Written by Peter McFarland, Esq. on 10/2/2013
Enforced collections by the IRS are no joke. The seizure of assets through a levy or the filing of a lien can have catastrophic effects on taxpayer’s lives and ability to function. But there is some good news if you have been receiving IRS notices threatening to collect unpaid taxes.
Recognizing that IRS collections are extremely intrusive, Congress enacted the Internal Revenue Service Restructuring and Reform Act of 1998. By far one of the most significant changes brought about by this act was the creation of a Collection Due Process Hearing which, if requested, must take place before the IRS can use a levy to collect an outstanding tax liability.
The Collection Due Process Hearing Itself
So what, exactly, is this hearing? Many people, when thinking of a legal hearing, think of suits, ties, and a judge. While this is definitely one form of legal hearing, a Collection Due Process Hearing often involves none of these things.
A Collection Due Process Hearing is, instead, an administrative hearing that takes place between the taxpayer and the IRS. A representative, such as an attorney, can be present at the hearing in the taxpayer’s place. The hearing most often occurs over the phone.
For levies, the hearing is, more or less, a discussion on how the taxpayer proposes to pay the liability. Other defenses may be presented, but generally the focus will be on collecting the debt. Taxpayers may propose a monthly installment agreement, offer in compromise, or currently not collectible status to address the liability. If the Appeals Officer agrees with the proposed payment plan, the IRS will not levy the taxpayer’s accounts.
For liens, the hearing is a discussion on alternative means for the IRS to be secured in its interest to collect any unpaid tax without filing a lien. Solutions may involve the taxpayer borrowing funds or selling assets to pay the liability.
The Road to the Collection Due Process Hearing
There are two potential paths that give rise to a Collection Due Process Hearing.
The first path involves levies, or the confiscation of a taxpayer’s property to satisfy an unpaid tax debt. When a taxpayer owes money to the IRS, the IRS will send several notices to the taxpayer informing them of the liability with any penalties and interest applied. After receiving the Final Notice of Intent to Levy in the mail, the taxpayer has the right to request a Collection Due Process Hearing before a levy can actually occur.
The second path involves liens. Similar to the levy path explained above, after several notices are sent to a taxpayer he or she will receive a Notice of Federal Tax Lien. Upon receipt of this notice, the taxpayer may request a Collection Due Process Hearing to respond to the filing of the lien.
What Happens if the Hearing is not Favorable?
If the Appeals Officer does not accept the proposed alternative and determines that the levy or lien is the best collection method possible, that determination is not the end of the matter. Congress gave jurisdiction to the United States Tax Court to review Collection Due Process Hearing outcomes.
While appeals to the United States Tax Court involve significant cost, the IRS is ultimately answerable to the court and will generally deal with Taxpayers fairly knowing that an unfair determination could be reviewed.
After the IRS issues its final determination and closes the hearing, the taxpayer has 30 days to file with the Tax Court for review.
Collection Due Process Hearings, although a more informal hearing, are a powerful tool in a taxpayer’s arsenal. It can stall IRS collection activity and allows the taxpayer to propose alternative means of collecting an unpaid tax liability. A successful hearing can stop levies and, under some circumstances, can provide relief from a lien.
These hearings, however, can also tip the scale in favor of the IRS. If the Appeals Officer in charge of the hearing upholds the decision to levy an account or file a lien, the IRS will proceed with the enforced collection activity.
If you find yourself receiving IRS collection notices, you could benefit greatly from taking advantage of a Collection Due Process Hearing. I highly recommend you reach out to our office today and speak to one of the experienced attorneys at Estill & Long, LLC.
About Peter McFarland, Esq.
Peter earned his Juris Doctor (J.D.) degree at the University of Denver. After becoming licensed to practice law in the State of Colorado, he earned his Master of Laws (LL.M.) in Taxation at the University of Denver. In his current role, Peter represents taxpayers before the IRS and in the United States Tax Court. He gained valuable experience as an attorney with the University of Denver’s Low Income Tax Clinic during his graduate school studies and has been representing clients at Estill & Long, LLC since his arrival in early 2013.