Appeals – CDP and EH
Hi Dale! I had my debit card declined several times today, so I went to the bank and found out that IRS had cleaned out my account with a levy on the balance I owe, which is substantial (over $50,000). I have received some correspondence from them a while ago, but I’ve been very busy, so I haven’t paid much attention to it figuring I’d get to it later. Well, I guess it’s later! I’m in trouble! Is there anything I can do?
IRS likely sent you a notice that they intended to levy (known as a “Notice of Intent to Levy”). A levy is when they take things from you, typically easy stuff to take, like a bank account or wages or something like that. IRS uses two forms to let taxpayers know that they are at risk of being levied: CP504 “Notice of Intent to Levy” and LT11 “Final Notice of Intent to Levy and Your Right to a Hearing”. Do you see what they did there…? Only the LT11 letter gives them the right to actually take your stuff—because the law (IRC 6330) requires them to not only notify you that a levy is about to take place but also your right to a hearing prior to the levy (or shortly thereafter). This hearing is called a Collection Due Process Hearing. You have 30 days after receiving Form LT11 to request a hearing. When you request a Collection Due Process hearing, collection activity stops—including the proposed levy. Since the levy has already occurred, it may be beyond that 30-day window to request a Collection Due Process Hearing. But not to worry, all is not yet lost! Let’s discuss the Collections Due Process hearing first.
When you request a Collection Due Process hearing within the 30 days given by statute, collection on your matter stops. This includes the proposed Levy; they will wait until the hearing has been resolved prior to starting any collection efforts. A Collection Due Process hearing is a right given by statute. Because of that, you have the right to appeal any decision from the appeals officer to the US Tax Court. An appeal to US Tax Court takes a long time—the Collection Due Process hearing alone can take months. During this time, collection stops and the 10-year window that IRS has to collect the tax you owe also gets put on hold—the clock literally stops while you seek to resolve the situation. The best thing about requesting a Collection Due Process hearing is that your file is removed from the Collections division of IRS and moved over to the Appeals division. An Appeals Officer has wide discretion to reach a resolution of your matter and will consider things that the IRS Revenue Officer could not/would not. For example, when you request a Collection Due Process hearing, you will have the right to appeal the resulting determination to US Tax Court. Not only could this take a long time to resolve, but it could also cost IRS a lot of money in attorney time. An Appeals Officer can consider those costs when determining the best resolution of your case.
An IRS Appeals Officer must also consider the issues you raise at the hearing, such as the validity of the tax liability—unless, of course, you have already litigated that elsewhere (in that case, the decision, in that case, would control and simply be adopted by the Appeals Officer). IRS will be required to show that all procedures have been followed and that all required notices have been sent to you in a timely manner. The Appeals Officer has to also consider any proposed alternatives to the proposed collections you may make. The Appeals Officer will also balance the need of IRS to collect the taxes owed against the needs you may have for IRS to collect in a manner that is the least intrusive into your life as possible.
Any decision made by the Appeals Officer can then be appealed into the US Tax Court! Now do not get too excited—the judge in the US Tax Court is only looking for “Abuse of Discretion” by the Appeals Officer, which basically means that the Appeals Officer’s determinations have to be reasonable and not arbitrary—they do not have to be “correct”. But an appeal to US Tax Court reviews everything brand new—even if you’ve litigated an issue elsewhere. This is called de novo review. So getting into US Tax Court could be quite significant if you are trying to argue against the underlying tax debt itself (in other words, you do not believe you owe what they say you owe).
But you missed all this by missing that deadline. NOW what?!?
Although you missed your right to request a Collection Due Process hearing provided to you by statute, the Internal Revenue Manual provides a mechanism for you to get all of that back, but without the right to go to US Tax Court if you disagree with the decision of the Appeals Officer. Whew…! This is known as an Equivalent Hearing under IRM 18.104.22.168.
There are a couple of benefits to this safety net. First, you have up to 1 year to request this hearing. Many (Most) folks miss the statutory hearing because they realize too late that the even had a right to a hearing and had to request it within 30 days. Most folks only realize this after the levy takes place, like in your case. But you can still make your case by requesting this Equivalent Hearing within 1 year. Secondly, you still can get your file out of the Collections division by requesting this Equivalent Hearing within that first year. That means that all other collection activities come to a screeching halt while the Appeals Officer determines the issues in your case. This can take months. Thirdly, an Equivalent Hearing does not stop the clock on the 10-year window IRS has to collect the tax debt from you. Furthermore, it does not stop the clock when considering a bankruptcy to manage your debt issues (of which your tax debt is one) or to be able to discharge your taxes. This could be YUGE if timing issues might impact your situation.
Now, this brings me to another option for you, and that is to consider bankruptcy. Considering a bankruptcy to manage your tax case or to discharge eligible tax debts is very case specific, so do not make rash decisions from just reading this article—you need professional help with the delicate analysis of your case to be successful here. But bankruptcy is an option an provides you with some powerful tools to protect your financial life, including possibly clawing back that which the Levy took.
BOTTOM LINE: Even if you have been ignoring the IRS and the small forest of paper it sends you when it tries to collect from you, even if you are suffering the impact of IRS enforcement actions, you have some powerful tools that can have a serious impact on your case, often in your favor. Even if you’ve missed a deadline or two, most likely you are not without hope! But you are likely going to need professional and experienced assistance with these intricate and often quirky issues.
Your tax problems are solvable, and I know exactly how to help you get the best results for you in your situation. Having the advice and guidance from a seasoned and experienced professional—both as a CPA and as a licensed tax litigator (for decades) could tip the balance in your favor.