Problems Found With IRS Collections Due Process Hearings

A recent report from the Treasury Inspector General for Tax Administration (TIGTA) has uncovered some troubling information about how the IRS handles Collection Due Process (CDP) hearings.  Specifically, the investigation identified the following problems:

(1) An estimated 1,450 of 47,855 taxpayer cases may have incorrectly received a CDP hearing when they should have been granted an Equivalent Hearing (EH).
(2) In an estimated 10,151 of 47,855 taxpayer cases, the Collection Statute Expiration Date (CSED) was incorrectly calculated.
(3) In an estimated 7,251 of 47,855 taxpayer cases the hearing officers did not correctly document their impartiality as required.
(4) Taxpayer requests for CDP hearings are not consistently sent by the IRS's Collection office to Appeals in a timely manner.

Background Information

After assessing a tax liability, the IRS has 10 years to collect this liability from a taxpayer. When a case reaches its expiration date or CSED, the IRS may no longer collect and must write off the balance due.

The IRS begins the collections process by sending out a number of notices to the taxpayer. Over several months, these notices become progressively more threatening, urging the taxpayer to contact the IRS in order to resolve the liability. If these initial contacts are unsuccessful, the IRS issues a "Notice of Intent to Levy and Your Right to a Hearing". If a taxpayer does not respond to this notice, the IRS can begin active collections such as wage garnishments, bank levies, etc.

If a taxpayer responds to this notice within 30 days, he is allowed a CDP hearing with IRS Appeals.  The 10 year statute of limitations is suspended while the taxpayer is in CDP status. If the taxpayer responds after the 30 day period has expired, the IRS may grant him an EH (during which the IRS can continue to collect from the taxpayer). At these hearings, Appeals may consider a number of alternatives to active collection, including, setting up an installment agreement, an Offer in Compromise, penalty abatement and the Innocent Spouse defense. If the taxpayer disagrees with the decision reached by Appeals at a CDP hearing, he can petition the U.S. Tax Court. A decision reached at an EH hearing may not be appealed.

Of the problems identified by TIGTA, the incorrect calculation of the CSED and the delays in forwarding CDP requests to appeals were found to most violate taxpayer rights.

Incorrect Computation of the CSED

Because the IRS ceases collections activity if a CDP hearing is granted, the CSED is temporarily suspended during a CDP hearing. TIGTA estimates that in almost a fifth of all CDP cases, the IRS suspended the collection statute for an incorrect period of time. In cases where the IRS suspended the CSED for longer than required, it violated the rights of the taxpayers since it allows the IRS more time to collect.

Delays in Referring Requests for CDP Hearings to Appeals 

Currently, the IRS has a target time of 90 days to initially resolve or forward a taxpayer's request to Appeals. A large portion of the cases reviewed took more than 180 days to resolve or forward to Appeals. TIGTA noted that when the IRS takes too long to forward a case to Appeals, the CSED is suspended for this additional time and this increases the time that the IRS is allowed to collect.

In response, the IRS agreed that these oversights violate the rights of taxpayers and has begun to take steps to prevent future violations. 

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional. 

Final Notice of Intent to Levy and Notice of Your Right to a Hearing

If you owe money to the IRS, you will receive a consistent stream letters that become progressively more threatening.  There is one letter, in particular, that may be the most important one you receive from the IRS. If you agree with your liability but have not yet paid it, this letter is titled "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" ("Final Notice").  Do not ignore this letter or else you will soon find your bank account empty and your wages garnished.  The other important letter is the "Notice of Determination" which gives you 90 days to petition the Tax Court in order to dispute your liability. 

What does the Final Notice" mean? Lets go back to the beginning.  When you initially owe money to the IRS and your rights to dispute your liability in Tax Court have expired, you will receive a notice stating something along the lines of "according to our records, you have an amount due on your income taxes."  This notice will encourage you to pay your balance in full or set up an installment agreement.  This notice is polite because, at this time, your account with the IRS is not yet in Automated Collections.  Collections is the branch of the IRS that deals with actively collecting a liability due from taxpayers. If you do not respond to this notice, you may receive several other notices prompting you to pay.  Again, even though these notices appear increasingly more threatening, your account is still not in Collections.  Eventually, you will receive a notice titled "Intent to Seize your Property or Rights to Property" (CP-504).  The CP-504 is your final notice before your account is transferred to collections.  If you don't pay the amount due, the IRS may seize your state tax refund and file a Notice of Federal Tax Lien on your property.  

This is also the notice before the IRS sends you your Final Notice. When you receive the Final Notice, you have to request a Collection Due Process Hearing ("CDP Hearing") by filing out and sending in Form 12153 (please read this form carefully when you are filling it out).  When you request a CDP Hearing, the IRS will assign your account to an agent who will contact you directly through the mail or phone in order to set you up on an installment agreement or, if you are experiencing hardship, place you on Currently Non-Collectible Status ("CNC"). Otherwise, if you ignore this notice, there are no more protections between your assets and the IRS.  The IRS can and will go after you.  

In conclusion, when you receive mail from the IRS: read it and look carefully for any deadlines that the IRS has imposed.  If you don't, you may be in for a much bigger hassle then you orginally thought.  

This content is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.