Expanded Opportunities To Appeal Collection Actions
Series: Dealing With The IRS Collection Division
© by Burton J. Haynes, Esq.
As all of us who represent taxpayers before the IRS
Collection Division know only too well, the Revenue Officer handling a
particular client's case may not agree with our ever so reasonable
suggestions about what should be done. In these situations, thanks to
the IRS Restructuring and Reform Act of 1998, we now have greatly
expanded rights to bypass the Revenue Officer and pursue an independent
administrative appeal. Indeed, there are now three separate ways to
obtain independent review of threatened collection actions. Using one
or more of these approaches, it should be possible to avoid levies and
seizures and to reach a more acceptable resolution for any client who
honestly seeks to address his or her delinquent taxes on a fair and
Collection Due Process Hearings.
Effective for collection actions after January 18, 1999, the IRS
Restructuring and Reform Act provides an important new procedural right
-- the "Collection Due Process Hearing." These CDP hearings are
mandated by IRC §6320 and §6330, which were added to the Code by the
1998 Act, and the IRS has just issued proposed regulations implementing
the new statutory requirements.2
Under the new Collection Due Process rules, immediately upon the
filing of a notice of federal tax lien, and prior to the issuance of a
levy, the IRS must provide notice regarding a taxpayer's right to an
independent hearing in the Appeals Office:
IRC §6320 (LIENS):
(a) Requirement of Notice:
(1) In general: The Secretary shall notify in writing
the person described in section 6321 of the filing of a notice of lien
under section 6323.
(2) Time and method for notice: The notice required under paragraph (1) shall be--
(A) given in person,
(B) left at the dwelling or usual place of business of such person, or
(C) sent by certified or registered mail to such person's last known
address, not more than 5 business days after the day of the filing of
the notice of lien.
IRC §6330 (LEVIES):
(a) Requirement of Notice Before Levy:
(1) In general: No levy may be made on any property or
right to property of any person unless the Secretary has notified such
person in writing of their right to a hearing under this section before
such levy is made. Such notice shall be required only once for the
taxable period to which the unpaid tax specified in paragraph (3)(A)
(2) Time and method for notice: The notice required under paragraph (1) shall be--
(A) given in person,
(B) left at the dwelling or usual place of business of such person, or
(C) sent by certified or registered mail, return receipt requested,
to such person's last known address, not less than 30 days before the
day of the first levy with respect to the amount of the unpaid tax for
the taxable period.
For both liens and levies, the CDP notice must include information
(in "simple and nontechnical language") about the proposed collection
action and the procedures for seeking a hearing. In addition, the
notice must contain a brief statement regarding the underlying law as
well as the administrative alternatives by which the taxpayer can
obtain a release of the lien or avoid the issuance of the threatened
With respect to liens, the CDP notice must be issued to the taxpayer
within five days after the lien is filed. The Service has devised a new
form letter to use for this notification, captioned "Notice of Federal
Tax Lien Filing and Your Right to a Hearing Under IRC 6320."
Accompanying the form letter will be a copy of Publication 1660,
"Collection Appeals Right," which the IRS has just revised to cover the
new requirements imposed by the 1998 Act. For levies, the CDP notice
must be issued thirty days before the levy is served.
Request for Hearing.
In the case of both liens and levies, the taxpayer has thirty days
after the date of the CDP notice to file a request for a hearing. If a
timely request is filed, the Appeals Office will consider the case and
render a written determination concerning the appropriateness of the
lien filing or the proposed levy. The request for a CDP hearing must be
in writing, and must contain the taxpayer's name, address, and phone
number, the type of tax and tax periods, and a statement of the reasons
the taxpayer disagrees with the filing of the lien or the threatened
levy. The request must be signed by the taxpayer or an authorized
representative. While no specific format is required, the Service has
just released a new form, the "Request for Collection Due Process
Hearing" (Form 12153), for this purpose.3
At the CDP hearing, the taxpayer may challenge the appropriateness
of the lien or threatened levy, raise available spousal defenses, and
offer collection alternatives. However, the taxpayer cannot raise
issues which were presented and considered at any previous CDP hearing
or other previous administrative or judicial proceeding in which the
taxpayer "meaningfully participated."4 In addition to these
procedural matters, substantive defenses to the underlying liability
can be raised, but only if the taxpayer did not receive a statutory
notice of deficiency (if applicable) or did not otherwise have an
opportunity to dispute the tax. Both IRC §6320 and §6330 contain the
same parameters for the mandated hearing:
(c) Matters Considered at Hearing: In the case of any hearing conducted under this section--
(1) Requirement of investigation: The appeals officer
shall at the hearing obtain verification from the Secretary that the
requirements of any applicable law or administrative procedure have
(2) Issues at Hearing:
(A) In general: The person may raise at the hearing any
relevant issue relating to the unpaid tax or the proposed levy,
(i) appropriate spousal defenses,
(ii) challenges to the appropriate-ness of collection actions, and
(iii) offers of collection alternatives, which may include the
posting of a bond, the substitution of other assets, an installment
agreement, or an offer-in-compromise.
(B) Underlying liability: The person may also raise at the hearing
challenges to the existence or amount of the underlying tax liability
for any tax period if the person did not receive any statutory notice
of deficiency for such tax liability or did not otherwise have an
opportunity to dispute such tax liability.
Absent a waiver by the taxpayer, the hearing will be conducted by an
Appeals Officer with no prior involvement in the case. The standard to
be applied in the CDP hearing is whether the proposed collection action
"balances the need for the efficient collection of taxes with the
legitimate concern of the person that any collection action be no more
intrusive than necessary."
Stay of Collection Action.
During the period of time prior to a requested CDP hearing, and for
the time the Appeals Officer has the matter under consideration before
issuing his or her written determination, enforced collection action
will be withheld. The running of certain statutory limitations periods
are also suspended during this time, including the statute of
limitations on collection and the statute of limitations on criminal
Judicial Review of CDP Determinations.
If the CDP hearing in the Appeals Office does not produce a
satisfactory resolution, the 1998 Act allows for judicial review.
Within 30 days of the date the Appeals Office issues its written
determination, the taxpayer may seek review in the Tax Court or the
appropriate Federal District Court.5 The Tax Court is the
proper forum for review if the underlying tax is of a type over which
the Tax Court would normally have jurisdiction, such as income, gift
and estate taxes.6 Litigation will be in the District Court
for determinations involving other types of liabilities, such as the
trust fund recovery penalty and certain excise taxes.7
In any such judicial review the taxpayer cannot raise issues which
were not raised in the CDP hearing. This makes it extremely important
to raise all possible issues in the Appeals Office hearing to avoid
being foreclosed from raising such issues in subsequent CDP litigation.
The courts will review Appeals determinations as to the validity of the
underlying tax (and any related innocent spouse defenses) on a de novo
basis. However, disputes over procedural matters, such questions of the
appropriateness of collection actions, are subject to an "abuse of
discretion" standard. In most cases this will probably make it
difficult for the taxpayer to convince the court to overturn the prior
determination of the Appeals Office.
CDP "Equivalent" Hearings.
It is important to know that even if the taxpayer fails to ask for a
CDP hearing within the specified 30 day period, the Appeals Office will
nevertheless provide an opportunity for a conference if asked. The
Service has coined the term "equivalent hearing" for such a proceeding.
The equivalent hearing will be substantially similar to the CDP
hearing, with several important exceptions. First, the Service will not
be under a statutory obligation to cease enforced collection action
during the pendency of the hearing (although as a policy matter
enforced collection action will probably be withheld anyway). Since
there is no requirement for the cessation of enforced collection
action, the statutory limitations periods will not be suspended.
Second, unlike the formal CDP hearing, a taxpayer will not be entitled
to seek judicial review from the Appeals Office determination resulting
from an equivalent hearing.
CDP "Retained Jurisdiction" Hearings.
Finally, the Service anticipates offering a third kind of CDP
hearing, termed a "retained jurisdiction" hearing. Under the new
procedures, once the Appeals Office takes jurisdiction over a case
pursuant to the filing of a Request for Collection Due Process Hearing
by the taxpayer, it retains jurisdiction for as long as collection
activity continues in the case. The retained jurisdiction hearing will
arise when the taxpayer asserts that a change in circumstances warrants
reconsidering the previous determination. In protracted collection
cases, of course, taxpayers' personal and financial circumstances do
often change. All this raises the possibility that once the Appeals
Office is forced into a case by the filing of a Form 12153, the case
will remain in the Appeals Office "inventory" for many months or years.
Appeals Officers, much to their chagrin, will become de facto Revenue
Officers. Like the "equivalent hearing" discussed above, the "retained
jurisdiction" hearing does not extend the statute of limitations on
collections, nor is the withholding of enforced collection action
Collection Appeals Program.
The Collection Appeals Program (or CAP) was adopted by the IRS in
April 1996, and was expanded in January 1997. And because tax laws and
procedures grow by accretion, it remains in place along side the new
Collection Due Process hearing structure. The CAP program gives
taxpayers the right to appeal a variety of collection actions,
including liens, levies, seizures, and the threatened termination of
installment agreements.8 Though useful within its limits,
the CAP doesn't cover certain important and common sources of conflict
with the Collection Division. Specifically, it doesn't cover the 100%
penalty, penalty abatements and appeals of denials thereof, or offers
Before a taxpayer is permitted to invoke the appeal rights available
under the Collection Appeals Program, he or she must first discuss the
disputed issues with the Revenue Officer's manager. You should not
assume that the manager will simply back up his or her Revenue Officer,
though this is often what happens. Each Revenue Officer carries so many
cases in inventory that the manager is not on top of every action being
taken in every case by every Revenue Officer in his group. However, to
make any progress with the manager, you need to be prepared to present
the facts in a brief, clear and coherent manner. And most importantly,
you must be prepared to suggest and defend a reasonable and appropriate
alternative to the protested action. Finally, you should document your
compliance with CAP obligation to seek relief from the manager by
appropriate correspondence or memo.
The CAP process is initiated by filling a Form 9423, "Collection
Appeal Request." The form is submitted under penalties of perjury, and
may be signed by either the taxpayer or the taxpayers' authorized
representative. Collection action will usually be suspended while the
Collection Appeal Request is being evaluated by the Service, but only
if the Form 9423 is filed within two days of the manager conference.10
If a seizure has been made, the taxpayer has ten business days from the
date the Notice of Seizure is issued to file the appeal.
Appeals Officers are expected to close CAP cases within five
business days. They therefore try to hold a conference within two days
of receipt of the case, although taxpayers will be allowed a reasonable
delay when warranted (generally not exceeding five business days). The
Appeals Officer will review the case based on the law, policy,
procedures, and all the facts and circumstances. If it is determined
that the collection action complained of is consistent with standard
IRS policies and procedures, the action will be upheld.
Immediately upon making the decision in a CAP case, the Appeals
Officer will inform both the Collection Division and the taxpayer, if
possible within the five day time frame. The decision may initially be
given verbally, and then followed by a written closing letter.
Enforcement action may resume after notification of the decision if
Appeals has sustained the Collection Division's position. Decisions are
binding on the taxpayer and the Collection Division. The taxpayer may
not thereafter appeal the same issue again, as for instance in
connection with a subsequent levy on the same asset. Please note that
whereas a decision under the new CDP hearing process can be the subject
of judicial review, there is no such right with respect to an Appeals
Officer's decision under the CAP program.
Application for Taxpayer Assistance Order.
The third parallel track for contesting adverse collection actions
is the filing of an "Application for Taxpayer Assistance Order to
Relieve Hardship" or "ATAO" (Form 911 -- who says the IRS doesn't have
a sense of humor?). The ATAO is filed with the Office of the Taxpayer
Advocate (formerly called the Problem Resolution Office).11
The Restructuring and Reform Act, through amendments to the Internal
Revenue Code and structural changes to the IRS itself, has
substantially increased the independence and authority of the National
Taxpayer Advocate12 (a post now held by W. Val Oveson13).
The Manual explains that the Office of the Taxpayer Advocate has the
power to halt adverse collection actions, even if only temporarily so
that other procedures can be pursued:
Normal procedures and appeal processes should be used before
resorting to an ATAO. However, if these procedures or processes are not
appropriate because they will not be timely in resolving the hardship,
or were not followed and a "significant hardship" exists, an ATAO
should be considered. It is never incorrect to invoke the "stop and
review" aspect of an ATAO.
The Office of the Taxpayer Advocate, by issuing a Taxpayer
Assistance Order (Form 9102) in response to an ATAO, can accomplish
great things on behalf of a beleaguered taxpayer. Specifically, a TAO
can be issued to relieve "a significant hardship as a result of the
manner in which the Internal Revenue laws are being administered."14 What constitutes a significant hardship is now specified by statute:
- an immediate threat of adverse action;
- a delay of more than thirty days in resolving taxpayer account problems;
- the incurring of significant costs (including fees for professional representation); or
- irreparable injury to or long term adverse impact on the taxpayer.
In applying these factors to a particular case, the Taxpayer
Advocate is required to construe them "in the manner most favor-able to
the taxpayer."15 And although it may require some
modification in light of the 1998 Act, at present the Manual contains
the following list of actions which may be ordered by a TAO:
- Release levies, and bank or third party levies prior to payout; and, personal property seizures prior to sale;
- Stop or postpone IRS actions which deal with receiverships and bankruptcies;
- Stop or postpone IRS actions which deal with the statute of limitations for collection or assessment;
- Stop or postpone any actions relating to the collection of taxes; or,
- Suspend any other provisions of law administered by the IRS.
The most important part of constructing an effective ATAO is the
description and substantiation of the hardship the taxpayer will suffer
from the collection action at issue. The Manual concedes that whether a
certain set of facts constitutes a hardship is highly subjective. Bear
in mind, however, that according to the IRS, "enforcement action, in
and of itself, is not a hardship without additional factors." Your job,
as the taxpayer's advocate, is to explain the consequences of the
enforcement action. In doing so, it is often helpful to cite those
specific provisions of the Internal Revenue Manual which come closest
to your client's situation, and for this reason the following excerpt
from the Internal Revenue Manual warrants close review:16
- Hardships could include, but are not limited to,
exceptional emotional stress experienced by taxpayers in dealing with
tax problems, the threat of a poor credit rating caused by erroneous
enforcement action, gross disservice to the taxpayer, pending eviction,
possible loss of job, the refusal to rescind a Statutory Notice of
Deficiency when the statute is not in jeopardy, significant personal
emergencies, or other situations of similar magnitude to the taxpayer.
addition, imminent bankruptcy and failure to meet payroll could be
considered hardship in specific circumstances. An example of a hardship
causing imminent bankruptcy could be in the situation where a delay
occurs in processing a refund causing a poor cash flow situation that
will force the taxpayer into bankruptcy. An example of a hardship
causing a failure to meet payroll could be a situation where a levy is
served on a payroll account when there are alternative sources of
The Manual then follows the above expression of general principles with several specific examples.17
- A wage levy that impaired the taxpayer's ability
to purchase needed medication or medical care. The Service's
unawareness causes an unintentional negative impact and would qualify
for an ATAO if the employee contacted cannot or will not relieve the
- A payment is not properly applied to a taxpayer's
account, thus prohibiting the taxpayer's receipt of a re-fund. After
numerous contacts with the Service, supplying dates, the taxpayer is
suffering emotional stress and files a Form 911 for relief. An ATAO is
appropriate to request action to substantiate the credit and authorize
Again, the goal is to explain in the Form 911 how the taxpayer's
situation fits the standards in the Code and in the Manual. In that
way, the case worker will find it easier to justify giving you the
relief you seek.
One of the many benefits to pursuing the ATAO procedure is that the
Service must respond very quickly. Although sometimes viewed more as a
goal than a requirement, the Manual provides that the Taxpayer Advocate
will generally make a determination within two days of receipt of the
hardship verification. For cases involving enforcement actions, the
Taxpayer Advocate will make the relief determination within one day of
receiving the results of the "functional review." The functional review
is a process by which the Taxpayer Advocate sends the case to the IRS
unit involved in the matter for consideration. Importantly, the Manual
requires that the "function" suspend all enforcement actions until a
final decision on relieving the hardship is made, and must report back
to the Taxpayer Advocate within two days unless a different deadline is
established. If the Taxpayer Advocate disagrees with the function's
findings, he or she will discuss the issue with the division chief,
with the Taxpayer Advocate having the power to overrule the chief and
issue a Taxpayer Assistance Order when they cannot reach agreement.
The IRS Restructuring and Reform Act of 1998 has added the
"Collection Due Process hearing" as a third way to obtain appeals
consideration and even judicial relief. The CDP hearing now takes its
place with the Collection Appeals Program and the Application for
Taxpayer Assistance Order. These three techniques present multiple and
at times overlapping opportunities to seek independent review of
threatened collection actions, and to thus convince the Collection
Division to accept more reasonable solutions with regard to unpaid
taxes. Indeed, these remedies are so powerful and so easily available
that they give new meaning to the term "voluntary tax system."
- Mr. Haynes is a tax lawyer with offices in Burke, Virginia,
and Burtonsville, Maryland. From 1973 to 1981 he was a Special Agent
with the Baltimore office of the IRS Criminal Investigation Division,
and in 1980 was named "Criminal Investigator of the Year" by the
Association of Federal Investigators. He specializes in civil and
criminal tax disputes and litigation, and the tax aspects of bankruptcy
- See TD 8809 and TD 8810, announcing Proposed Regs. §301.6320-1T and §301.6330-1T.
- The new form can be downloaded from the IRS website at http://ftp.fedworld.gov/pub/irs-pdf/f12153.pdf.
the procedural rules and related judicial decisions are developed,
there will be many battles over the interpretation of the phrase
- The written determinations
will be communicated by one of two new pattern letters, one for matters
under the jurisdiction of the Tax Court, and another for items
appealable to the District Court. Both will include a statement of the
requirements for seeking judicial review.
- The Tax Court has
just added new rules to its Rules of Practice and Procedure to govern
these CDP cases (see Rules 330-332). Chief Judge Mary Ann Cohen has
expressed grave concern over the potential impact of what may be a
flood of CDP litigation.
- If the taxpayer files a timely
appeal, but in the wrong court, another 30 day period will be allowed
for the filing of a petition for review with the proper court.
IRS Publication 594 "Understanding the Collection Process," which is
mailed to all taxpayers with the final notice of intent to levy. See
also IRS Publication 1660 "Collection Appeal Rights for Liens, Levies,
Seizures and Installment Agreement Terminations."
Service's rejection of a proposed Offer in Compromise is nevertheless
subject to administrative appeal. See my article on Offers in
Compromise in the December/January 1999 issue of The Free State
- The Revenue Officer may determine the
enforcement action should continue during the CAP appeals process if
withholding action would be detrimental to the collection of the tax.
Enforcement action will generally continue on "Repeat Delinquent
cases." Under IRM 5614, Repeat Delinquent cases are business taxpayers
who owe over $10,000 in withholding taxes, and have at least three
TDA's which accrued in the past three years.
- The Form 911 can be submitted by mail or by fax where quick action is necessary.
- See IRC §7803(c)(1) and 7811(a).
- Mr. Oveson was formerly Director of the Department of Taxation and
Lieutenant Governor of the State of Utah. His phone number is
202-622-6100 (email firstname.lastname@example.org).
- IRC §7811(a).
- IRC §7811(a)(3).
- See IRM §518(13).33.
- See IRM §12(16)0, par. 126.
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