A Collection Due Process Hearing, also known as a CDP hearing, is one taxpayer option to fix a tax controversy with the IRS. The taxpayer has the CDP hearing with the IRS Office of Appeals, which is independent and separate from the IRS Collections office. A taxpayer can leverage this option to protest an IRS collection notice, among other possibilities.
Taxpayers have a right to a CDP hearing when they receive an IRS notice indicating their right to a hearing. The taxpayer must make the request timely to the address shown on the IRS notice.
Generally, before the IRS can issue the taxpayer a levy or after the IRS files a tax lien, they must send them either a Notice of Intent to Levy and Your Right to a Hearing or a Notice of Federal Tax Lien Filing and Your Right to a Hearing. However, the IRS does not have to notify the taxpayer in advance of a tax levy when:
After receiving the notice, generally, the taxpayer has 30 days to request a Collection Due Process hearing to discuss the filing. The IRS uses the postmark date, and the IRS notice indicates the 30-day expiration date. In some cases, the IRS may honor it even if it is a few days late (but don’t count on it). Taxpayers can request a CDP hearing with Form 12153. It’s imperative that taxpayers submit Form 12153 within the 30 days as once you do, the government cannot initiate a levy (exceptions above) until after the hearing or after the U.S. Tax Court appeal (discussed below). The request also tolls the 10-year statute of limitations on collection.
A federal taxpayer can implement their right to a CDP when receiving a:
Taxpayers can request one hearing under section 6320 and 6330 for each tax assessment in a tax period. Taxpayers can also leverage a licensed tax attorney, enrolled agent, or CPA to represent them during the hearing.
Taxpayers may address many problems at a CDP hearing. Here are some examples of issues that taxpayers can raise during a CDP hearing:
A Collection Due Process (CDP) hearing works to stop the government from serving a levy among other actions (exceptions discussed above). The taxpayer has 30 days to request a CDP hearing (postmark date) after receiving notice from the government of their intentions. If the taxpayer submits Form 12153 timely, the IRS suspends collections until the results of the hearing or until their court case comes to a close (if they petition the court).
If the taxpayer requests a CDP hearing outside of the 30-day window, they are entitled to an Equivalent Hearing with Appeals within one year. However, the same rules do not apply as the CDP hearing. If the taxpayer disagrees with the appeals decision, they do not have a right to judicial review by the Tax Court.
A Collection Appeals Program (CAP) is different from a CDP hearing in that it is generally faster and encompasses a broader array of collection actions. Furthermore, a taxpayer cannot bring their case to Tax Court on the appeal’s decision. The CAP process does not have the same legal significance as a CDP hearing. Lastly, taxpayers cannot challenge the underlying tax liability.
Taxpayers can appeal through the CAP process after receiving one of the following:
Taxpayers can also use CAP to appeal the following:
A federal tax lien is the government’s claim against a taxpayer’s property. A tax lien is a result of the taxpayer failing to pay their taxes owed after a demand for payment. The tax lien is legal and valid against all the taxpayer’s property, including real estate and personal property as well as financial assets.
Taxpayers can receive a tax lien after the IRS sends a Notice and Demand for Payment and the taxpayer neglects or refuses to pay the entire liability in the allotted time. When the IRS files a tax lien, the taxpayer will also receive a Notice of Federal Tax Lien Filing and Your Right to a Hearing (IRS Letter 3172).
A tax lien affects a taxpayer by attaching itself to all of the taxpayer’s assets and to future assets acquired. A taxpayer’s ability to gain credit is also likely limited.
A levy grants the IRS the ability to seize your property and assets to satisfy taxes owed legally. The IRS can garnish wages, levy bank accounts, and take and sell property, including real estate, vehicles, and other personal property.
When the government is threatening to levy property, taxpayers may receive several different notices. Below are some of the common notices the IRS sends with an intent to levy and appeal rights:
Form 12153 requires information on the taxpayer’s background and contact information. Also, an explanation of their case and opinion on why they think the IRS should not serve a lien or levy on their property. Information the form asks for includes:
A copy of Form 12153 and its instructions are available on the IRS website. It’s essential that taxpayers follow the directions carefully and entirely. Taxpayers that incorrectly fill out forms get rejected. Once the IRS receives Form 12153, the collections on taxes owed will stop in most cases.
If a taxpayer statute of limitations is getting close, they should know that filing for a CDP hearing tolls the timer. However, if the taxpayer files for an Equivalent Hearing, the clock keeps ticking. Remember, though, that filing an Equivalent Hearing prevents the taxpayer from taking their case before the Tax Court if they disagree with the appeals decision.
After a taxpayer requests a CDP hearing on time, they can look to work out a resolution with the collection office that sent the notice. If the taxpayer or their representative cannot work out a tax resolution, Appeals will ask the taxpayer to schedule a meeting or conference with the Appeals officer. The session can take place over the phone, in person, or by correspondence.
Once the CDP hearing ends the Appeals officer will provide a written determination letter. If the taxpayer does not agree with the Appeals officer, they can contest the matter further by petitioning the U.S. Tax Court by the deadline provided in the determination letter. The taxpayer cannot bring up new issues in court, but only tax issues reviewed during the CDP hearing.
If the taxpayer misses the 30-day deadline to request a CDP hearing and still wants to appeal, they can request an Equivalent Hearing. The taxpayer can use Form 12153. The taxpayer needs to send it to the address on the lien or levy notice. However, an Equivalent Hearing does not protect the taxpayer from a levy, nor does it suspend the statute of limitations on collection. Lastly, the taxpayer cannot petition a U.S. tax court after a decision by the IRS Office of Appeals.
The IRS does have deadlines to request an equivalent hearing. For example, the taxpayer has one year plus five business days to request an equivalent hearing after receiving a lien notice. If the taxpayer gets a lien notice, they have one year from the date of the levy notice to request an equivalent hearing.
There is a no specific address for anyone to send a completed Form 12153. Instead, taxpayers may mail their form to the address labeled on their Notice of Federal Tax Lien or Notice of Intent to Levy.
We recommend working with a licensed tax professional when appealing IRS collection actions. A licensed tax professional understands the tax code and ensure taxpayers receive an optimal tax resolution.