Collection Due Process

A Collection Due Process (referred to as "CDP") is a hearing offered by the Office of Appeals to a taxpayer who wishes to contest a planned IRS Collection enforcement action (such as a levy).  To best understand the process, it would be helpful to provide an overview of how the administrative tax process works.

The IRS at the conclusion of an audit will typically issue what is termed a "30-day letter."  This letter sets forth the proposed changes to the taxpayer's return based upon the determination of the examiner, tax compliance officer (TCO) or a Revenue Agent (R/A).  If the taxpayer fails to either ask for a meeting with the manager, or otherwise respond to the 30-day letter file filing a protest to get their case before an Appeals Officer, then the IRS will issue a deficiency notice.

A deficiency notice. which is also called a "90-day letter", is the IRS's formal written notice of its intention to make proposed changes to a taxpayer's return.  These notices are issued for income, estate and gift tax audits.  Proposed changes to excise and employment tax returns are assessed after the taxpayer receives a 30-day letter and fails to file a protest.   With the exception of determining whether a taxpayer is liable  for employment or excise taxes under the TFRP (trust fund recovery penalty), the US Tax Court does not have jurisdiction over employment or excise tax cases.

The mailing of the 90-day letter begins the 90-day period during which the taxpayer can file a petition in the United States Tax Court asking for the Court's review of the proposed deficiency. (Code Sec. 6213(a))

Code Sec. 6213(a) provides that "within [a specific period] after the notice of deficiency ... is mailed, the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency". The statute prohibits the IRS from issuing a "levy or proceeding in court for its collection ... until the expiration of the 90-day period.   If the taxpayer's address is outside of the United States, then the taxpayer has 150 days to file the Petition with the US Tax Court.  The filing of a Petition requires a $60 filing fee, by the way. 

As a side note, if Appeals has not had an opportunity to review the contested proposed liability, it will have limited jurisdiction (typically for 6 months) of newly filed tax court cases.

Code Sec. 6330(a)(1) require IRS to give a taxpayer written notice when IRS intends to levy upon the taxpayer's property. The notices (usually Letter 1058 or LT11) must inform the taxpayer of the right to request an administrative Collection Due Process (CDP) hearing in the Appeals Office.   The hearings may be face-to-face, or most often, by telephone or by mail.

The IRS Office of Appeals has the jurisdiction to make a determination of the appropriateness of the proposed enforcement action.  (Code Sec. 6330(c)(1), Code Sec. 6330(c)(3)(A)) The Appeals Office will consider any issues raised by the taxpayer that relate to the unpaid tax or proposed levy, including offers of collection alternatives, appropriate spousal defenses, and challenges to the appropriateness of the collection action. (Code Sec. 6330(c)(2)(A), Code Sec. 6330(c)(3)(B))

At a CDP hearing, a taxpayer may challenge the existence or amount of his or her underlying tax liability only if the person did not receive a notice of deficiency or did not otherwise have an opportunity to dispute such tax liability. However, a taxpayer is otherwise precluded from contesting the existence or amount of the underlying tax liability at the hearing. (Code Sec. 6330(c)(2)(B)) Appeals must also consider whether the collection action balances the need for efficient collection against the person's concern that collection be no more intrusive than necessary. (Code Sec. 6330(c)(3)(C))

A taxpayer may appeal the Appeals Office determination to the Tax Court within 30 days of the determination, and if an appeal is timely filed, the Court will have jurisdiction with respect to the matter. (Code Sec. 6330(d)(1), Reg 301.6330-1(f)(1))

To be able to challenge a proposed enforcement action in Appeals, the taxpayer must file a Collection Due Process Appeal (form 12153) within 30 days of the date of the Letter 1058 or LT11 mailed to the taxpayer.  That letter advises the taxpayer of the intent to enforce collection and the right to a hearing before Appeals.  If the taxpayer fails to file the 12153 within 30 days, but does so before 1-year from the date of the 1058 or LT11, they are entitled to an "Equivalent Hearing" before Appeals.  However, there are two distinct difference between that type of hearing and a Collection Due Process hearing.

a. There it NO APPEAL to the US Tax Court if the Appeals Office reaches a conclusion that the taxpayer wishes to dispute.

b. There is no prohibition to Collection Division from enforcing collection of the underlying liability.  Practically, however, the IRS will back off if Appeals has agreed to review the case in an Equivalent Hearing.

Therefore, it is critical that taxpayers respond timely and file the Form 12153 within the 30-day time period from the date of their Letter 1058 or Notice LT11.