Collection Due Process ("CDP")

How to Identify a CDP Notice

The process begins when the IRS issues their "Letter 1058" which includes the words "Final Notice of Intent to Levy and Notice of Your Right to a Hearing". Seeing these magical words should send you scurrying to your Forms service to pull out Form 12153.

"CDP" Hearing vs. "Equivalency" Hearing

I tell my clients that the CDP Notice is an invitation. If I can find out about the Notice within the first 30 days of its issuance, then the taxpayer will be invited to a CDP Hearing. If, however, I only find out about the Notice AFTER the first 30 days of its issuance, then the client will be invited to an "Equivalency" Hearing.

The differences are fairly significant:

CDP: The "choo-choo" train stops. Collection activity STOPS, an Appeals Officer (or a Settlement Officer) will eventually be assigned the case, there will be Tax Court jurisdiction for further appeals, should they be necessary, and there will very likely be a lengthy delay. The statute of limitations for collections will be suspended during the pendency of the CDP Hearing.

EQUIVALENCY HEARING: Taxpayer will still get a Hearing, but NO right to Tax Court jurisdiction and collection is NOT suspended. Since collection activity is not suspended, neither is the collection statute of limitations.

Should we always file a CDP Request?

YES! In fact, some lawyers would argue that it would be malpractice to miss it. The only time I can imagine that you might purposely not file it would be ONLY if you were at the tail end of the collection statute of limitations and you did not want to unwittingly extend the statute.

PRACTICE TIP: Put language into all engagement letters advising clients to notify you immediately of any correspondence received from the IRS, and that their failure to do so promptly will relieve you of any professional liability for failure to file a CDP Request within the statutory 30-day period.

Ticket to Paradise

In my humble opinion, there is no more effective way to represent your client than in a CDP Hearing! You can do just about ANYTHING for a client in a CDP and make the Appeals Officer your Co-Partner in accomplishing it. You can submit Offers-In-Compromise (and usually have them "worked" locally instead of in Memphis), Installment Agreements, Penalty Abatement Requests, initiate Innocent Spouse requests, discuss statutes of limitations that you believe may have expired, initiate Claims for Refund on Form 843 and have them processed through Appeals, do short-term monitored "de-facto" installment agreements with designated payments, initiate requests for audit reconsideration, etc.

Face-To-Face Conference or By Telephone?

Preserving the rights of Taxpayers is, no doubt, expensive. While the law guarantees a hearing, the Government understands "hearing" to mean one that is held either telephonically or face-to-face, and they prefer that the hearing be held by telephone. It is far less costly and efficient for the IRS. When the telephone is used, the IRS Settlement Officer can be virtually anywhere. A face-to-face conference, on the other hand, when granted, is held at the IRS office closest to where the Taxpayer resides.

This author believes that a Face-To-Face Hearing is significantly more effective than a Hearing held by telephone, and will usually make this request in writing, in the body of the Form 12153.

The IRS "pushes back" and resists the Face-To-Face Hearing. While they will USUALLY grant the request for a face-to-face Hearing, the Office of Chief Counsel stated in a Program Manager

Technical Advice Memorandum, that the IRS may "require a Taxpayer to submit financial information as a condition to granting a request for a face-to-face collection due process conference" [PMTA 2010-006, dated 3/23/10, released 5/11/10].

Practically speaking, the IRS employees at the Campus Service Centers have interpreted this to mean that the current IRS policy is to require that the Collection Information Statement, Form 433, be submitted BEFORE the case will even be forwarded to an Appeals Office in the field.

It is interesting to note, however, that there is some "wiggle-room" for exceptions, as the same Program Manager Technical Advice Memorandum also states that "conditioning the grant of a face-to-face CDP conference on submission of financial data will not be reasonable in all cases where the taxpayer seeks consideration of a collection alternative, such as where the taxpayer wishes to discuss collection alternatives and one or more other relevant issues at the conference. Also, the settlement officer should not deny a taxpayer's request for a face-to-face CDP conference if Appeals determines that such a conference is necessary to explain the requirements for becoming eligible for a collection alternative." [emphasis added]

Don't Be Fooled By the "Sneaky R.O. Trick"

While I certainly aspire to being cooperative with Revenue Officers, if there is any exception at all, this is it. If a Revenue Officer is already assigned to the case and happens to have issued the CDP Letter 1058, file the Form 12153 and prepare to say "NO". He/she will likely call and ask you very sweetly or gently if you wouldn't mind withdrawing your request so that the two of you can "continue to work the case together and work everything out". Just say NO (or "no thanks"). He/she will then tell you not to worry, that "your client can still have appeal rights". Just say NO (again).

Feeling pressured to seem cooperative? That is what the R.O. wants. Resist. Be strong. Do NOT withdraw the CDP Request. If you do, your R.O. MAY continue with enforced collection activity. Oh, those "appeal rights" that he/she promised you ?... Sure, but what he/she meant, is that you could file another Form 12153 which would now only give you an equivalency hearing, but which does NOT require the immediate suspension of collection activity! And it can take a pretty long time before you get to the Equivalency Hearing.

Frivolous Collection Due Process Cases

Thirty-eight persons who attempted to delay tax collections by pursuing frivolous court cases ended up with $126,000 in penalties during the last two years. The Tax Court may impose sanctions of up to $25,000 on those who misuse their right to a court review of IRS collection procedures merely to stall their tax payments.

Frivolous or Groundless

The IRS Restructuring and Reform Act of 1998 set forth various taxpayer rights related to tax liens or levies, including the right to seek judicial review. While an appeal is pending, the IRS usually may not enforce collection. In December 2000, the Tax Court warned taxpayers that it would impose penalties against those who "institute or maintain a lien or levy action primarily for delay or whose position in such a proceeding is frivolous or groundless" (Pierson v. Commissioner, 115 T.C. 581). Such positions contend that the income tax is not valid, that the person or type of income is not subject to the tax, or espouse other arguments that the Court has previously rejected as baseless.

Next chapter »