, abatement of penalty assessment due to reasonable, and jeopardy levies. The taxpayer also has the right to appeal enforcement actions being taken by the IRS. The taxpayer may request a Collection Due Process (CDP) hearing or a Collections Appeal Program (CAP) hearing, depending on the circumstances.

Collection Due Process Hearing. The CDP program (See IRM 5.1.9.3.) gives the taxpayer the right to appeal the filing of a Notice of Federal Tax Lien (IRC 6320) or the right to request a hearing during the 30 day period that begins the day after the date of the Notice of Intent to Levy (IRC 6330). Notice of Levy Handbook, 5.11. IRM 5.1.9. Two exceptions to the IRS notice requirement are when the collection of the tax is in jeopardy under IRC 6331(a) and the levy is made on the state for a state tax refund.

Requirements. The request for the hearing must: be in writing; be made within 30 days of the date of the Notice of Intent to Levy and Notice of Your Right to a Hearing or within the 30 days beginning with the day afer the five business day period of the filing of the Notice of Federal Tax Lien; and be signed by the taxpayer or the taxpayer’s representative. IRS Form 12153, Request for Collection Due Process Hearing, is available for this procedure but it is not required.

Suspending Levy Action. If the request is timely, levy action must be suspended during the appeal period and while any further appeals to the Tax Court or District court are pending except in the case of state refund levies, jeopardy levies or if the IRS receives leave from the court to continue the levies. Review IRM Section 5.1.9.

Equivalent Hearing. If the request for a CDP hearing is made after the notice period, the taxpayer will still be afforded an independent review of the collection action by an appeals officer. This is known as an Equivalent Hearing. However, the taxpayer’s rights are different.

The Appeals Officer’s decision will be final. The decision will not be appealable to the Tax Court, except as the issues relate to spousal defenses under IRC 6015.

The levy action need not be suspended during an Equivalent Hearing. As a general rule it should be suspended, but if the Revenue Officer determines that collection is at risk, like where the taxpayer is dissipating assets, levy action can continue.

Appropriate Issues. During the hearing, the taxpayer may raise any relevant issue including: Appropriate spousal defenses; Challenges to the appropriateness of the collection action; Offers of collection alternatives which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer in compromise; evidence of hardship; Challenge the underlying tax if the taxpayer did not receive a statutory notice of deficiency for the tax liability or did not otherwise have the opportunity to dispute the liability.

Inappropriate Issues. The taxpayer may not raise an issue that was previously considered at an earlier Section 6320 hearing or any previous administrative or judicial hearing and the person seeking to raise the issue meaningfully participated in the hearing.

Collection Due Process Hearing Form 12153 http://www.irs.gov/pub/irs-pdf/f12153.pdf

Collection Appeal Rights http://www.irs.gov/irm/part5/irm_05-001-009.html#d0e10

The IRS Collection Process, Publication 594 http://www.irs.gov/pub/irs-pdf/p594.pdf

The Collection Appeals Program (CAP). The CAP program gives the taxpayer the right to appeal the Service’s actions in a wider variety of areas.

Requirements. To receive a CAP hearing, the taxpayer must first discuss the case with the Revenue Officer’s Manager. If the issue is not resolved, the taxpayer can then file a written request to have the matter reviewed by an appeals officer. The taxpayer can use Form 9423, Collection Appeal Request. The goal of the Appeals Office is to resolve CAP cases within 5 business days. The Appeals Officer will attempt to have a conference with the taxpayer within 2 days of receipt of the case. If Appeals sustains the collection actions, enforcement action may resume when the taxpayer receives verbal notice of the decision, unless otherwise prohibited. The taxpayer may appeal the following issues:

Rejected installment agreement. The taxpayer has 30 days after the request for an installment agreement is denied to request an appeal. During this time, plus 15 days to allow for mailing and receipt of request, levy action is prohibited. If the taxpayer timely appeals, levy continues to be prohibited until the appeal is closed.

Defaulted /Proposed Termination of Installment Agreement. The taxpayer has 30 days to request an appeal after termination of an installment agreement is proposed. During this time, plus 15 days to allow for mailing and receipt of request, levy action is prohibited. If the taxpayer timely appeals, levy continues to be prohibited until the appeal is closed.

Terminated Installment Agreements. The taxpayer has 30 days to request an appeal after an installment agreement is terminated. During this time, plus 15 days to allow for mailing and receipt of request, levy action is prohibited. If the taxpayer timely appeals, levy continues to be prohibited until the appeal is closed.

Lien Issues. The taxpayer can also use this procedure to appeal the filing or proposed filing of a Notice of Federal Tax Lien (NFTL), the denied requests to withdraw the NFTL and denied discharges, subordinations, and non attachments of a lien.

Third Party Issues. Third party claims to property and alter ego and nominee liens are also appealable under CAP.

Seizure Actions. The taxpayer can appeal a seizure action within 10 business days of date the Notice of Seizure is provided to the taxpayer or left at his or her usual place of abode or place of business.

Publication 1660, Collection Appeals Rights http://www.irs.gov/pub/irs-pdf/p1660.pdf

Information for Appeals: http://www.irs.gov/individuals/content/0,,id=98196,00.html

Appeals at-a-glance:http://www.irs.gov/irs/article/0,,id=96750,00.html

Your Appeal Rights:http://www.irs.gov/taxtopics/tc151.html

Appealing an IRS audit determination gives the taxpayer a second chance to demonstrate his or her position, although this time, to an Appeals Officer (Officer). The IRS’s goal in appeals is to reach a disposition of the case which reflects the probable result of litigation. The Officer will work with both the evidence provided to the Revenue Agent (Agent) and any additional information the taxpayer provides. Unlike the Agent, the Officer’s authority to consider evidence is broad. The Officer will consider the hazards of litigation, the credibility of the parties involved, the burden of proof, the probative value of the evidence, and relevant legal authorities.

To appeal an audit determination, the practitioner must send a written appeal within 30 days of the Agent’s 30-day letter. This written appeal should include:

1. A request for a conference with an Appeals Officer;
2. The name, address, and Tax Identification Number of the taxpayer;
3. Date and symbols contained in the 30-day letter;
4. A schedule of the disputed adjustments;
5. The factual background for the appeal;
6. The legal basis for the appeal; and,
7. Signatures, under penalty of perjury, of the taxpayer and/or the practitioner.

The practitioner should prepare the written appeal as if preparing for trial. It is important to submit an appeal that is thought-out, documented, and supported with legal authority. Cite legal positions from case law; statutes and regulations; revenue rulings or procedures; private letter rulings; or technical advice memoranda. Also, be sure to include copies of any documents which support the taxpayer’s position.

The Officer will generally schedule a hearing within a few months after he or she receives the written appeal request. The practitioner’s chief advantage is knowing the case in much greater detail than the Officer. If the taxpayer’s credibility is important to the issue, and assuming the taxpayer is credible, then the taxpayer should attend the hearing. The taxpayer can provide the answers to odd questions which will help bring the case to life and make it believable. The practitioner should also formulate a settlement proposal in advance of the hearing.

During the hearing, the practitioner should emphasize the taxpayer’s strongest points and explain how the Agent misinterpreted the facts or law. Admit the weak points of the case, but explain why these points are not relevant or how other factors outweigh them. Address all of the Officer’s concerns. Show the Officer that it will be risky for the IRS to proceed to trial. One of the greatest hazards for the IRS is the precedential effect of the taxpayer’s success. Most importantly, ask the Officer why he or she disagrees with the taxpayer’s position. Ask for the legal authority on which the IRS is relying. It is very effective to give the Officer as much ammunition as possible to decide in the taxpayer’s favor.

If the Officer decides against the taxpayer, then the Officer will issue a Statutory Notice of Deficiency. The taxpayer must then weigh the benefits and costs of filing a petition in Tax Court.