IRS Appeals Collection Issues - John R. Dundon II, Enrolled Agent
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IRS Appeals Collection Issues

IRS Appeals Collection Issues

The Mission of IRS Appeals is to resolve tax controversies without litigation on a basis which is fair and impartial to both the government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and the efficiency of the service.

IRS Appeals is independent within but not from the IRS.  ‘IRS Appeals’ reports directly to the Commissioner of the Internal Revenue Service and is not part of any of the business operating divisions including examination or collection.

The independence of IRS Appeals is rooted in a prohibition on ex parte communications which means that appeals employees can’t talk to other IRS employees from other functions about your case to the extent that those communications would appear to compromise the independence of the appeals employee considering the dispute.

This is detailed in revenue procedure 2000-43 here it is stated that a taxpayer must be offered a chance to participate in any discussions about merits of the case between IRS Compliance and IRS Appeals.

IRS Appeals weighs all the facts of a case and evaluates the hazards of litigation.  A hazard is the uncertainty of the outcome of a case if it were litigated.  There are essentially 2 types: factual hazards based on historical tax court precedent and legal hazards such as not keeping within their own administrative guidelines.

Four kinds of cases come to Collection Appeals.

  1. Collection Due Process (CDP) cases.  That means that the taxpayer’s statutorily entitled to a hearing before an impartial appeals employee after notice of federal tax lien is filed under IRC6320 or after a notice of intent to levy has been issued under IRC6330.  The request must be made within 30 days to have the statutory appeals and if it is made within 30 days, the taxpayer has the right to a judicial review of the determination made by Appeals in the tax court.  CDP cases are evaluated based on procedure, facts and ability to balance the collection needs of the service with the ongoing needs of the taxpayer.  If you do not file an appeal within 30 days of notice and before 365 days, you get an equivalent hearing, which is basically the same handling of the case that you get in collection due process, except you don’t have the judicial review in the tax court.

  2. Collection Appeals Program (CAP).  And this is an administrative appeal. It’s a very short turnaround for a specific action that’s been proposed by collection. In lien and levy cases, after your discussion with the group manager in collections, you can request a CAP appeal within two days.  Also it is important to remember that you have no judicial review of a CAP case.  You can however appeal a CAP determination before the lien is filed.

  3. Offer in Compromise (OIC). Section 301 7122-1 is the binding authority for the IRS when working offers in compromise. Appeals determination is final. There are no hazards of litigations considerations.  Appeals determines the taxpayer’s ability to pay based on what a Reasonable Collection Potential or an RCP.

  4. Trust Fund Recovery Penalties.  Civil penalty asserted against individuals who are responsible and willful in failing to pay withheld employment taxes for businesses. The taxpayer has 60 days from receiving the proposed assertion of the penalty to request the appeal. Appeals will look to the factual and legal arguments with respect to the responsibility and willfulness and will consider hazards of litigation. The taxpayer has other rights such as filing a refund claim and/or getting a judicial review after the ruling.

Alternatives that are available when presented with a balance due by IRS Appeals

  1. Full payment

  2. Installment agreement. A monthly payment agreement to resolve the liability to pay within the remaining collection statute.

  3. Offer-In-Compromise program which is a formal proposal to resolve tax liabilities for less than full payment.  The offer amount in a doubt as to liability offer is based on the reasonable collection potential, the RCP.

  4. Currently not collectible.  This is the determination that the taxpayer does not currently have the means to liquidate the liability.  The taxpayer still owes the money to the IRS but the statute of limitations on collections runs.  The IRS retains the opportunity to reevaluate collect-ability of the debt up until the statute of limitations on collections expires.

Assignment of Cases in IRS Appeals

Centralized offer in compromise work cases will go to appeals campus sites currently in Brookhaven and Memphis.  Collection due process cases worked by the automated collection system go to appeals campus sites in Fresno, Covington, Brookhaven and Memphis.

Post-appeals mediation of certain specific cases is being conducted December 2008 through December 2011 in Atlanta, Chicago, Houston, Cincinnati, Indianapolis, Louisville, Phoenix and San Francisco.

My own personal best generic advice

  1. Never send your request for any kind of appeal directly to the IRS Appeals Office. All CDP requests must be sent to the originating office from where the notice was issued.

  2. Be in reporting and payment compliance with all other tax matters including business entities that you are an officer of BEFORE engaging IRS Appeals or entering an Appeals Hearing.  If you can not get past this hurdle you’re done.

  3. Be prepared for your Appeals Hearing or Conference. This is where you can first make your case with Appeals that some other action, other than a levy or the filing of a notice of a federal tax lien, is more appropriate.

  4. Prepare the 433A or the 433B with all the required supporting documentation, which allows the settlement officer to make an informed determination regarding your requested alternative

  5. Do not dissipate assets.  What this means is do not liquidate an asset and use the proceeds for what may be determined to be either unsecured creditors or matters that did not have priority over the IRS federal tax lien liability with the only exception being to cover ordinary and necessary living expenses.