The right to an IRS Collection Due Process Hearing (CDP) is triggered once a Final Notice of Intent to Levy or a Federal Notice of Tax lien has been filed against you. The IRS CDP Hearing is an incredibly important right; if you disagree with the results of this administrative hearing conducted by an IRS Settlement Officer, then you have the right to petition tax court, which is a lower cost affair than litigating a case in Federal District Court against the IRS.
Warning: The IRS will take an easy win
Oftentimes, those unsuccessful CDPs which are appealed to tax court are routinely kicked out, simply because taxpayers or underpowered representatives have failed to make a proper record for the tax court to review. Surprise: The IRS has no problem seeking to remove an otherwise meritorious claim if they can find any technicality. The IRS will take any win whatever way they can get it. Too many people operate under the mistaken assumption that the federal government will not play dirty and cheap. But play dirty and cheap they will, all day, every day. To clear their dockets, they will take advantage of your ignorance or the ignorance of your representative, and will seek to dismiss a tax court petition without a tax court judge ever looking at the underlying facts. The IRS represents the government and does not care if your rights are permanently harmed.
It is critical to protect yourself during a CDP
Even with a competent tax attorney on your side doing the right thing, the IRS may still want to dirtbag you. In this article, we will discuss a case where a tax attorney did take a CDP seriously — and thankfully so — as the tax court was able to witness an incredible incompetence/insanity by the CDP Settlement Officer. Off to one of our favorite blogs, procedurallytaxing.com, for an article "Madoff Fallout Continues in Tax Court"
In this case, on one hand, the taxpayer's attorney "provided the Appeals Officer with a copy of the amended return for 2012, and requested that respondent stay the Collection Due Process Hearing until after the Service had acted on the amended return because petition may have no tax liability for 2012. Petitioner further requested, alternatively, that she be afforded an opportunity to submit an Offer in Compromise based on extreme hardship and exceptional circumstances."
Sounds like a reasonable course of action. A reasonable and well-documented course of action. So what did the Appeals Officer say happened at tax court? The IRS Settlement Officer claimed "our representative, Megan Brackney, represented to the Settlement Officer, Ms. Perez, you agree with the case resolution described below…. to full pay the balance due of $128,585.43 by October 28, 2014.”
Do you understand how crazy this is?
The taxpayer's attorney communicates and documents a pretty reasonable alternative. Essentially saying "hey let's give this amended return time to process because there will probably be no tax due." Yet, the Appeals officers says that taxpayer's attorney said something totally different! Essentially that the taxpayer agreed to pay the taxes in full! We must wonder if the Appeals Officer was at the right hearing.
The IRS and attrition
We've seen the quality work of appeals, unfortunately, decline over the years. A big reason is attrition. The IRS is not hiring new appeals officers, and many of the best we have had the pleasure of working with have since retired. What we are left with is fewer and fewer appeals officers who are expected to know more and more. The result is that cases are not given the attention that they deserve. My guess in the above case is that the Appeals Officer did, in fact, confuse cases and/or was swamped with a massive case inventory.
What you need to know about IRS CDP Hearings
The take away for taxpayers is to understand an incredibly important dynamic. Nearly every single aspect of the IRS, including IRS appeals, is over-authorized, yet under-powered. The result of this unholy combine, if the utmost care is not taken, can be arbitrary results. Tax problems are legal problems and need to be given the utmost attention, and a CDP is a legal proceeding. Take it seriously.
