When the IRS attempts to levy or place a lien on your property, you have the right to a collection due process (CDP) hearing. If you're like most people, you're panicking. Take deep breaths. This article explains the rights you still have and how you can avoid enforcement of the lien or levy.
Written by Lawyer John Coble.
Updated June 5, 2021
You've received a letter from the Internal Revenue Service. It says that the government intends to levy your property or place a lien on your property. If you're like most people, you're panicking. Take deep breaths. This article explains the rights you still have and how you can avoid enforcement of the lien or levy. The success of your strategy will depend upon knowing your rights and following through on your chosen solutions.
How Do I Request A Collection Due Process (CDP) Hearing?
When the IRS attempts to levy or place a lien on your property, you have the right to a collection due process (CDP) hearing. You may receive several IRS notices threatening a lien or levy. Except in rare situations, they aren't going to place an IRS levy on your property unless they send a Letter 1058 or LT11 that says "Final Notice of Intent to Levy" at the top and explains your right to a CDP hearing.
§6330 of the Internal Revenue Code requires the IRS to notify you of its intent to levy and your CDP rights 30 days before a levy may be placed on your property. Examples of levies include seizures of your bank accounts and garnishments of your wages. Levies can include seizure of your personal assets, business assets, and even your primary residence.
§6320 of the Internal Revenue Code requires the IRS to send you notice of your CDP rights within 5 days after recording a lien against your property. This notice is usually in the form of a Letter 3172. The IRS must give you notice of your CDP rights before enforcing a levy but the agency can wait up to 5 days after filing a notice of federal tax lien. The reason for this difference in treatment is that a levy involves the actual taking of your property. A lien is “just” assertion of a legal claim to your property.
There are exceptions to the IRS requirement to send a taxpayer notice of the right to a CDP hearing before levying. The exceptions are rare and include the following:
The collection of the tax liability is in jeopardy. This may happen if you're sending large amounts of money to your Swiss bank accounts.
The IRS is levying your state tax refund.
The notice of your right to a CDP hearing must be given to you in person, left at your dwelling or usual place of business, or sent via certified or registered mail - return receipt requested. Use IRS Form 12153 to request a CDP hearing. Whether the CDP notice is for a lien or a levy action, you have 30 days from the date of the notice to request a hearing.
Though you have a right to a CDP hearing request, the IRS may not grant your request under limited circumstances. These circumstances include claims that the IRS has determined to be frivolous or when the IRS assesses a request as an excuse for delay or to impede the administration of federal tax laws.
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What Happens At A CDP Hearing?
The IRS will halt new collection activities until after your CDP Hearing. But, the Collection Statute of Limitations Expiration Date (CSED) will be extended for the time that the IRS has stopped its collection activities. That is, the IRS will be allowed additional time to collect from you for the time it lost while it stopped collection activities.
It's important to understand that the stay on collections activity is only on collections related to the subject of the hearing. For example, if your hearing is for a proposed levy for back taxes from 2015 and there's another outstanding levy notice for the 2017 tax period, you could still be levied for your 2017 taxes.
Your hearing will be conducted by a settlement officer from the IRS Office of Appeals who has had no prior involvement in your case. The IRS appeals office is meant to be an impartial internal check on the IRS collection division. It aims to make sure that your due process rights aren't violated. A CDP hearing is an informal hearing. It may be held in person, by written correspondence, by telephone, or by a combination of different communication methods.
If you fail to request your CDP hearing within 30 days from your notice, you won’t get a CDP hearing. But, you may be granted an equivalent hearing. An equivalent hearing is the same as a CDP hearing with a couple of important exceptions. First, the IRS isn't required to stop collection activities while an equivalent hearing is pending. Yet, the agency will usually stop collecting while this type of hearing is pending, even though the collection statute of limitations continues to run. The other important difference is that with an equivalent hearing, the decision of the settlement officer is final. You can't appeal the decision to federal court.
Defenses That Can Be Raised At A CDP Hearing
At the CDP Hearing, you can claim the following types of defenses:
The appropriateness of the collections actions. Examples of inappropriate collections include: 1. Where the collections will cause economic hardship. Economic hardship is something more severe than a mere economic inconvenience. It's usually understood to mean you're left without the ability to afford your basic living expenses. 2. The taxes were discharged in bankruptcy.
Spousal defenses such as innocent spouse relief.
You can offer collection alternatives for the tax debt such as an offer in compromise, partial payment installment agreement, or an installment agreement. Other alternatives include posting a bond or substituting other assets for the tax debt. You can request subordination, discharge, or withdrawal of a federal tax lien to facilitate collection.
If you haven’t received a deficiency notice, you can raise defenses to the underlying liability.
You can't raise defenses that were litigated at a previous CDP hearing or court action. In making a determination regarding your case, the settlement officer must:
Verify that the requirements of any applicable law or administrative procedure have been met,
Consider issues validly raised at the hearing, and
Determine whether the proposed collection action balances the need for efficient tax collection with the taxpayer's concern that the collection be no more intrusive than necessary.
When the appeals officer has decided your case, you'll receive a determination letter entitled, "Notice of Determination Concerning Collection Action Under Section 6320 and/or 6330." This is known as Letter 3193. It will be delivered via certified or registered mail. In addition to informing you of the decision that resulted from your CDP hearing, this letter will inform you of your rights to appeal to federal court.
Appeal To Federal Court
You have 30 days from the determination letter to seek a judicial review from the United States Tax Court. You only have these appeal rights after attending a CDP Hearing. If you had an equivalent hearing, the decision of the appeals office is final. At the U.S. Tax Court, you can only raise issues that were raised at the CDP Hearing. For this reason, it's important that you raise every issue you have during your CDP Hearing.
There are 4 things you need to remember if you receive a letter from the IRS saying that it intends to levy your property or that it’s threatening a notice of federal tax lien filing:
First, don't panic. You have work to do but there are many solutions to avoid a lien or levy.
Second, make sure that the letter tells you that you have 30 days to request a collection due process hearing. With a few rare exceptions, the IRS isn't going to levy and they haven't recorded a lien unless this language is in the letter.
Third, you have 30 days to request a hearing. If you wait longer than 30 days, you risk a levy and you will definitely lose certain important rights.
Last, if this is too much of a burden for you, it may be time to consult a tax attorney or other tax professional. Upsolve has a tool to help you find an attorney in your area. If you're a low-income taxpayer, it may be a good idea to consider free legal aid.