ALI-ABA Course of Study How To Handle a Tax Controversy at the IRS and in Court: From Administrative Audit Through Litigation

Transcription

1 191 ALI-ABA Course of Study How To Handle a Tax Controversy at the IRS and in Court: From Administrative Audit Through Litigation Sponsored with the cooperation of the ABA Section of Taxation June 24-25, 2010 San Francisco, California Collection Due Process Hearings By William E. Taggart, Jr. Taggart & Hawkins, PC Oakland, California

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3 193 COLLECTION DUE PROCESS HEARINGS 1 I. The Internal Revenue Service Restructuring and Reform Act of 1998 added a new form of proceeding to the tax controversy landscape - Collection Due Process ( CDP ) hearings. The addition of CDP hearings to the tax controversy landscape created a challenge for the Internal Revenue Service ( IRS ). The addition of CDP hearings to the tax controversy landscape created an opportunity for some taxpayers. The right to appeal an adverse decision in a CDP hearing placed an unwanted burden on the Tax Court. 2 A. The opportunity for a CDP hearing arises in two different instances - upon the recording of a Notice of Federal Tax Lien ( NFTL ) under Internal Revenue Code ( IRC ) 6320 and upon the issuance of a Notice of Intent to Levy IRC under B. The procedure and the proceedings are the same regardless of the manner in which the opportunity for a CDP hearing arises. IRC 6320(c) specifies that the procedural provisions of IRC IRC 6330(c), (d)(except for paragraph (2)(B)), (e), and (g) apply to a request for a CDP hearing in response to the filing of a NFTL. 1. IRC 6330(c) describes the matters considered at a CDP hearing. 2. IRC 6330(d) describes the appeal rights of a taxpayer following a CDP hearing. a. IRC 6330(d)(2)(B) addresses the retention of jurisdiction by Appeals when there are changed circumstances. 3. IRC 6330(e) suspends collection action in most instances, and suspends the running of the statute of limitations on collection. 4. IRC 6330(g) allows for a use of the CDP hearing process that is deemed 1. This outline is a revision and update of material that Karen L. Hawkins, who is now the Director of the Internal Revenue Service Office of Professional Responsibility, Washington, D.C., prepared for this Program over a period of years while she was engaged in the private practice of law. The contributions of the current author are modest in comparison to those of the original author. 2. On February 13, 2009, the Office of Chief Counsel issued a comprehensive guide for addressing CDP cases. CC This Notice updated and replaced CC , the Collection Due Process Handbook. This Notice should be the starting point for planning the representation of a taxpayer in connection with a CDP hearing. -1-

4 194 frivolous to be disregarded. C. The IRS must give written notice of the recording of a NFTL to the person described in IRC 6321, i.e., the taxpayer liable for the tax, whose property will be subject to the lien, within five days after the lien notice is filed. CC , IV. A The statute uses person throughout, but the IRS takes the position that only the taxpayer liable for the tax liability is entitled to notice and a hearing. Treas. Reg (a)(2), Q&A, A1; Treas. Reg (a)(3), Q&A, A2. 2. The notice must be given in person, left at the taxpayer s dwelling or usual place of business, or sent by certified or registered mail to his/her last known address. a. An NFTL becomes effective upon filing. Actual receipt is not required for the notice to be valid or to have priority. 3. The notice must advise the taxpayer in plain English, of the amount of the unpaid tax, the right to request a hearing within thirty-five (35) days of the date the lien was filed, the administrative appeal rights available to the taxpayer as well as the procedures relating to appeal, and the lien release statutes and procedures. IRC 6320(a)(3). a. IRC 6320(a)(3)(B) reads during the 30-day period beginning on the day after the 5-day period within which written notice must be provided. b. The IRS is not required to give notice of the refiling of an NFTL. c. If a subsequent NFTL is filed for the same tax liability and same time period, notice may be given, but such notice will not give rise to an additional hearing opportunity. Treas. Reg (b)(2), Q-A, B1. d. A nominee or person known to be holding the property of the taxpayer against whom the NFTL is issued is not entitled to notice, even though the nominee may be named in the NFTL. Treas. Reg (b)(2), Q&A, B5. 4. A CDP hearing must be requested in writing. IRC 6320(b)(1); Treas. Reg (c)(2), Q&A, C1. a. The request for a CDP hearing may take any form. The IRS provides Form 12153, Request for Due Process Hearing, which -2-

5 195 may be used to request a hearing. A written request for a CDP hearing must include the following: (a) taxpayer s name, address and daytime telephone; (b) taxpayer s identification number, e.g., SSN, ITIN, EIN; (c) the type of tax involved; (d) the tax period at issue; (e) a clear statement that the taxpayer requests a CDP hearing; and, (f) the reason(s) why the taxpayer disagrees with the NFTL filing. b. The written request must be dated and signed by the taxpayer or the taxpayer s authorized representative. 5. A taxpayer s request for a hearing must be sent or hand-delivered, if permitted, to the IRS office and address as directed in the NFTL. a. Any properly requested hearing will be held by the IRS Office of Appeals. IRC 6320(b)(1). 6. The CDP hearing will be conducted by an officer or employee with no prior involvement with the unpaid tax liability generating the taxpayer s NFTL. IRC 6320(b)(3). 7. A taxpayer is entitled to only one CDP hearing for lien notices issued with respect to the unpaid tax for a specific tax period. a. A request for a CDP hearing must be made within thirty (30) days after receipt of the first lien notice for that specific unpaid tax and tax period. Treas. Reg (b). b. Another CDP hearing for the same tax period under IRC 6320 may occur if a different type of tax is involved, or if the same type of tax is involved but the amount of unpaid tax has changed as a result of an additional assessment of tax. Treas. Reg (d)(2), Q&A, D1. 8. To the extent practicable, the CDP hearing under IRC 6320 will be held in conjunction with any other CDP hearing requested under IRC If the request for a CDP hearing is not timely made, the taxpayer loses the right to a CDP hearing, and the corresponding right to judicial review of an adverse Appeals determination. a. In most instances in which a taxpayer makes an untimely request for a CDP hearing, the taxpayer will be granted an equivalent hearing. See Section V, infra. -3-