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Fazzio Law Offices

The CDP Hearing - Your Best Opportunity to Settle Your Tax Troubles

THE COLLECTION DUE PROCESS HEARING

Important Take Aways

  • A Collection Due Process Hearing is Your Best Opportunity to Settle Your Tax Debt.
  • You Have 30 Days From Receiving a Notice of Intent to Levy to Request a Hearing and Hire a Tax Representative.
  • The IRS Will Not Always Provide you with Form 12153, Which Must Be Used to Request a Hearing So Know How to Find It.
  • The IRS Can Give You a Payment Plan, Consider a Settlement Offer, or Place You in Currently-Not-Collectible Status; But It is Up To You To Provide a Form 433-A At Least 14 Days Before the Hearing with a Complete Financial Record – So Start Pulling that Information Together Today.  
  • Current Compliance is an Absolute Requirement For Working Out Any Deal with the IRS, so File Any Delinquent Returns TODAY!
  • You Only Get One Bite At the Apple, but You Can Appeal if the Appeals Officer Presiding Over Your Hearing Was Not Fair to You.

 

The Final Notice of Intent to Levy – What Does it Mean?  What Do I Do?

First, the IRS cannot take any action for exactly thirty (30) days.  This is to give you a chance to respond to the notice.  Use this time wisely.  Once it is spent the IRS will begin levying bank accounts, garnishing wages, and liquidating your assets.  They probably have this information already if you are receiving a Final Notice of Intent to Levy.

You cannot just ask for a Collection Due Process (“CDP”) Hearing any time you want.  But, when you receive a “Final Notice of Intent to Levy” the clock starts running and you have thirty (30) days to fill out Form 12153, Request for a Collection Due Process Hearing, and to submit it to the IRS Representative.  You should include a Form 433-a which is a complete financial worksheet similar to a Profit and Loss Statement.  On the left hand side of the main page of the form you list all your forms of income, and on the right you detail all of your expenses.  Your Net Income or Reasonable Collection Potential is the difference between your actual gross income and your allowable expenses.

What Issues Can Be Raised at My Hearing?

  • Request a Collection Alternative Such as a Payment Plan.
  • Raise an Innocent Spouse Defense.
  • Request Abatement of Interest and Penalties.
  • Argue That a Lien Should Not Be Filed or That Separate Collateral Will Suffice.

 

What Issues Cannot Be Raised at My Hearing?

  • Challenges to Liability Are Barred. See I.R.C. § 6330(c)(2)(b).
    • Challenges to Liability are Triggered by a Statutory Notice of Deficiency or “90 Day Letter” governed by IRC § 6212.  If you receive one of these you have 90 days to petition Tax Court.
    • Exception: If you happen to receive a Statutory Notice of Deficiency followed by a Final Notice of Intent to Levy, the peculiar timing will allow you to raise these issues in the CDP Hearing, but you must still file a Tax Court Petition to preserve your appeal rights if you seek to challenge the assessment.  Ironically, Appeals Officers also try to resolve these challenges in a similar procedural forum to a CDP Hearing.  Because of their familiarity, the Appeals Officer will likely try to resolve this issue if your statutory periods overlap.
  • Issues Previously Decided or For Which Statutory Rights Have Expired (i.e. Notice of Determination).

 

Who will conduct my Hearing?

Your hearing will be conducted by an Appeals Officer.  This is great news!  Appeals Officers are compensated, evaluated and trained based on their ability to settle cases.  By contrast, Revenue Agents are compensated, evaluated and trained on their success at collecting money.  You are dealing with someone with both the inclination and training to move toward settlement.  However, if you don’t ask for a local agent, you may end up with someone in Memphis, California or Miami.  This is not good news.  Agents outside New York and New Jersey often do not understand the high cost of living in these areas.  You should always request a hearing with a local representative unless your initial contacts convince you that the individual you are dealing with is top notch.  In that case, stick with who you are assigned and take your chances.  Really bright people tend to not be as biased and be more analytical, which makes them better at analyzing competing positions, determining the strengths and weaknesses, and making an equitable decision.

When will my hearing take place?

Hearings are usually conducted by phone, but if you ask for a local representative, you have the right to a face-to-face hearing at the local office.  This is a big deal.  If you have a garden variety case a face-to-face is not strictly necessary.  But, if you have a tough case and a long non-compliance history, a face-to-face hearing is critical.  It is easy to say “NO” to people and treat them as a common “tax cheat” or “villain” when they are not sitting right in front of you.  Excuses and personal circumstances ring hollow on paper.  However, in person, with a sense of the personality of the individual, it is easier to empathize.  Thus, the place the hearing is held can have important consequences for the outcome.

Can I Get a Second Hearing?

NO!  You only get one bite at the apple, so make it count.  However, you do have the ability to appeal a final decision from an Appeals Officer during a Collection Due Process hearing to the Tax Court, but the standard for overruling an Appeals Officer is “abuse of discretion.”  Few judges or IRS personnel are going to find that an Appeals Officer’s evaluation meets that very, very high threshold.  So make the hearing count.

But, if the Appeals Officer dismissed your claims out of hand or didn’t look at the evidence and didn’t evaluate your financial circumstances, you may be one of the minority of taxpayers who has a good reason to appeal the CDP Hearing and take the matter to Tax Court.  But, you have to act quickly to do so.

How will the Appeals Officer Assigned Decide my case?

The CDP hearing is conducted by an impartial employee of the IRS Office of Appeals.   The Appeals Officer should have no prior involvement in the issue that resulted in the collection of the unpaid liability.  CDP hearings are conducted informally at the Appeals office.  No transcript is taken of the conference and no oath or affirmation is taken.  At the conference, the Appeals Officer will consider:

  1. The validity, sufficiency, and timeliness of the CDP Notice and the request of the CDP hearing;
  2. Any relevant issue relating to the unpaid tax raised by the taxpayer at the hearing;
  3. Any appropriate spousal defenses raised by the taxpayer at the hearing;
  4. Any challenges by the taxpayer to the appropriateness of the collection action;
  5. Any offers for collection alternatives made by the taxpayer; and
  6. Whether the proposed collection action balances the need for the efficient collection of taxes and the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary.

 

At the hearing, the taxpayer may also challenge the existence of the liability or the amount of the liability only if he (1) did not receive a Statutory Notice of Deficiency, (2) did not receive it in time to file a Tax Court petition or (3) did not have any opportunity to dispute the liability.  The taxpayer may not raise an issue that was raised and considered at a prior administrative or judicial hearing.

Prior to issuing a determination, the Appeals Officer is required to obtain verification from the IRS office collecting the tax that the requirements of any applicable law or administrative procedure have been met.

Current Compliance: Generally, the IRS will not grant an installment agreement or accept an offer-in-compromise if any tax return for which the taxpayer has a filing requirement has not been filed.  I.R.M. 5.14.1.4.1(4)-(6) (Sept. 26, 2008) (installment agreements): 5.8.3.13(1),(2),(4) (Sept 23, 2008) (offers-in-compromise);As to reporting an account currently not collectable the IRS no longer will automatically decline a request if all the other indicators show that the client  cannot meet the living standards. 5.16.1.2.9  (05-22-2012).

However, the client should file delinquent returns as compliance is still required to submit an offer in compromise or enter into an installment agreement., 5.1.11.2.3 (June 2, 2004 general procedures). 

The Appeals Office will issue its findings in a dated Notice of Determination sent by certified mail or registered mail to the taxpayer.  While there is no time limit on when the IRS must issue its findings, the regulations require the Appeals Officer to conduct the hearing "as expeditiously as possible."  Once the finding is issued, the taxpayer has 30 days to request judicial review by filing a petition in Tax Court or U.S. District Court. 

How Does the IRS Determine What Expenses to Allow on an Installment Plan?

The IRS does not allow every expense imaginable.  You are not entitled to live in a castle, although we did have one client who lived in one.  You are not entitled to drive a Mercedes Benz automobile.  You are not entitled to dine at Ruth Chris steak house every night.  What you get are “reasonable” living expenses based on census date evaluated by the IRS.  What they come up with are “National Standards” and “Local Standards.”  For instance, the following are the National Standards for Food, Clothing and Miscellaneous Items:

expense

One Person

Two Persons

Three Persons

Four Persons

Food 

$315

$556

$645

$777

Housekeeping supplies

$30

$66

$65

$74

Apparel & services

$88

$162

$209

$244

Personal care products & services

$34

$60

$64

$70

Miscellaneous

$116

$209

$251

$300

Total

$583

$1,053

$1,234

$1,465

 

http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/National-Standards:-Food,-Clothing-and-Other-Items

The following are local New York Standards for Housing and Utilities for some of the primary areas we serve:

Maximum Monthly Allowance

County

Housing and Utilities for a Family of 1

Housing and Utilities for a Family of 2

Housing and Utilities for a Family of 3

Housing and Utilities for a Family of 4

Housing and Utilities for a Family of 5 or more

 

New York County

4,076

4,788

5,045

5,625

5,716

Rockland County

2,654

3,117

3,284

3,662

3,721

Nassau County

2,819

3,311

3,489

3,891

3,953

Westchester County

2,922

3,432

3,617

4,033

4,098

Kings County

2,348

2,758

2,906

3,240

3,292

Bronx County

2,159

2,535

2,672

2,979

3,027

 

As you can see, few people can afford Housing and Utilities at the prices permitted by the IRS. 

Where Does My Right to a Collection Due Process (“CDP”) Hearing Come From?

IRS § 6320 and 6330 were enacted as part of the IRS Restructuring and Reform Act of 1998 to create a level playing field and put a stop to unfavorable and sharp “collection tactics” that tended to harass and intimidate taxapyers.  These sections target the use of liens and levies as giving rise to statutory rights, but the right to a hearing really comes from Constitutional origins.

The 4th Amendment to the Constitution requires that the government afford you “due process” of law before taking your life, liberty or property.  When you are dealing with the IRS it is usually your property (i.e., wages, bank accounts, and liquid assets) that are at risk.  If you owe the IRS money, their collection powers include the ability to file liens and levies, to garnish your wages, to sue you in District Court to take your house, and to require that clients send payments to the IRS instead of to you.  These are great powers that strike fear in the hearts of the people.

However, before the IRS can take these steps, they must afford you “due process”.  Due process means that everyone is treated the same and subject to the same procedure, together with the same rights and opportunity to be heard.  The IRS satisfies these requirements

What Alternatives Do I Have?

Let’s assume you don’t want the IRS to garnish you wages or invade your bank account.  You could pay the amount due and file a Claim for Refund with the IRS.  You could file amended returns and ask the hearing officer to wait for them to process.  You could contact collections and resolve the issue in advance.  There are many alternatives that are more economical than a CDP Hearing which should be explored in appropriate cases before taking this critical step.  In fact, CDP Hearings are most useful when you find yourself in the unfortunate and somewhat rare situation of having an over-zealous field collection agent who simply won’t work with your client.  In most other cases, the same results can be achieved outside of a CDP Hearing.

The CDP Hearing, however, satisfies a purpose that is important for you, the delinquent taxpayer.  It sets a deadline.  Many taxpayers could have taken action sooner, but didn’t.  So now you have a deadline.  This is helpful for some people and is also a reason why many CDP Hearings occur when the matter could have been worked out in the field.

What if My Case Doesn’t Require a Hearing – Can I Work Out My Case with the Revenue Agent and Settle the Matter?

Yes.  You can work the case out with the Revenue Agent while the CDP Hearing is pending.  This is a wise move because it will save time and money.  But, it also requires establishing full current compliance and getting all of your paperwork that would have been presented in the hearing to the Revenue Agent in advance.