1.  COLLECTION IRS  PROCESSING OF NOTICES OF DELINQUENT TAXES DUE

 

Private Collection

1.05    The American Jobs Creation Act of 2004 provided for the use of private collectors to collect unpaid Internal Revenue Service taxes.  In March, 2006 IRS announced that it has awarded contracts to the three firms it has selected from 33 bidders to participate in the first phase of its private debt collection initiative. The three firms are CBE Group, Inc., of Waterloo, Iowa; Linebarger, Goggan, Blair, & Sampson, an Austin, Texas-based law firm whose primary business is government collections; and, Pioneer Credit Recovery, Inc., of Arcade, New York. The private collectors will not have the power to initiate any enforced collection actions including liens and levies.  The collection agencies will be authorized to write to taxpayers demanding payment and to call taxpayers demanding payment.  The collection agencies will be subject to the Fair Debt Collection Practices Act.  Therefore, the agencies may not harass taxpayers at work and must cease contact with the taxpayer upon written demand that all further contact with the taxpayer cease. Private collection efforts are scheduled to begin in July, 2006.

 

Tax Collection

1.10    The IRS Collection Division attempts to collect delinquent taxes as inexpensively and rapidly as possible. To accomplish this task the IRS makes extensive use of computers. Only when automated methods have failed to collect a tax is the matter assigned to an individual for collection.

 

Four-Level System

1.20    To effectuate this policy the IRS utilizes a four-level system of collection. It begins its collection efforts on each account by generating computer notices from a Regional Compliance Center. If the efforts of the Compliance Center do not secure payment, the account is then assigned to the Automated Collection System (ACS). The Automated Collection System attempts to collect the tax liability by initiating telephone calls to the taxpayer and others. During the time that an account is assigned to Compliance Center and ACS, accounts may also be resolved by Collection Support Staff assigned to handle "walk-ins" in local IRS offices. If none of these levels of the system are successful in collecting the account, it is eventually assigned to a Revenue Officer for a field investigation. Obviously, it is much less expensive for the IRS to collect a tax by mailing a notice or placing a telephone call than it is to visit the taxpayer personally. For the taxpayer, however, personal negotiation is much more effective than dealing with an automated system.

 

Compliance Center

1.30    The IRS has ten Regional Compliance Centers which process all tax returns filed with the IRS. Compliance Centers are extensively automated. The information on each tax return filed is encoded into the IRS computer at a Compliance Center. That IRS computer system will determine if computational errors are contained on the return and issue notices regarding errors. The computer also will analyze each return to determine its DIF score (the score which determines whether it will be audited). The Compliance Center is also responsible for initiating notices to taxpayers to collect balances due on tax returns.

 

1040 Notice Procedure

1.40    Upon receipt of a tax return or other document showing a balance due, the following process takes place in the Internal Revenue Compliance Center. Within several weeks after receipt of the document, the information is placed on the computer system. That system will then initiate a series of notices. The first notice issued is a document titled "Request for Payment,” which informs the taxpayer that there is a balance due on the return, states the amount of tax, interest and penalties due, and requests payment within ten days. This is the notice statutorily required for the creation of a valid Federal Tax Lien. If the liability is for individual income taxes, and the liability is relatively small, the taxpayer will normally receive four subsequent notices before the IRS proceeds to take any administrative collection measures. If the liability is not paid after the initial notice, the taxpayer will receive a second notice, “Reminder,”   Notice 501. The IRS will issue Notice 503, "Urgent, Immediate action is required ", five weeks after the first notice. The taxpayer will receive Notice 504, "Urgent, We intend to levy on certain assets. Please respond NOW.", in the mail five weeks after issuance of  Notice 503 if payment is not made after that notice. Notice 504 is the nastiest of the IRS letters. If the taxpayer fails to pay after Notice 504 the matter will be referred for collection by the Automated Collection System (ACS). If  ACS is unsuccessful in collecting or resolving the matter the IRS will then issue Letter 1058, “FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING . PLEASE RESPOND IMMEDIATELY.” If the taxpayer exercises  her appeal rights, collection will be held.  If the taxpayer fails to appeal the IRS will levy after expiration of 30 days from the notice.  One unusual convention of the IRS is that each notice will bear a date which falls on Monday.

 

Business Taxpayers

1.50    In the case of business taxes (either corporate income or withholding taxes), the IRS will send three notices  period prior to initiating enforcement measures. The total time from first notice to enforcement action is normally at least 16 weeks. The taxpayer will receive a first notice and a Notice 504 five weeks subsequent to the first notice. The account will then be referred to ACS or a Revenue Officer for issuance of Letter 1058 if the taxpayer fails to resolve the liability.

 

Notice of Levy

1.60    If the Compliance Center has computerized sources of income or assets of the taxpayer, such as wages, bank accounts, certificates of deposit or accounts receivable, all of which can be seized administratively from the taxpayer, it will issue a Notice of Levy against the taxpayer's assets approximately six weeks after the Letter 1058. If the Compliance Center does not have sources of income or other assets to levy upon, it will either assign the case to the Automated Collection System (ACS) or issue a Balance Due (Bal Due) to a local area office for collection, several weeks subsequent to the final notice.

 

Correspondence With Compliance Center

1.70            Normally, it is ineffective to write to a Compliance Center. It may take some Compliance Center six weeks or more to process correspondence. For example, if your client receives a Notice 504 even though he paid the tax upon receipt of the Notice 503, a letter to the IRS will not stop assignment  to ACS. The IRS will not process your letter for six weeks, yet the computer continues to automatically refer the matter to ACS on a set cycle. You must speak with someone at the IRS and request that the computer process be stopped while the IRS searches for the lost payment. Even when the Compliance Center does process your correspondence, the response can be useless. You might receive a postcard acknowledging your letter but failing to identify the client. If you have written several recent letters, you will have no way of determining to whom the postcard refers.

 

Small Dollar Payment Plans

1.80  A taxpayer may be able to secure a 60-month payment plan for 1040 liabilities of less than $25,000. The IRS Restructuring and Reform Act of 1998 requires the IRS to grant a payment plan to individual taxpayers who owe less than $25  thousand. The taxpayer should respond to the IRS on the first notice by writing to the Compliance Center requesting 60 months to pay the tax liability. Your request for a payment arrangement on small dollar accounts could also be made by transmitting the new IRS Form 9465. On many occasions the taxpayer has been granted a payment plan, but the IRS failed to confirm the plan. If subsequent notices cease from the Compliance Center, the taxpayer should assume that the Service has granted a plan. If the Compliance Center continues to issue subsequent notices, the taxpayer should assume that her plan has been improperly processed by the Service and contact either Collection Support Staff or a Revenue Officer.

 

Telephone Collection Efforts

1.90  If an account cannot be collected by a Returns Processing Center by using notices and/or levies upon the taxpayer's wages or bank account, the matter will then be transferred to a Customer Service Center for telephone collection efforts. Each Customer Service Center, including the Return Processing Center, has a computerized telephone collection system. The IRS has twenty-three Customer Services Centers. All ten current campuses serve as Customer Service Centers, and thirteen additional sites spread across various regions of the country.

 

2.  IRS COLLECTION PROCEDURES

 

The Power of the IRS to Collect Taxes

2.10    The IRS has the power to collect taxes by levying on taxpayers’ property as a result of the Federal Tax Lien. When a person owes taxes, the IRS gains a lien on all that person's assets after meeting certain statutory requirements. The lien attaches to all rights, title and interest of the taxpayer wherever it may be situated. [IRC § 6321] Once the IRS has a lien on all of a taxpayer's assets, it may enforce that lien by administratively levying his or her assets.

 

Lien Rights

2.20    An example of lien rights would be the lien created when a person buys a car and finances the purchase through a bank. The purchase price for the car is $20,000. The purchaser pays a down payment of $2,000 and signs a note with a bank giving it a lien on the car. The bank then lends the buyer $18,000 to complete the purchase. If the buyer defaults on the note, the bank may repossess the car. In the case of the IRS it gains a lien on all of a taxpayer's assets and therefore it has the right to seize most of those assets to satisfy unpaid taxes.

 

Creation of Lien

2.30    The liability of a taxpayer for Internal Revenue taxes is personal in nature and, except for the taxes imposed under subtitle E of the Code relating to distilled spirits, wines, and beer, does not directly attach to his or her property. In this respect the liability is analogous to a simple debt and, without anything more, could be enforced only by a court action. To protect the revenue, Congress has provided an administrative means by which collection of assessments may be effected. Congress also has statutorily provided for a lien which attaches to a taxpayer's property. The lien is often referred to as the "statutory" or the "general" lien. The following requirements for establishing the lien are contained in the Code:

 

• An assessment must have been made;
• A notice and demand for payment must have been made (the first IRS notice meets this requirement); and
• The taxpayer must have neglected or refused to pay.  [IRC § 6321]

 

Liens on All Taxpayer Property

2.40    The effect of the Federal Tax Lien statute is that when any person fails to pay any assessment of tax, plus interest, penalties, or costs, a lien in favor of the United States arises upon all property and rights to property, whether real or personal, tangible or intangible, belonging to the taxpayer. Even if the taxpayer makes partial payment, a lien will arise for the balance of the tax.

 

Statute of Limitations

2.50    The term "unenforceable" as used in the Code means unenforceable because of the expiration of the statutory period for collection. Prior to 1990 the Statute of Limitations for collection was six years from the date of assessment plus such suspended, extended or postponed period of time as may, by law, be applicable. [IRC § 6502] The Revenue Reconciliation Act of 1990 extended the Statute of Limitations for collection to ten years. [Revenue Reconciliation Act of 1990, § 1131(a)] This period was extended for all tax liabilities upon which the Statute of Limitations was still open at the time the bill was passed by Congress and signed by the President. The reporting of an account as uncollectible does not affect the statutory period for collection. However, a distinction must be made between accounts that are administratively uncollectible and those that may not be collected by operation of law, i.e., the lapse of time, discharge in bankruptcy, court order, etc.

 

Notice of Lien

2.60    IRC § 6323(a) modifies IRC § 6321 by providing that the Federal Tax Lien is not valid against purchasers, holders of security interests, mechanics’ lienors, and judgment lien creditors until a Notice of Lien has been filed. The filing of the Notice of Lien is constructive notice to these persons that the lien, provided for by the Code, exists. The tax lien becomes valid, with certain exceptions, against competing creditors at the time Notice of Lien is filed. In most jurisdictions, state law requires a deed of real property be entered in a public index to be valid against a purchaser. Where this is the case, and an adequate system for public indexing is available, a Federal Tax Lien must be recorded in the public index to be valid with respect to real property.

 

Notice Five Days After Filing

2.70    The Internal Revenue Service Restructuring and Reform Act of 1998 established formal procedures designed to ensure due process where the IRS seeks to impose a lien. The due process procedures  apply after notice of a Federal tax lien has been filed. The IRS is required to notify the taxpayer of the  filing a Notice of Lien within five days of its filing. During the 30-day period beginning with the mailing or delivery of this notification, the taxpayer may demand a hearing before an appeals officer who has had no prior involvement with the taxpayer's case. These provisions became effective January 19,1999. [Act § 3401; IRC § 6320]

 

 

3.  RRA SECTION 3401 - AN OVERVIEW OF THE DUE PROCESS

 

RRA Section 3401, Due Process in IRS Collection Actions

3.10

• Effective date is after January 18, 1999
• Creates new IRC sections 6320 and 6330
• Requires new notice to taxpayers (CDP Notice)
• Provides the taxpayer with new procedural rights when the Service files a Notice of Federal Tax Lien (NFTL) and when it intends to levy upon the taxpayer's property or right to property

 

3.20    The purpose of section 6320 is to provide a taxpayer with notification that a Notice of Federal Tax Lien has been filed and to provide the taxpayer with the opportunity to request a Collection Due Process hearing ("CDP hearing") with the IRS Office of Appeals ("Appeals") with respect to the tax liability for the taxable period or periods to which the lien relates. New section 6330 similarly requires the IRS to give, in non-jeopardy situations, the taxpayer whose property or rights to property, other than a State tax refund, are to be  levied, the right to a CDP hearing with Appeals at least 30 days prior to levy, with respect to the tax liability for the taxable period or periods for which the levy is intended to be made. For levies on State tax refunds, the right to a CDP hearing will be given within a reasonable time after money is received from the State.

 

3.30    If the taxpayer timely requests a CDP hearing, Appeals will consider the case and render a written determination concerning the appropriateness of the lien filing or proposed levy. If the taxpayer does not agree with Appeals' determination, the taxpayer has the opportunity to seek judicial review. Through this section, the taxpayer may have the opportunity to challenge administratively and in court the taxpayer's liability for the tax years stated on the NFTL or levy, raise any additional defenses with respect to that liability, challenge the appropriateness of the filing of the NFTL or proposed levy, and offer collection alternatives. Because the taxpayer will only have one opportunity for a CDP hearing and subsequent judicial review, the taxpayer is required to raise all relevant substantive and collection issues at that hearing.

 

 

4.  IRC SECTION 6320, NOTICE AND OPPORTUNITY FOR HEARING UPON FILING OF NOTICE OF  LIEN REQUIREMENTS OF NOTICE

 

Applicable to any Notices of Federal Tax Lien filed after January 18, 1999.

4.10

 

·        A taxpayer is entitled to notice of the filing of an NFTL not more than five business days after the date of any filing.

·        This notice describes the taxpayer's right to request a Collection Due Process hearing with respect to any taxable periods described on the NFTL, within the 30-calendar day period beginning on the day after the 5-day period for notification has expired. The taxpayer is entitled to only one CDP hearing with respect to each taxable period to which the unpaid tax relates.

·        The determination made by Appeals may be appealed to either the United States Tax Court ("Tax Court") or a United States District Court ("district court"). The rules for determining to which court an appeal from the CDP hearing will be directed will be more specifically addressed below.

·        The running of the periods of limitations for collection after assessment, for criminal prosecutions, and for suits described under IRC § 6532 are suspended for the periods in which the CDP hearing and any appeals are pending. (Suspensions will be more specifically addressed below).

·        If a taxpayer does not request a CDP hearing within the 30-day period, a taxpayer can still request a hearing at a later date and the IRS will provide a hearing equivalent to a CDP hearing. However, the taxpayer will not be entitled to judicial review of that later hearing. ("Equivalent hearings" are more specifically addressed below).

·        Notification is not required for any refilling of NFTLs. However, a taxpayer may still seek administrative review of a refiling with IRS Collection, Appeals, or the National Taxpayer Advocate.

·        Notification is not required to be given to any known nominees of the taxpayer. However, any person named on a filed NFTL other than the taxpayer may seek administrative review with IRS Collection, Appeals, or the National Taxpayer Advocate.

 

Notification

4.20            Written notification that an NFTL has been filed must be given to the taxpayer in person, or left at the taxpayer's dwelling or usual place of business, or sent by certified or registered mail to the taxpayer's last known address, not more than five days after the date of filing of the NFTL.

 

·        This notification will include the amount of unpaid tax, state the taxpayer's right to request a CDP hearing within the 30-day period, the administrative appeals available to the taxpayer with respect to such lien, and Code provisions and procedures pertaining to release of liens on property.

·        Properly given or mailed notice is deemed to be received by the taxpayer. Actual receipt by the taxpayer is not a prerequisite to the taxpayer's right to a CDP hearing.

 

Right to Collection Due Process Hearing

4.30

 

• A taxpayer to whom IRS has properly delivered or mailed notice of the CDP hearing is entitled to a CDP hearing if requested within the 30-calendar day period following the five business day period within which the IRS is required to give that notice.
• If the IRS determines that it did not properly deliver notice of the CDP hearing, a substitute notice will be sent. The taxpayer will be entitled to request a CDP hearing within 30-calendar days of the date of the substitute notice. The validity of the NFTL is not impacted by the IRS's failure to provide section 6320 notice.
• A taxpayer's request for a CDP hearing must be in writing. No specific format is required for the written request. However, a Form 12153 has been developed for this purpose. The request must set forth the taxpayer's name, address, daytime phone number, type of tax, taxable period, taxpayer's TIN, a statement that the taxpayer requests a CDP hearing concerning the NFTL and the reasons the taxpayer disagrees with the NFTL filing. The request must be signed and dated by the taxpayer or the taxpayer's representative.
• The location for sending the request for a CDP hearing is the office of the IRS that issued the CDP notice.  The IRS hopes that many cases can be settled informally by the office filing the lien or Appeals prior to the need for a CDP hearing. However, the taxpayer will still be required to request a hearing within the 30-day period to preserve his or her right to the Appeal and subsequent judicial review.

 

Conduct of Collection Due Process Hearings

4.40

 

• The taxpayer is entitled to one CDP hearing with respect to each unpaid taxable period shown on an NFTL filed after January 18, 1999.
• To the extent possible, all CDP hearings under section 6320 and 6330 (which will be further addressed below) will be combined.
• The CDP hearing must be before an employee or officer of Appeals who has had no prior involvement with respect to the taxable period or periods involved in the CDP hearing, unless the taxpayer waives this requirement (in writing).
• Matters Considered at Collection Due Process Hearing

 

4.50

 

• Appeals Division has the authority to determine the validity, sufficiency, and timeliness of any CDP hearing notice or request for a hearing by the taxpayer.
• At the CDP hearing, the hearing officer is required to obtain verification from IRS Collection that the requirements of any applicable law or procedure have been met.
• At the CDP hearing, the taxpayer is entitled to raise any relevant issue relating to the unpaid tax, including any appropriate spousal defenses, challenges to the appropriateness of the NFTL filing, offers of collection alternatives, and merits of liability, if appropriate.
• The taxpayer is not entitled to raise an issue that was raised and considered at any previous CDP hearing or other previous administrative or judicial proceeding, if the taxpayer participated meaningfully in such hearing or proceeding.
• The taxpayer may raise challenges to the existence or amount of the underlying tax liability for any period listed on the NFTL if and only if the taxpayer did not receive a statutory notice of deficiency for that tax liability or did not otherwise have an opportunity to dispute that tax liability.

 

–        If the underlying liability is subject to the deficiency procedures (for example, an income tax deficiency), then the taxpayer will be entitled to challenge the merits of that deficiency in the CDP hearing only if the taxpayer did not receive the notice of  deficiency. A common situation is one where the taxpayer defaulted on the statutory notice and now wants to challenge the merits of the deficiency in a CDP hearing. The  taxpayer's ability to do so will depend on whether he or she received the statutory  notice.

 

–        If the underlying liability is not subject to the deficiency procedures (for example, trust fund recovery penalty), then the taxpayer will be entitled to challenge the merits of the liability only if the taxpayer can show that he or she did not otherwise have an opportunity to dispute the liability. A taxpayer who was previously offered, and chose to decline, a conference with Appeals concerning the underlying liability will not be entitled to  challenge the merits of the liability at the CDP hearing.

 

·        The taxpayer must raise all relevant issues in the CDP hearing. The rule of variance that applies in refund litigation will apply here.

Judicial Review of Collection Due Process Hearing

4.60

• The taxpayer may appeal the determination made in the CDP hearing within 30 calendar days to the Tax Court or a District Court, as appropriate. The 30-day period runs from the date of the Appeals determination and is not extended because the taxpayer is out of the country.
• The Tax Court is the proper forum for judicial review of a CDP hearing determination if the underlying tax liability is the type of liability over which the Tax Court would otherwise have jurisdiction (for example, income, gift, and estate taxes).  This is true even if the only issues raised by the taxpayer are collection related.
• District Court is the proper forum for judicial review of a CDP hearing determination if the underlying tax liability is not the type of liability for which the Tax Court would otherwise have jurisdiction (for example, trust fund recovery penalty, certain excise taxes).
• If the taxpayer files a timely appeal, but to the incorrect court, the taxpayer will have 30 calendar days within which to file an appeal with the correct court.
• The taxpayer is precluded from raising "new issues" upon judicial review. In other words, the taxpayer cannot raise any issues for the first time upon judicial review, but is required to raise all relevant issues in the CDP hearing.
• The courts will review Appeals' determination concerning the validity of the tax liability on a de novo basis. (This includes determinations concerning spousal defenses.) Appeals' determination concerning any other matters will be reviewed using an abuse of discretion standard of review.
• The Tax Court has issued interim rules to implement the due process provisions. These are number 330 through 334.
• Effect of Request for CDP Hearing and Judicial Review on Periods of Limitation
• Any levy actions with respect to the applicable tax period are suspended during the pendency of a section 6320 CDP hearing. Note, however, that all collection action is not suspended, i.e., this is not like the automatic stay.
• The periods of limitation for collection after assessment, criminal prosecutions, and suits under IRC § 6532 are suspended while the CDP hearing and appeals therefrom are pending. In no event shall any of those periods of limitation expire before the 90th day after the day on which there is a final determination in such hearing.
• The suspension period runs from the time that a hearing is requested until the determination or court proceeding is final.

 

Retained Jurisdiction of IRS Office of Appeals ("Appeals")

4.70

 

• The Appeals office that makes the determination at a CDP hearing retains jurisdiction over that determination, including any subsequent hearings and collection actions taken with respect to that determination. Where a taxpayer has exhausted all administrative remedies and alleges a change in circumstances which affects the original determination, Appeals may consider issues previously raised and considered in any prior administrative or judicial proceeding, whether or not the taxpayer participated meaningfully in the prior proceeding.
• These subsequent hearings are not subject to judicial review and do not suspend the periods of limitations.

 

Equivalent Hearings

4.80

 

• Taxpayers who fail to timely request a CDP hearing may later request an "equivalent hearing"  with Appeals concerning the NFTL and tax liabilities for the tax periods shown on that NFTL. The equivalent hearing will be substantially similar to the CDP hearing, but will not be subject to judicial review.
• The taxpayer is not entitled to the same suspensions for limitation periods in the equivalent hearing, but collection action may be suspended as a matter of policy during the pendency of an equivalent hearing.

 

5.  IRC SECTION 6330

 

Notice and Opportunity for Hearing Before Levy

5.10 The focus of this section will be on the distinctions of the section 6330 CDP hearing from the section 6320 CDP hearing just discussed. Many of the issues discussed above are equally applicable under section 6330-i.e., the issues which can be raised at a CDP hearing, contents of notice, opportunities for judicial review, retained jurisdiction of Appeals, "equivalent hearings,” etc.

 

• Operational/conceptual distinctions between 6320 and 6330: IRC 6320's key date is the date the NFTL is filed. 6330's key date is the date of the CDP hearing notice (FINAL NOTICE) or if SITLP or Jeopardy situations, the date of levy.

 

Overview

5.20

 

• Notice is given of a right to a CDP hearing at least 30 days prior to levy on property or rights to property, other than a State tax refund, in non-jeopardy situations.
• CDP hearing is with respect to the tax liability for the taxable period or periods for which the levy is intended to be made.

 

In jeopardy situations, and in cases where a levy is made on a State tax refund, notification to the taxpayer of a right to a hearing is not required to be given until after the levy action has occurred.

 

• The section 6330 notice of the right to a CDP hearing can be combined with the Notice of Intent to Levy in IRC section 6331 (d), or issued separately. This will be addressed further below.
• The section 6330 notice should set forth the amount of unpaid tax, the right to a hearing, and a statement that the IRS intends to levy and the taxpayer's rights with respect to the levy action.

 

The statement should also set forth the Code provisions and procedures pertaining to levy and sale, the administrative appeal procedures with respect to levy and sale, alternatives available to the taxpayer that could prevent levy, and the Code provisions and procedures pertaining to redemption and release of liens.

 

• Notice is to be given in the same manner as a section 6320 notice EXCEPT that it must be sent return receipt requested if sent by certified or registered mail.

 

Requirements of Notice

5.30

 

• As with the section 6320 notice, a person whose property or rights to property may be levied upon must be given notice of his or her rights to a CDP hearing. These requirements do NOT apply in the case of jeopardy levies and levies on State tax refunds.
• This notice must be given not less than 30 days prior to the date of the first levy with respect to the unpaid tax liability for the taxable period for which the levy may be made.
• Section 6330 notice need only be given to the liable taxpayer. The IRS is not required to give section 6330 notice to nominees.
• The taxpayer must request the section 6330 hearing within the 30-day period from the date of the CDP hearing notice, or will lose the right to a CDP hearing, court review, and retained jurisdiction of Appeals. The taxpayer will get equivalent hearing if a hearing is requested after the 30 day period.

 

Notification

5.40

 

• Notice is generally given in the same manner as for section 6320 notice, EXCEPT that where notice is sent by certified or registered mail, it must be sent return receipt requested.
• Notice must be given not less than 30 days before the IRS intends to levy on taxpayer's property or rights to property (except for State tax refunds and jeopardy levies)
• If the taxpayer did not receive the notice because the IRS did not mail the notice to the taxpayer's last known address or deliver that notice to the taxpayer, and, therefore, did not timely request a section 6330 hearing, the IRS will cease collection activity with respect to the tax liability for the taxable period shown on the notice.

 

Right to CDP Hearing

5.50

 

• Must be requested within 30-day period.
• Format of request is same as for section 6320 hearing.
• As with a section 6320 hearing, attempts may be made for informal resolution prior to a section 6330 hearing. However, the taxpayer must still request a section 6330 hearing within the 30-day period to preserve his or her right to the hearing if the matter cannot be resolved informally.

 

5.60    Effect of Request for CDP Hearing and Judicial Review on Statutes of Limitation

Levy actions are suspended during the pendency of a section 6330 hearing if they are "levy actions which are the subject of the requested hearing." Same suspensions apply as previously addressed with respect to the section 6320 hearing.

 

Jeopardy Levies, State Tax Refund Levies and Required Notices

5.70

• As discussed above, the section 6330 procedures do not entitle the taxpayer to a section 6330 hearing prior to a jeopardy levy or a levy upon a State tax refund.
• Jeopardy levies-The taxpayer will be entitled to a post-levy section 6330 notice   and will be entitled to a post-levy section 6330 hearing and court review.
• State tax refund levies-The taxpayer will receive pre-levy section 6331(d) notice (URGENT NOTICE), post-levy section 6330 notice, and will be entitled to a post-levy section 6330 hearing and court review.
• In other cases, as previously discussed, a combined section 6331 (d)/6330 notice will be sent, entitling the taxpayer to a pre-levy section 6330 hearing. {FINAL NOTICE}

 

6.  EXTENSIONS OF TIME TO PAY

 

6.10            Extensions of time to pay provide a specific date by which full payment of taxes is expected. Extensions may be granted for up to120 days for all taxpayers.  Extensions of time to pay are not installment agreements and do not provide for periodic payments. No forms are required. Form 433‑D is not be used.

 

·        The IRS will not file a lien.

·        The IRS will not issue  Notices of Intent to Levy, Notice of Hearing (LT 11 or Letter 1058DO) nor levies during granted extension periods, unless collection is in jeopardy or at risk.

 

NOTE:  This applies even if taxpayers are given deadlines within the extension period and these deadlines are not met.

 

EXAMPLE: A revenue officer gives the taxpayer a 60 day extension of time to pay and 30 days to have all federal tax deposits current. The taxpayer has not made all the current tax deposits by the 31st day. Enforcement is not appropriate until after 60 days pass, unless collection is in jeopardy or at risk.

 

Extensions may be granted in person, by telephone or by correspondence. [IRM 5.14.5.5]

 

If taxpayers have the ability to fully or partially satisfy bal due accounts by:

 

• using cash;
• withdrawing cash from bank or other accounts;
• borrowing on equity in real or personal property; or,
• selling real or personal property, then:

 

–        request full or partial payment (specify amount) be made on the bal due accounts.

–        inform the taxpayer that the specific amount of payment requested is, based on conversion of assets (through borrowing or selling); or, cash or other liquid assets (such as securities or money market accounts); or,

–        other analysis of the taxpayer's financial statement.

–        inform taxpayers installment agreements will be recommended for rejection if there is sufficient equity or cash available to:

–        fully pay the taxes, and full payment is not received by a set date.

–        partially pay the taxes, and the partial payment requested is not received by a set date.

–        Provide a specific deadline for payment. In addition, notify taxpayers of the consequences of missing the deadline.

 

EXAMPLE: If a taxpayer has the ability to pay $3,000 per month on a $200,000 liability, has a home valued at $400,000 with equity of $200,000, require that he attempt to borrow on the available equity in the home prior to granting an installment agreement. If the taxpayer does not attempt to borrow on the home he must be notified that, though the installment agreement request is pending, it will be recommended for rejection. If the taxpayer is able to get a home equity loan and the monies are used to pay taxes, the amount of the payment on the loan will be considered an allowable expense.

 

Taxpayers do not qualify for installment agreements if bal due accounts can be fully or partially satisfied by liquidating assets, unless:

 

·        factors such as advanced age, ill‑health, or other special circumstances, are determined to prevent the liquidation of the assets; and/or,

·        they qualify for guaranteed or streamlined or Express agreements.

 

[IRM 5.14.1.4]

 

Guaranteed Availability of Installment Agreements

6.20    The Internal Revenue Service Restructuring and Reform Act of 1998 requires the Secretary to grant an installment agreement, at the taxpayer's option, if:

 

·        the liability is $10,000, or less (excluding penalties and interest);

·        within the previous 5 years, the taxpayer has not failed to file or to pay, nor entered an installment agreement under this provision;

·        if requested by the Secretary, the taxpayer submits financial statements, and the Secretary determines that the taxpayer is unable to pay the tax due in full;

·        the installment agreement provides for full payment of the liability within 3 years; and

·        the taxpayer agrees to continue to comply with the tax laws and the terms of the agreement for the period (up to 3 years) that the agreement is in place.[Act § 3467; IRC § 6159)

 

<$25,000 Liabilities

6.30    The IRS has chosen to create a more liberal system that allows installment agreements of up to 5 years for balances of less than $25,000.

 

In‑Business Trust Fund Express Installment Agreements

6.40            In‑Business Trust Fund (IBTF) Express installment agreements may be granted if:

 

• Pre‑assessed liabilities plus the unpaid balance of assessments is $1,500 or less.

 

NOTE: ACS and Service Centers may grant Express installment agreements if pre‑assessed liabilities plus the unpaid balance of assessments is $10,000 or less.

 

• Taxes are fully paid in 24 months, or before the CSED, whichever is earlier. (Use IDRS CC ICOMP to calculate agreement lengths; see section 2.1 above regarding CSED extensions.)

 

If accounts qualify for IBTF Express agreements:

 

• No financial statement is required.
• No lien determination is required. Liens may be filed if they will protect the government's interest (such as if a property sale is imminent).
• No Trust Fund Recovery Penalty determination is required.
• If not in filing compliance, installment agreements may not be granted.

 

No managerial approval is required.

 

Express Installment Agreements

6.50    ACS and Service Centers may grant Express installment agreements if pre‑assessed liabilities plus the unpaid balance of assessments is $10,000 or less.

 

• Taxes are fully paid in 24 months, or before the CSED, whichever is earlier.
• If accounts qualify for IBTF Express agreements:

 

–        No financial statement is required.

–        No lien determination is required. Liens may be filed if they will protect the government's interest (such as if a property sale is imminent). [IRM 5.14.5.4]

 

Pending and Approved Installment Agreements on IDRS

6.60            Proposals to enter into installment agreements may result from letters, phone contacts, voice‑mail, e‑mail, or other communications between taxpayers and Service personnel. All taxpayers have the right to request installment agreements. Requests for installment agreements, including those on unassessed modules, must be  noted in the case history, and must be identified on IDRS  Codes are input in the computer system to prevent levy issuance. Taxpayers must provide specific information for installment agreement requests to be processed. If it is determined the agreement request was made to delay collection action, accounts will not be identified as in pending installment agreement status. To identify accounts as "pending" installment agreements taxpayers must:

 

·        Provide information sufficient to identify the taxpayer: generally, the taxpayers name and identification number.

·        Identify the tax liability to be covered by the agreement;

·        Propose a monthly or other periodic payment of a specific amount.

·        Be in compliance with filing requirements.

 

Requests that meet the criteria are identified as pending installment agreements even if taxpayers are not in compliance with:

 

• estimated (ES) payment requirements; or,

• federal tax deposit (FTD) requirements,

 

Acceptance or rejection of proposed agreements is based on analysis of Collection Information Statements.

 

            EXCEPTION: (1) If installment agreement requests are made to delay collection action.

 

            EXCEPTION: (2) Grant Streamlined, Guaranteed and In‑Business Trust Fund Express installment agreements. [IRM 5.14.1.3 ]

 

Managerial Approval

6.70    Group Managers must approve most installment agreements. Specifically, installment agreements must be approved when:

 

• the aggregate unpaid balance of assessments exceeds $25,000 or will not be fully paid in 60 months or less; or,
• an in business trust fund taxpayer is involved (Exception: Express agreements; or,
• the taxpayer defaulted on a previous installment agreement; or,
• the taxpayer is allowed to skip more than 2 payments in a 12 month period (including systemic skip); or,
• there is an extension of the statutory period for collection, regardless of the length of the agreement or the amount of tax at issue; or,
• agreements will fully pay one or more bal due accounts (but not all accounts) in accordance. For these cases, managers must approve both the installment agreement and Form 53, Currently Not Collectible. [IRM 5.14.9.2 ]

 

Independent Review

6.80    In accordance with Internal Revenue Code section 7122(d) taxpayers are entitled to independent administrative reviews of rejected requests for installment agreements. Contact employees (including revenue officers) and managers are required to document all actions relative to this review in case histories, including:

 

• the date the case is sent to the independent reviewer;
• the date the case is received from the independent reviewer, and,
• the date the case is forwarded for second level review (if applicable.)

 

When a request for an installment agreement is proposed for rejection the IRS employee must:

 

• Notify taxpayers rejection of the request is being recommended if that is the next planned action, but do not notify taxpayers of actual rejection of the installment agreement request until after independent administrative review.
• Managers must review and concur with plans to reject installment agreement requests prior to independent administrative review.
• If managers request additional information or action, these should be requested of the taxpayer or gained from the appropriate source, without comment to the taxpayer regarding approval status of the agreement, beyond that the request is being considered.
• In addition to exercising care with regard to conveying rejection of requests, also exercise care regarding conveying acceptance. Specifically, though the plan to accept an installment agreement request can be shared, do not convey acceptance if a request requires managerial approval (until after approval.). [IRM 5.14.9.3 ]

 

7.  COLLECTION INFORMATION STATEMENTS

 

7.10    For larger dollar liabilities (income tax liabilities in excess of $25,000) the starting point for analysis is the Service's Collection Information Statement (CIS). The preparation of this document, more often than not, determines which way the Service will proceed with its collection activity. Copies of the CIS's currently used by the Service for individuals and for businesses are provided in the appendices at the end of this chapter. The IRS will not give extended payment plans on unpaid tax liabilities unless a CIS has been submitted by the taxpayer.

 

7.20    The IRS utilizes three basic types of Collection Information Statements (CIS's).  The Form 433-A and Form 433-F are secured from individuals. The Form 433-B is secured from businesses. If the taxpayer is self employed the service will normally require both a 433-A and 433-B.

 

Amount of Payments

7.30    Page 6 is a monthly income and expense analysis. The IRS will not grant a Payment Plan for less than the amount shown as the net available income. That figure represents the difference between income and claimed expenses. Unfortunately, as one will note, page 6 contains a column to the right of the claimed column for Allowed Expenses. The IRS utilizes information from the Bureau of Labor Statistics to establish allowable expenses for certain items like transportation, food, clothing and housing. Those allowable expenses might be less that the amount actually being paid by the taxpayer.

 

Form 433-B

7.40  The IRS utilizes Form 433-B  to gather information from businesses. Page 2, block 15, requests that your client disclose each of its accounts receivable. The author believes that such a disclosure is foolhardy at the initial negotiating session. If disclosure is made and the negotiations fail, the IRS may levy your client's accounts receivable, thereby destroying its business.

 

Substantial Net Worth

7.50  The IRS will seldom grant extended payment plans to a business with a substantial net worth indicated on page 3 of Form 433-B.

 

Allowable Expense Overview

7.60            Allowable expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer's and his or her family's health and welfare and/or production of income.  The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family needs to live.

 

There are three types of necessary expenses:

 

• National Standards
• Local Standards
• Other Expenses

 

National Standards: These establish standards for reasonable amounts for five necessary expenses. Four of them come from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey: food, housekeeping supplies, apparel and services, and personal care products and services. The fifth category, miscellaneous, is a discretionary amount established by the Service. It is $100 for one person and $25 for each additional person in the taxpayer's household.

Note: All five standards are included in one total national standard expense.

 

Local Standards: These establish standards for two necessary expenses: housing and transportation. Taxpayers will be allowed the local standard or the amount actually paid, whichever is less.

 

• Housing - Standards are established for each county within a state. When deciding if a deviation is appropriate, consider the cost of moving to a new residence; the increased cost of transportation to work and school that will result from moving to lower-cost housing and the tax consequences. The tax consequence is the difference between the benefit the taxpayer currently derives from the interest and property tax deductions on Schedule A to the benefit the taxpayer would derive without the same or adjusted expense. Housing costs include rent and/or house payments, taxes, repairs and utilities.. the IRM provides as follows:

 

The utilities include gas, electricity, water, fuel, oil, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, and telephone. Housing expenses include: mortgage or rent, property taxes, interest, parking, necessary maintenance and repair, homeowner's or renter's insurance, homeowner dues and condominium fees. Usually, this is considered necessary only for the place of residence. Any other housing expenses should be allowed only if, based on a taxpayer's individual facts and circumstances, disallowance will cause the taxpayer economic hardship. [ IRM  5.15.1.9

 

• Transportation - The transportation standards consist of nationwide figures for loan or lease payments referred to as ownership cost, and additional amounts for operating costs broken down by Census Region and Metropolitan Statistical Area. Operating costs were derived from BLS data. If a taxpayer has a car payment, the allowable ownership cost added to the allowable operating cost equals the allowable transportation expense. If a taxpayer has no car payment only the operating cost portion of the transportation standard is used to figure the allowable transportation expense. Under ownership costs, separate caps are provided for the first car and second car. If the taxpayer does not own a car a standard public transportation amount is allowed.

 

Vehicle insurance, vehicle payment (lease or purchase), maintenance, fuel, state and local registration, required inspection, parking fees, tolls, driver's license, public transportation. Transportation costs not required to produce income or ensure the health and welfare of the family are not considered necessary. Consider availability of public transportation if car payments (purchase or lease) will prevent the tax liability from being paid in part or full. Public transportation costs could be an option if it does not significantly increase commuting time and inconvenience the taxpayer.

 

Note: If the taxpayer has no car payment, or no car, question how the taxpayer travels to and from work, grocer, medical care, etc. The taxpayer is only allowed the operating cost or the cost of transportation. [ IRM  5.15.1.9 ]

 

• Other Expenses.  Other expenses may be considered if they meet the necessary expense test - they must provide for the health and welfare of the taxpayer and/or his or her family or they must be for the production of income. This is determined based on the facts and circumstances of each case. If other expenses are determined to be necessary and, therefore allowable, document the reasons for the decision in your history.

 

• Conditional expenses. These expenses do not meet the necessary expenses test. However, they are allowable if the tax liability, including projected accruals, can be fully paid within five years.

 

• National local expense standards are guidelines. If it is determined a standard amount is inadequate to provide for a specific taxpayer's basic living expenses, allow a deviation. Require the taxpayer to provide reasonable substantiation and document the case file.

 

Generally, the total number of persons allowed for national standard expenses should be the same as those allowed as dependents on the taxpayer's current year income tax return. Verify exemptions claimed on taxpayer's income tax return meet the dependency requirements of the IRC. There may be reasonable exceptions. Fully document the reasons for any exceptions. For example, foster children or children for whom adoption is pending.

 

A deviation from the local standard is not allowed merely because it is inconvenient for the taxpayer to dispose of valued assets.

 

Length. Revenue officers should consider the length of the payments. Although it may be appropriate to allow for payments made on the secured debts that meet the necessary expense test, if the debt will be fully repaid in one year only allow those payments for one year. [ IRM 5.15.1.7 ]

 

Five Year Test

7.70    The amount allowed for necessary or conditional expenses depends on the taxpayer's ability to full pay the liability within five years and on the taxpayer's individual facts and circumstances. If the liability can be paid within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses. If the taxpayer cannot pay within 5 years, it may be appropriate to allow the taxpayer the excessive necessary and conditional expenses for up to one year in order to modify or eliminate the expense. (See IRM 5.14, Installment Agreements) [ IRM 5.15.1.10 ]

The IRM provides the following chart regarding other expenses:

 

Expense Item	Expense is Necessary if:	Notes/Tips
Accounting and legal fees	Representation before the Service is needed or meets the necessary expense tests.  Amount must be reasonable.	Disallow any other accounting or legal fees.  Disallow costs not related to solving current liability.
Charitable contributions (Donations to tax exempt organizations)	If it is a condition of employment or meets the necessary expense tests.  Example: A minister is required to tithe according to his employment contract.	Disallow any other charitable contributions that are not considered necessary.  Example:  Review the employment contract.
Child Care (Baby-sitting, day care, nursery and preschool)	It meets the necessary expense test.  Only reasonable amounts are allowed.	Cost of child care can vary greatly.  Do not allow unusually large child care expense if more reasonable alternatives are available.  Consider the age of the child and if both parents work.
Court-Ordered Payments (Alimony, child support, including orders made by the state, and other court ordered payments)	If court ordered and being paid, they are allowable.  If payments are not being made, do not allow the expense.  Child support payments for natural children or legally adopted dependents may be allowed.	Review the court order.
Dependent Care (For the care of the elderly, invalid, or handicapped.)	If there is no alternative to the taxpayer paying the expense.
Education	It is required for a physically or mentally challenged child and no public education providing similar services is available.  Also allowed only for the taxpayer and only if required as condition of employment.	Example:  An attorney must take so many education credits each year or they will not be accredited and could eventually lose their license to practice before the State Bar.  A teacher could lose their position or in some States their pay is commensurate with their education credits.
Health Care	Required for the health and welfare of the family.  Elective surgery would not be allowed such as plastic surgery or elective dental work.  The taxpayer must provide proof of excessive out of pocket medical expenses.	To determine monthly expenses, the total out of pocket expenses would be divided by 12.  The Schedule A may also be used to determine the yearly expense.  Ensure that the amount used is out of pocket after insurance claims are paid.  Substantiate that payments are being made.
Involuntary Deductions	If it is a requirement of the job; i.e. union dues, uniforms, work shoes.	To determine monthly expenses, the total out of pocket expenses could be divided by 12.
Life Insurance	If it is a term policy on the life of the taxpayer only.	If there are whole life policies, these should be reviewed as an asset for borrowing against or liquidating.  Life insurance used as an investment is not a necessary expense.
Secured or legally perfected debts	If it meets the necessary expense test.	Taxpayer must substantiate that the payments are being made.
Unsecured Debts	If the taxpayer substantiates and justifies the expense, the minimum payment may be allowed.  The necessary expense test of health and welfare and/or production of income must be met.  Except for payments required for the production of income, payments on unsecured debts will not be allowed if the tax liability, including projected accruals, can be paid in full within 90 days.	Examples of unsecured debts which may be necessary expenses include:  Payments required for the production of income such as payments to suppliers and payments on lines of credit needed for business and payment of debts incurred in order to pay a federal tax liability.
Taxes	It is for current federal, FICA, Medicare, state and local taxes.	Current taxe