Taxpayer Due Process in IRS Collections

June 16 2014
By:  Coleman Jackson, Esq.

Taxpayer Due Process In IRS Collections

IRS Power to Place Liens & Levies

In the event a taxpayer fails to pay any federal income, gift, or estate tax liability after notice and demand, Internal Revenue Code (IRC) Section 6331(a) authorizes the Internal Revenue Service (IRS) to collect the tax by levy on the taxpayer’s property.  IRC Section 6323(f) authorizes the IRS to file a notice of federal tax lien to protect the federal government’s economic interests.

Taxpayer Due Process in IRS Collections

The IRS must comply with due process collection procedures prior to filing a lien on the taxpayer’s property or levying a taxpayer’s assets and property.  The IRS must first issue a final notice of intent to levy and/or a notice of federal tax lien and notify the taxpayer of the right to an administrative hearing before Appeals.  IRC Sections 6330(a) and (b) (1), and 6320(a) and (b).

Agency-level Review & What to Expect

At the Collection Due Process Hearing, the Appeals Officer must determine whether the proposed collection action may proceed.  The CDP Hearing is an administrative hearing held within the Internal Revenue Service (IRS)No judges or courts are involved at this stage.  The CDP Hearing is an informal agency hearing (strict rules of procedure and evidence do not apply).  The procedures that must be followed by the IRS in putting a lien on the taxpayer’s property or levying a taxpayer’s assets are set forth in IRC Section 6320(c).  During the CDP Hearing the IRS Hearing’s Officer is required to examine the following:

  1. First, the Appeals Officer must verify that the requirements of any applicable law and administrative procedure have been met by IRS personnel.  IRC Section 6330(c) (3) (A) depicts this requirement.  Warning:  In order for the taxpayer to later complain, the taxpayer must challenge the IRS compliance with Section 6330(c) requirements during the CDP Hearing.  The taxpayer’s challenge should be detailed, cogent and in writing.
  2. Second, the taxpayer must raise at the CDP hearing all relevant issues relating to the unpaid tax or proposed levy, including challenges to the appropriateness of the collection action and offers of collection alternatives, such as, offer-in-compromise or other alternate resolutions.
  3. Third, the taxpayer should, if appropriate, challenge the existence and amount of the underlying tax liability, penalties and interest.  To preserve this right to challenge the liability, the taxpayer must raise the liability issue in the taxpayer’s request for a CDP hearing.  If you question liability, penalty and interest assessments challenge it immediately and place the IRS on notice of your disagreement as early as possible, even at the exam level.  IRC Section 6330(c) (2) (B).
  4. Fourth, the IRS Appeals Officer must determine whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive  than necessary pursuant to IRC Section 6330(c)(3)(C).   Generally speaking, the Tax Court, on numerous occasions has ruled that levy enforcement action is a necessary component of a voluntary tax system.  If the taxpayer is going to challenge the levy action during the CDP hearing, the taxpayer should be prepared with specific facts and circumstances regarding the behavior of IRS examiners, revenue officers and other IRS personnel that might demonstrate hostile, abusive, or otherwise inappropriate behavior.  Taxpayer should also come to the CDP hearing prepared to discuss case specific points consistent with IRS Procedure & Administrative Regulation 301.7122-1(b) (3) (i).

Tax Court Review & What to Expect

The taxpayer may file a collection due process (CDP) appeal pursuant to IRC Section 6330(d) asking the U.S. Tax Court to review the determination by the Office of Appeals of the Internal Revenue Service (IRS).  During this court proceeding, the taxpayer is permitted to raise all issues preserved at the agency level.  This means that you must raise and challenge the IRS compliance with lien and levy procedural statutes, and on the IRS’ position on tax liability, penalty and interest at the agency level if you intend to make these challenges in the Tax Court.  Tax Court hearings are formal judicial proceedings where rules of procedure and rules of evidence applies.  The U.S. Tax Court is a part of the federal judicial system and they are run by Tax Court Judges.

When a taxpayer is confronted with an IRS tax dispute, it is important to consult competent tax counsel early in the process in order to protect the taxpayers appeal rights throughout the agency level review process, and throughout the court level review of the tax collection process.

This article is written for educational purposes; and no attorney-client relationship is formed between the reader and this tax & immigration law firm.

Coleman Jackson, PC
Immigration & Tax Law Firm
6060 North Central Expressway
Suite 443
Dallas, Texas 75206
Law Firm
Main Line:  214-599-0431 | Spanish Line: 214-599-0432

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