30 Days. That’s how long you have to file for a Collection Due Process hearing in response to a Levy notice from the IRS.
It used to be that the IRS was issuing – for the most part – only a “Final Notice of Intent to Levy and Your Right to a Collection Due Process hearing” (Letter 1058) as the last letter before a taxpayer was exposed to a levy/garnishment of all of his assets and income. But recently, the IRS has started issuing a letter called a “lt11” – which it is pretending on its website is the same thing. It is not. That letter (the lt11) is titled [notice of intent to levy] Intent to seize your property or rights to property. Nothing in the lt11 suggests action in the same way as the words “final notice” or “your right to a collection due process hearing,” in the Letter 1058, But I guess that’s the point. So be careful(!) and read every(!) certified letter you receive from the IRS. You might have a limited time to act before your property and income is exposed. If you would like me to review a recent notice you have received from the IRS, that is something I do that during all of my free consultations.
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///Start boring Tax Procedure Section///
Yesterday, Keith Fogg wrote a blog article over at Procedurally Taxing about the recently decided Ziegler case. In that case, the Tax Court was faced with the question of whether it had jurisdiction over a case when the IRS allowed an Appeals hearing to proceed as if it were a timely requested Collection Due Process hearing. Ziegler requested a Collection Due Process hearing by mailing the request to the IRS on July 14, 2011. Critically, this request was mailed 31 days after the date on the IRS notice giving Ziegler a right to the hearing(June 13) and 34 days after the date the FNOITL was mailed (June 10). At the end of the hearing, a Notice of Determination was issued by IRS, when the IRS should have actually issued a Decision Letter. Both of these letters have largely the same effect from an administrative perspective – they represent the decision made by IRS Appeals (generally, whether or not to proceed with the levy, or enter into an agreement with the taxpayer for a “collection alternative”).
The Court decided that it had jurisdiction over the case, because Ziegler’s Tax Court Petition was timely filed in response to a Notice of Determination. However, the Tax Court went on to convert the Motion to Dismiss for lack of jurisdiction to a Motion for Summary Judgment and granted it.
//end boring tax procedure section//
What does this case tells us about the IRS Collection Process?
Despite the boring “tax geek” flavor of this case, what it tells us about the IRS Collection Process in the context of a Final Notice of Intent to Levy is instructive.
If the IRS sends you a Final Notice of Intent to Levy (AKA a FNOITL aka cp1058 letter aka NOIL aka NIL), you have the opportunity to file for what is known as a Collection Due Process hearing. In order to file for a hearing with IRS Appeals, and retain the benefit of Tax Court review, you have 30 Days to respond to this notice by requesting a hearing.
Benefits of timely requesting a CDP Hearing
The IRS can’t collect until the hearing is over
Filing for a Collection Due Process hearing on time has its benefits. First, the IRS is prohibited by statute from taking levy action against a taxpayer while the hearing is pending. In the Ziegler case, the FNOITL was sent on June 13, 2011 and Ziegler mailed a request for a hearing on July 14, 2011, but it wasn’t until over a year later – on September 28, 2012 – that IRS Appeals actually issued its “Notice of Determination.” This means that for the 14 months that Ziegler’s CDP hearing was pending the IRS could not collect against him for the year at issue. (Now in this case, the IRS actually could have collected against Ziegler if someone at the IRS had realized he had actually filed for an Equivalent Hearing (EH), but I’ll get to that in a minute).
14 Months is not an exceptional amount of time to wait for IRS Appeals to issue a determination letter or notice of determination when a hearing is requested. Taxpayers should realize that while the delayed enforced collection is a good thing for their bank accounts and paychecks, interest and penalties will continue to accrue while the Appeal is pending.
The IRS Appeals decision made in the context of a CDP hearing is subject to review in Tax Court
Not only is a timely filed CDP hearing an effective way to shutdown the IRS Tax Machine, but the decision made by IRS Appeals is subject to review in Tax Court. This is important from two perspectives – some argue that Settlement Officers (IRS Appeals employees who hear CDP/EH cases) take CDP hearings more seriously than EH cases and are more careful to consider the arguments made by a taxpayer or her representative. This is especially a factor when the representative is a Lawyer or USTCP who can actually file the Tax Court petition when necessary. It is also important for the more obvious reason – it gives taxpayers a second shot at arguing their case in a forum that is even more removed from IRS Collections than IRS Appeals. But, something to keep in mind is that the standard of review in Tax Court for CDP cases is “abuse of discretion,” which is a very high hurdle. Taxpayers usually lose CDP cases in Tax Court.
Since a CDP hearing is subject to review in Tax Court, Collections is held at bay for an even longer period of time. In Ziegler, the Tax Court issued it’s decision on November 4, 2014. That means IRS Collections had to wait over three years to actually issue that levy it warned Ziegler about in the FNOITL. Again, in this case, if the IRS Appeals agent had realized sooner that s/he should have issued a “Decision Letter” instead of a “Notice of Determination” this delay in collection would not have taken place at all.
Downsides to timely filing a CDP Hearing
CDP hearings should never be submitted for the purpose of delay alone. This is for two reasons: the request is actually invalid if it is made solely for the purpose of delaying collection, and there is really no point in filing for a CDP hearing if you know you have no arguments to make. Why bother?
There are a few procedural downsides to timely requesting CDP Hearings:
The CSED (the time the IRS has to collect the tax from you) will increase
It is true that the IRS is prohibited from collecting taxes from a taxpayer when a CDP hearing is pending, but the flipside is that the in exchange for the delay of this collection, the IRS will have more time to collect. Generally, if you don’t take steps to stop the IRS collection clock, then the IRS only has 10 years from the date of assessment to collect a tax. (Certain other exceptions exist, but I won’t get into them here.) So, let’s just say that Ziegler hadn’t missed the filing deadline for the CDP hearing, and this case had proceeded to trial. The IRS would now have an additional 3+ years to collect his tax debts from him.
(Interest and penalties continues to accrue, so Ziegler’s tax debt is now much higher than it was in 2011 as well – something to consider.)
The time YOU have to wait to file for bankruptcy will increase
There are several rules to the dischargeability of tax debts in bankruptcy. I won’t get into them here. If you want to know more about them, contact me. Let’s just say that if you file for a CDP hearing, the time you have to wait to file for bankruptcy on the particular tax debt will increase as well.
There may be a better option
Equivalent Hearings are basically CDP hearings that are filed late. Filing for an EH has zero impact (it does not stop the clock) on the expiration (CSED) of your tax debts. Equivalent hearings, like CDP hearings, allow you to make your case for a Collection Alternative to someone who’s job it is to consider the merits of your arguments, and who isn’t also tasked with collecting taxes from you.
The IRS is not legally obligated to put off levy action when an Equivalent Hearing is filed, but it generally will. The biggest upsides to filing for a EH instead of a CDP is that the clock on the expiration of your tax debt continues to run, and you might also be able to discharge those debts in bankruptcy sooner. The biggest downside is that there is no Tax Court review for EH hearings. This might encourage IRS Appeals to abuse its discretion, but it probably won’t.