The IRS Appeals Process for collections began in 1998 with the IRS Restructuring and Reform Act. As a result of this law, taxpayers were no longer at the mercy of the IRS. The new rules prohibited the IRS from levying bank accounts and garnishing wages at will. And a formal appeals process was instituted to ensure that every taxpayer had the right to have their case heard in an impartial setting.
Nevertheless, very few taxpayers exercise their appeals rights each year. This is probably due to the fact the most taxpayers do not understand the tax appeals process.
In this article we will discuss the Appeals Process of the Internal Revenue Service and the benefits that appeals can provide when dealing with the IRS.
Let’s begin with the people at the IRS who can help you with a problem.
Revenue Officers are the collection personnel who take collection action against taxpayers. Generally these are the people who you get on the phone when you call the IRS about a tax debt.
Settlement Officers are the appeals professionals at the IRS who handle collection matters. Most, if not all, Settlement Officers served as Revenue Officers prior to joining IRS Appeals. They are usually bright, talented and dedicated employees.
The Settlement Officers in IRS appeals work separately from IRS examination (the auditors) and IRS collections (those who have the job of collecting back taxes). Their job is to give a fresh look to tax controversies. They are able to address a wide variety of tax issues, including audits, liens, levies, wage garnishments and rejected offers in compromise.
What is the Fastest Way to Speak with an IRS Agent?
The IRS phone lines are notoriously backed up. Callers should anticipate waits of up to several hours. And it is not an uncommon to experience a dropped call after a very long wait.
CPAs have a special priority service line that they can use to get to a Revenue Officer or other IRS Agent. Although the taxpayer will probably have to pay for the time of the CPA to handle the matter, this remains the fastest way to speak with an IRS Agent.
IRS Final Notice of Intent to Levy
The Final Notice of Intent to Levy is the culmination of a long series of notices sent by the IRS to the taxpayer over a period of many months. The Notice is sent to the taxpayer by certified mail. It comes in three versions: Letter 11, CP-90 or Letter 1058, depending upon the department at the IRS that issued the Notice.
The Final Notice of Intent to Levy indicates that the taxpayer has 30 days to request a Collection Due Process Hearing. This is also called a CDP Hearing. The request is made by submitting IRS Form 12153, Request for Collection Due Process Hearing.
I nearly always advise my clients to request a CDP Hearing.
Once the taxpayer has requested a Collection Due Process hearing, all IRS collection activities will stop. This means no more letters and notices from the IRS during the period of the appeal.
Upon receipt of Form 12153, the IRS will forward the taxpayer’s case to a Settlement Officer to work out a resolution. This is very beneficial to the taxpayer, as the negotiation process in IRS Appeals is generally quite effective.
US Tax Court: Protecting Your Rights
It is important to note that the request for a CDP Hearing ensures the taxpayer’s rights to take the case to US Tax Court. This is an important right in the event that the taxpayer wishes to challenge the ruling of the Settlement Officer. And for this reason, I generally advise clients to request a CPD Hearing and protect their right to go to US Tax Court.
IRS Appeals Process: What to Do While Waiting
While waiting for the IRS Appeals Hearing, the taxpayer should use the time to prepare any missing returns and develop a proposal to negotiate the tax debt. Taxpayers must have all missing returns filed in order to have their request for appeals accepted. Specifically, the IRS will require the last six years of returns, not all returns going back to the beginning of time.
In addition, the taxpayer should use the time prior to the Hearing to ensure that they are compliant with the requirements for quarterly estimated taxes. This generally applies to business owners and independent contractors. The IRS will not consider an appeal from taxpayers who are not current with their quarterly taxes.
If the taxpayer has not been sending in quarterly taxes, they should catch up on the missing payments as soon as possible. Separate payments should be sent to the IRS for each quarter of the current year. This can be done on the IRS website or by mail using Form 1040-ES.
The same is true for businesses: the IRS will not consider an appeal if a business is not making their payroll tax deposits. The business will need to catch up and pay whatever payments are missing for the current year.
The Appeals Hearing
Once the hearing has been scheduled, the taxpayer will need to submit the following prior the the hearing:
- Any unfiled tax returns
- Proof of filed tax returns
- Proof of compliance regarding current tax payments (copies of checks)
- Collection Information Statement (Form 433), which is a detailed financial disclosure
- A proposal to resolve the tax matter. This refers to one of IRS Tax Relief Programs and may include an Offer in Compromise, an Installment Agreement or request for uncollectible status.
The submission of documents should be a complete package that leaves nothing to chance. It will demonstrate that the taxpayer qualifies for an Appeal Hearing as well as the Tax Relief Program that they desire.
The hearing is generally done by telephone or by video conference.
At the hearing, the taxpayer or their representative will have the opportunity to make their case.
After the hearing, the Settlement Officer will issue a Notice of Determination. If the taxpayer agrees, they will be asked to waive their rights to go to US Tax Court. This is routine. If the taxpayer does not agree with the Notice of Determination, they have 30 days to file their case in US Tax Court.
If a taxpayer misses the 30-day period to request a Collection Due Process appeals hearing, they have one year to request an Equivalent Hearing. An Equivalent Hearing is similar to a Collection Due Process Hearing, but it does not give the taxpayer the right to go to US Tax Court. In other words, the decision of the Settlement Officer is final.
Also, unlike Collection Due Process, the Equivalent Hearing does not stop IRS collection activity. Levy action on bank accounts and other assets, as well as wage garnishments, may continue during the Equivalent Hearing process. Therefore, the taxpayer will continue to work with IRS Collections while waiting for an Equivalent Hearing.
Collection Appeals Process (CAP)
Another type of appeals is called Collection Appeals Process (CAP Appeal). This is used primarily to untangle administrative errors relating to cases in an expedited fashion, such as levies issued to the wrong taxpayer.
The CAP process is very useful to quickly correct collection activity that appears to be improper.
To conclude, taxpayers should be aware of their rights under the IRS Appeals Process. When faced with a threat of a tax lien, a tax levy or any other form of tax pain or embarrassment, the IRS Appeals Process is a great way to get a tax matter settled quickly. Generally, IRS Appeals is reasonable and negotiations go well. Don’t be afraid of Appeals. It is a very useful tool for the taxpayer who is trying to battle with the IRS over a tax debt that they cannot pay.
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Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, sales tax, and small business accounting and bookkeeping.