After experiencing years of devastating economic conditions, many individuals are finding that they are unable to keep up with their income tax obligations. So, how does a person recover from the economic crisis when the IRS is beating on the door with notices on a daily basis?
Recognizing the need for individuals to settle their affairs and move on with life, Congress created Sec. 6320(a), for liens, and Sec. 6330(a), for levies, to permit taxpayers to be heard by the IRS Office of Appeals before any levy and seizure is made on any property or right to property. The result was the creation of the Collection Appeals Program (CAP) and the Collection Due Process (CDP) program, which serve two mostly distinct, but sometimes overlapping, purposes. After reading descriptions of these programs, it will become clearer which one is best for a particular client's situation.
According to the IRS, the CDP is available if a taxpayer receives one of the following notices:
* Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320;
* Final Notice--Notice of Intent to Levy and Notice of Your Right to a Hearing;
* Notice of Jeopardy Levy and Right of Appeal;
* Notice of Levy on Your State Tax Refund--Notice of Your Right to a Hearing; or
* Post Levy Collection Due Process (CDP) Notice.
CAP is available for taxpayers in the following situations: (1) before or after the IRS files a Notice of Federal Tax Lien or levies or seizes property, (2) if the IRS has terminated or proposed to terminate an installment agreement, rejected an installment agreement, or modified or proposed to modify an installment agreement (IRS Publication 1660, Collection Appeal Rights (2012)).
The first step in a collection case is to take action immediately to freeze collection activities and allow the client and the representative a chance to collect their thoughts (and information) and consider how to work out a plan that works best for the taxpayer. The practitioner should secure a Form 2848, Power of Attorney and Declaration of Representative, from each affected client (for joint returns each person must file a separate form) and contact the IRS to request an "account transcript," one of three common types of transcripts. (The others are a return transcript and a wage and income transcript.)
The "account transcript" shows the dates and amounts assessed, including penalties and all other transactions, to determine the outstanding account balance. This is the...