Procedural avenues for taxpayers with balances due to the IRS.

• Author: Heroux, Mark

Taxpayers have several procedural options to contest IRS enforcement actions. These range from formal administrative proceedings, e.g., Collection Due Process (CDP) hearings, to informal collection holds. The purpose of this discussion is to give a general overview of each of these procedures. Practitioners should understand when each process can be used and work with taxpayers to determine the most appropriate course of action.

CDP hearing requests

CDP hearing rights arise in two general situations: (1) CDP hearings in response to a Notice of Federal Tax Lien (NFTL) and (2) CDP hearings in response to a proposed levy action.

NFTL-based CDP hearings: The IRS must give written notice to a tax-payer of the NFTL, and this notice generally includes a notification of the right to a CDP hearing (Sec. 6320(a)). The IRS is required to hold a CDP hearing for an NFTL if the taxpayer requests one in writing and states the grounds for the requested hearing. This request must be filed during the 30-day period beginning the day after the end of the five-business-day period after the filing of the NFTL (Sec. 6320(a)). In the lien context, CDP hearing rights do not arise until after a lien is actually filed. This is in contrast to the levy-based CDP hearing rights.

Levy-based CDP hearings: The other instance in which a CDP hearing can be requested is when the IRS issues a final notice of intent to levy (Sec. 6330(a)). The taxpayer has 30 days from the date of the final notice of intent to levy to submit a CDP request. Once the request is filed, the case is assigned to a settlement officer. The settlement officer will not have been involved with the case beforehand (Sec. 6330(b)(3)). The settlement officer reviews whether the IRS action is proper (Sec. 6330(c)(2)(A) (ii)) and can also negotiate a collection alternative for the taxpayer, such as an installment agreement (Sec. 6330(c)(2) (A)(iii)).

Suspension of collection activity throughout the CDP process: The limitation periods under Secs. 6502 (collection after assessment), 6531 (criminal prosecutions), and 6532 (suits) are suspended beginning on the date the IRS receives a timely CDP hearing request (Sec. 6330(e)). The suspension period ends when the IRS receives a withdrawal of the hearing request from the taxpayer, the determination of the CDP hearing becomes final, or upon exhaustion of any right of appeal (Sec. 6330(e)).

A CDP request also suspends any levy action to collect liabilities listed on...