As long as there have been taxes, there have been delinquent taxpayers. Twenty years ago, the delinquent taxpayer could plan on a visit from a local tax collector. The experience depended upon the collector, but the resolution was face to face.
In the mid eighties, computers and the ACS (automated collection system) became the Service’s contact point with the taxpayer. The ACS was the most cost effective collection group and used telephones and the mail to collect the tax. Taxpayers became frustrated because they could not get back to the same revenue officer (there is no transfer function at the service centers). As the Service became more dependent on computers, taxpayers received notices instead of calls.
In 1998, in response to congressional hearings featuring taxpayers testifying to heinous practices, Congress created an appeals process which allowed taxpayers to air grievances to the appeals groups about the collection procedures followed by the IRS. The process is called a collection due process appeal (CDP appeal). The IRS appeals division provides an independent review of IRS actions. In enacting the legislation, Congress intended that where the IRS could not come to a payment arrangement with the taxpayer, the taxpayer could turn to the appeals group. This contemplates some failed negotiation between the taxpayer and the IRS.
However, frequently, the taxpayer has received a series of four letters which the taxpayer, who probably has no means to pay, has ignored. Under the statute, the IRS is required to mail the taxpayer a notice of levy 30 days before taking levy action, which is the fifth letter received by the taxpayer. The taxpayer then has 30 days to appeal the action to IRS Appeals. The appeal may well be the first communication between the taxpayer and the IRS.
A revenue officer’s mindset is generally to negotiate the most rapid pay-off agreement possible with the taxpayer to make it easier to sell the agreement to the group manager. The appeals officer’s mindset is to resolve a dispute between the taxpayer and the Service. Obviously, the more appealing mindset from the taxpayer’s perspective is that of the appeals officer. Therefore, it has become a strategy to wait out the notices from the IRS and appeal from the notice of intent to levy.
The appeals officer can look at any manner of resolution. Since both an offer in compromise and an installment agreement require the same financial information, one can make the case for an offer in compromise with the appeals officer and move on to an installment agreement if unsuccessful. The taxpayer has about ninety days before his hearing. Prior to the hearing, he must submit a completed Form 433-A which resembles a loan application to a bank. The income/expense statement at page four of the form is controlling in most cases in determining the amount required to be offered or paid under an installment plan.
If the Form 433-A is complete, the hearing usually consists of a telephone conference with the appeals officer seeking any clarification or additional verification as required. If a face to face hearing is required, the conference is informal. The appeals officer will usually tell the taxpayer or representative his decision at the hearing. Appeals officers appear to have a much wider latitude than revenue officers and the outcome is usually satisfactory.
Unfortunately, this is an inefficient use of the appeals process and is becoming more and more a burden on the office. The appeal is initiated by filing a Form 12153 with the collection group that sent the notice of levy. In the case of notices issued by the ACS units, many units now have a group that will hold the appeal for 60 days while they attempt to arrive at a resolution. If the notice is issued by a local IRS revenue officer, the appeal will often cause the officer to review the case and look a little harder for a mutually agreeable resolution. Both are steps in the right direction, but frequently fruitless. The CDP appeal can move stalled negotiations and certainly is a valuable tool in the taxpayer’s or practitioner’s tool kit.
Mr. Ericsson practices taxation, business and estate planning law as a partner in the Walnut Creek firm Youngman, Ericsson & Low, LLP, and was the 2006 Contra Costa Bar Association president.
Articles on Taxes from the Tax Law practice area perspective:
- New U.S. Tax Court Rules Effective May 5, 2011 by Warren Peterson
- Getting Heard by a Real Person: the Collections Due Process Appeal by Mark Ericsson
Filed Under: Spotlight