Taxpayers often ask their tax attorney what they can do to dispute a tax liability or collection action when they receive an IRS Final Notice of intent to levy or Notice of Federal Tax Lien. Additionally, taxpayers ask what options they have in an IRS CDP hearing. Internal Revenue Code (IRC) section 6320 provides a right to notice and hearing after the Notice of Federal Tax Lien (NFTL) is filed against a taxpayer’s property. In practice, this notification is provided pursuant to Letter 3172 – Notice of Federal Tax Lien Filing and Your Right to a Hearing under I.R.C. § 6320. A taxpayer may be given a non-CDP notice of intent to levy under section 6331(d) (referred to on literal transcripts or Forms 4340 as the “statutory” notice of intent to levy) prior to being given a CDP notice of intent to levy and right to a hearing under section 6330 (referred to as the “final” notice of intent to levy). Or the notices could be combined.
IRC section 6330 to the Code requires the Service (except in the case of jeopardy levies, levies on State income tax refunds, disqualified employment tax levies, or levies on Federal contractors) to provide written notification (CDP notice) of its intent to levy on any property or right to property of any taxpayer at least 30 days prior to the levy. In addition, the Service must inform the taxpayer of the right to a CDP hearing.
IRS CDP Notice Requirements
A CDP notice must be given in person, left at the taxpayer’s dwelling or usual place of business, or delivered to the taxpayer’s last known address by certified or registered mail. Minemyer v. Commisioner, T.C. Memo. 2012-325 (case dismissed for lack of jurisdiction where CDP notice not mailed to taxpayer’s last known address); Buffano v. Commissioner, T.C. Memo. 2007-32. Moreover, the CDP levy notice must also be sent return receipt requested. As a result, if the CDP notice is not properly sent, and the taxpayer fails to timely request a hearing, the taxpayer is entitled to a substitute notice. Treas. Reg. §§ 301.6320-1(a)(2) Q&A-A12, 301.6330-1(a)(3) Q&A-A10; Graham v. Commissioner, T.C. Memo. 2008-129. On the other hand, a CDP lien notice (Letter 3172) is valid even if given before the NFTL is actually filed; the validity of the section 6320 notice does not depend on the validity of the related NFTL. Additionally, a lien notice solely in the name of a deceased taxpayer is valid if the lien is valid, and if the notice was sent to the decedent’s last known address. Estate of Brandon v. Commissioner, 133 T.C. 4 (2009).
Procedures for Requesting a CDP Hearing
You must submit a section 6330 IRS CDP hearing request no later than 30 days from the date of the CDP notice (provided the notice was mailed on or before that date). Accordingly, premature requests for a CDP hearing (e.g., requests made before the Service has issued a CDP notice) are not valid. Andre v. Commissioner, 127 T.C. 68 (2006).
Any written request for a CDP hearing should be filed at the address indicated on the notice. Additionally, if this address is used and the written request is postmarked within the applicable 30-day response period, then in accordance with section 7502, the request will be considered timely even if it is not received until after the 30-day period. Treas. Reg. §§ 301.6320-1(c)(2) Q&A-C4, 301.6330-1(c)(2) Q&AC4. On the other hand, if a taxpayer hand-carried a CDP hearing request to a local Taxpayer Assistance Center, the request will be timely if delivered within the 30-day period pursuant to Treas. Reg. § 301.6091-1(b)(1) and (2). The 30-day period is not extended for taxpayers residing outside the United States. Treas. Reg. § 301.6320-1(c)(2).
IRS CDP Equivalent Request
The Treasury Regulations provide that a taxpayer whose hearing request is untimely not entitled to a CDP hearing under section 6320 or 6330, the taxpayer may receive an “equivalent hearing.” Treas. Reg. §§ 301.6320-1(i)(1), 301.6330-1(i)(1). A taxpayer must make a written request for an equivalent hearing that contains all of the same information required for a CDP hearing request.
Moreover, a taxpayer must request an equivalent hearing within the one-year period commencing after the date of a CDP levy notice. With respect to a CDP lien notice, a request must be made within the one year period commencing the day after the end of the five-business-day period following the filing of the NFTL. Treas. Reg. §§ 301.6320-1(i)(2) Q&A-I7, 301.6330-1(i)(2) Q&AI7.
What Issues Can a Taxpayer Raise?
Sections 6320(c) and 6330(c)(1) require the Appeals officer to obtain verification from the Secretary that the requirements of any applicable law or administrative procedure have been met. Verification can be obtained at any time prior to the issuance of the determination by Appeals. Treas. Reg. §§ 301.6320-1(e)(1), 301.6330-1(e)(1). The requirements the Appeals officer are verifying are those things that the Code, Treasury Regulations, and the IRM require the Service to do before collection can take place.
A taxpayer may not appeal to a court any decision (issued in the form of a decision letter) made by an Appeals or settlement officer as a result of an equivalent hearing. Treas. Reg. §§ 301.6320-1(i)(2) Q&A-I6, 301.6330-1(i)(2) Q&A-I6; Orum v. Commissioner, 123 T.C. 1 (2004); Moorhous v. Commissioner, 116 T.C. 263 (2001); Johnson v. Commissioner, 2000-2 USTC ¶ 50,591 (D. Ore. 2000). However if the taxpayer files a timely hearing request but is nonetheless given an equivalent hearing based on Appeal’s erroneous determination that the taxpayer’s CDP hearing request was untimely, the Tax Court may treat the resulting decision letter as an appealable CDP determination for purposes of section 6330(d)(1). Craig v. Commissioner, 119 T.C. 252 (2002). A certified mailing list (USPS Form 3877, or the equivalent form prepared by the IRS) showing the date the CDP notice was sent establishes both the fact and date of mailing of the notice of the CDP notice. See Walthers v. Commissioner, T.C. Memo. 2009-139.
The taxpayer is allowed to raise collection alternatives as part of the CDP hearing. I.R.C. § 6330(c)(2)(A)(iii). Section 6330(c)(2)(A)(iii) and Treas. Reg. §§ 301.6320 1(e)(3) Q&A-E6 and 301.6330-1(e)(3) Q&A-E6 list the following as examples of collection alternatives: · posting of a bond; · substitution of other assets; · an installment agreement; · an offer-in-compromise; and · withholding collection action to facilitate future payment. In addition, Treas. Reg. § 301.6320-1(e)(3) Q&A-E6 provides that collection alternatives in lien cases include a proposal to withdraw the NFTL to facilitate the collection of the tax liability, subordination of the NFTL, and discharge of specific property from the NFTL. See Alessio Azzari, Inc. v. Commissioner, 136 T.C. 178 (2011) (Appeals erred in concluding that NFTL could not be subordinated). See also Sullivan v. Commissioner, T.C. Memo. 2012-337, n. 8 (treating Currently Not Collectible Status 28 as a collection alternative).
Acceptance of an installment agreement does not necessarily preclude the filing of a NFTL. Karakaedos v. Commissioner, T.C. Memo. 2012-53. Moreover, The two most common statutorily authorized collection alternatives at issue in CDP cases are OICs pursuant to section 7122, and installment agreements authorized pursuant to 6159. The most common type of OIC is one based on doubt as to collectability premised on the taxpayer’s inability to pay the tax liability in full. The most common type of IA is one that fully pays the tax in installments over an agreed period of time. Prior to 2004, an installment agreement had to provide for full payment of the tax liability, including interest and penalties. In 2004, Congress amended section 6159 to authorize the IRS to enter installment agreements that do not provide for full payment; such agreements are referred to as partial payment installments. Watchman v. Commissioner, T.C. Memo. 2012-113 (rejecting taxpayers’ argument that their full payment installment agreement waived interest and penalties).
IRS CDP Requests: Challenging the Tax Liability
Under section 6330(c)(2)(B), a taxpayer may challenge the existence or amount of the underlying tax liability in a CDP hearing if the taxpayer did not receive a statutory notice of deficiency for the tax liability or did not otherwise have an opportunity to dispute the tax liability. See Callahan v. Commissioner, 130 T.C. 44 (2008) (taxpayer may challenge frivolous return penalty under section 6702 because no notice of deficiency was issued and no Appeals conference was offered); Springer v. Commissioner, 580 F.3d 1142 (10th Cir. 2009) (section 6330(c)(2)(B) does not bar taxpayer from challenging penalties that did not exist and thus were not at issue in the prior deficiency proceedings); Brennan v. Commissioner, T.C. Memo. 2013-123 (taxpayer cannot challenge additions to tax that were included on notice of deficiency, but could raise computational errors on an assessment made after issuance of the notice of deficiency).
IRS CDP Request: Statutory Notice of Deficiency
A taxpayer can dispute the receipt of a statutory notice of deficiency in an IRS CDP hearing. If the taxpayer contests receipt of the notice of deficiency, the IRS must introduce evidence of actual mailing. Rivas v. Commissioner, T.C. Memo. 2012-20. As a result, the IRS must show that the notice of deficiency was received, not merely issued, in order to establish that taxpayer is precluded from raising liability. On the other hand, if the Service shows that the notice of deficiency was properly issued, then the IRS has established that the assessment was properly made. However, the IRS must go one step further to prove receipt in order to establish that the taxpayer cannot raise liability.
Receipt of a statutory notice of deficiency under section 6330(c)(2)(B) means receipt in time to petition the Tax Court for a redetermination of the deficiency. Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E2; 301.6330-1(e)(3) Q&A-E2; Butti v. Commissioner, T.C. Memo. 2009-198. Indeed, the IRS has the burden of proving by a preponderance of the evidence that the receipt requirement has been satisfied. Sego v. Commissioner, 114 T.C. 604 (2000). Moreover, absent direct evidence that the taxpayer actually received the notice of deficiency or refused its delivery, the IRS can rely on the presumptions of official regularity and delivery to meet his burden of proof. Sego v. Commissioner, 114 T.C. 604, 610 (2000) (holding that presumptions of official regularity and of delivery justify the conclusion that the statutory notice was sent and that attempts to deliver were made in the manner contended by respondent); Bailey v. Commissioner, T.C. Memo. 2005-241 (there is a strong presumption in the law that a properly addressed letter will be delivered, or offered for delivery, to the addressee).
IRS CDP Determination
Typically, after an IRS CDP hearing is submitted, an Appeals or settlement officer conducts the IRS CDP hearing and drafts the determination, which is reviewed, approved and issued by an Appeals team manager.
The determination, sent by certified or registered mail and entitled “Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330,” is issued as a dated letter, Letter 3193, which informs the taxpayer of the right to judicial review by the Tax Court. See Treas. Reg. §§ 301.6320-1(e)(3) Q&A-E8. Moreover, the notice of determination should be sent to the taxpayer’s last known address, consistent with the requirements for sending notices of deficiency. Weber v. Commissioner, 122 T.C. 258 (2004); Sebastian v. Commissioner, T.C. Memo. 2007-138 (notice of determination sent to taxpayer’s last known address valid; erroneous zip code was inconsequential error because it did not adversely affect proper delivery of notice). Additionally, the letter provides a summary of the determination and includes an enclosure containing a complete description by the Appeals officer of the basis of his or her determination.
Tax Court Jurisdiction of IRS CDP Determinations
Taxpayers frequently ask tax attorneys if they can litigation their tax dispute after an IRS CDP hearing concludes. Consequently, a taxpayer has 30 days from the date of the notice of determination in which to appeal the determination to the Tax Court. I.R.C. §§ 6320(c), 6330(d)(1); Treas. Reg. §§ 301.6320-1(f)(1), 301.6330-1(f)(1).
Section 6330(d)(1) provides the Tax Court with exclusive jurisdiction to review CDP determinations. Further, this amendment applies to all IRS CDP determinations issued on or after October 17, 2006, regardless of the type of underlying tax.
Moreover, the Tax Court has jurisdiction to decide the reasonableness of the Service’s determination that the taxpayer owned property held by a third-party as a nominee for the taxpayer. Dalton v. Commissioner, 682 F.3d 149 (1st Cir. 2012) (holding that the Service’s decision to apply a balancing test and execution of the balancing test to resolve the nominee question was reasonable), rev’g 135 T.C. 393 (2010).
The standard of review refers to how closely the Tax Court will scrutinize the IRS’s determination. However, if the underlying liability is properly at issue, the Tax Court reviews the liability issue de novo and the other administrative determinations for an abuse of discretion. Jones v. Commissioner, 338 F.3d 463, 466 (5th Cir. 2003); Craig v. Commissioner, 119 T.C. 252, 260 (2002); Sego v. Commissioner, 114 T.C. 604, 610 (2000).
Contact a Tax Attorney to Discuss your Options
If you are considering submitting an IRS CDP hearing request, contact a tax attorney today to discuss your options. Accordingly, an IRS CDP Hearing can be an effective and powerful tool to stop unnecessary IRS tax collection activities and potentially litigation and dispute the underlying liability. Whether you are attempting to pursue an IRS installment agreement, submit an offer in compromise, dispute the underlying tax liability, or litigate the statutory notice of deficiency, contact a tax attorney today to discuss your best options.