You may appeal many IRS collection actions to the IRS Independent Office of Appeals (Appeals). Appeals is separate from and independent of the IRS Collection office that initiated the collection action. Appeals ensures and protects its independence by adhering to a strict policy of prohibiting certain ex parte communications with the IRS Collection office or other IRS offices, such as discussions regarding the strengths or weaknesses of your case. Revenue Procedure 2012-18. One commons method for appealing an IRS collection action is the Collection Due Process. Taxpayers often ask their tax attorney if they can submit an OIC through a collection due process hearing.
When you file a CDP hearing request, you must identify your alternatives to, or your reasons for disagreeing with, the lien filing or the levy action. Accordingly, alternatives or reasons for disagreeing may include:
- Collection alternatives such as installment agreement or offer in compromise.
- Subordination or discharge of lien.
- Withdrawal of Notice of Federal Tax Lien.
- Appropriate spousal defenses.
- The existence or amount of the tax, but only if you did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability.
- Collection of the tax liability is causing or will cause an economic or other hardship
What are the Grounds for an IRS OIC?
The IRS is authorized to compromise a tax debt on the basis of doubt as to collectibility where the taxpayer’s assets and income make it unlikely that the IRS will be able to collect the entire balance. Reg. §301.7122-1(c)(2). IRS will look at the taxpayer’s expenses, such as school costs, housing costs, and vehicle costs. However, the Internal Revenue Manual, to which settlement officers (SOs) refer, states that private school tuition is an allowable expense only if required for a physically or mentally challenged child and no public education providing similar services is available. See Internal Revenue Manual 22.214.171.124(3).
Can I Request an Abatement of Interest as Well?
Pursuant to Internal Revenue Code section 6601, interest on tax liabilities accrues automatically. On the other hand, I.R.C section 6404(e)(1)(B) authorizes the Service to abate assessed interest on any payment of any tax to the extent that any unreasonable error or delay in such payment is attributable to an IRS employee being erroneous or dilatory in performing a ministerial or managerial act.
Under Treas. Reg. section 301.6404-2(b), a managerial act means an administrative act that occurs during the processing of a taxpayer’s case involving the temporary or permanent loss of records. It also includes the exercise of judgment or discretion relating to management of personnel. the management of personnel. Moreover, a ministerial act is a procedural or mechanical act that does not involve the exercise of judgment or discretion.
The IRS has “first time abate” policy, which offers an administrative waiver of additions to tax for failure to pay a tax liability on time. See Internal Revenue Manual 126.96.36.199.3.2.1 (Nov. 21, 2017). Additionally, to qualify for this waiver, the taxpayer must not have had any unreversed additions to tax imposed under Code Sec. 6651 for any of the preceding three years. See Internal Revenue Manual 188.8.131.52.3.2.1(4).
Can I Petition the Tax Court If I Disagree with Settlement Officer’s Determination?
After the Settlement Officer makes a determination in a CDP hearing, you can petition the Tax Court if you disagree with the Settlement Officer’s determination. Moreover, the Tax Court reviews the IRS’s decision to not abate interest under the abuse of discretion standard under Internal Revenue Code section 6404(h)(1).
In reviewing a SO’s determinations regarding offers-in-compromise and whether to abate interest, the Tax Court considers:
- whether the SO properly verified that the requirements of applicable law or administrative procedure have been met;
- whether the SO considered any relevant issues the taxpayer raised; and
- whether the SO considered 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. See I.R.C section 6330(c)(3).
What is the Standard of Review in a Tax Court Case?
Neither section 6320(c) nor section 6330(d)(1) prescribes the standard of review that the Tax Court should apply in reviewing an IRS administrative determination in a CDP case. The general parameters for such review are marked out by the Tax Court’s precedents. Where the validity of the underlying tax liability is at issue, the Tax Court will review the Commissioner’s determination de novo. Goza v. Commissioner, 114 T.C. 12, 181-182 (2000). On the other hand, where there is no dispute concerning the underlying tax liability, The Tax Court will review the IRS action for abuse of discretion. Id. at 182. Furthermore, abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner, 125 T.C. 301, 320 (2005), aff’d, 469 F.3d 27 (1st Cir. 2006).
How Can I submit an Offer in Compromise?
If you have an unpaid tax liability and are considering submitting an offer in compromise, contact a tax attorney to discuss if it is the right option for you. If you submit your offer in compromise through a CDP hearing, you may petition the Tax Court if you disagree with the settlement officer’s determination. Contact Disparte Tax Law if you have any questions about the process.