IRS Fails to Recognize Taxpayer Due Process Rights

The Treasury Inspector General for Tax Administration (TIGTA) conducted an audit for the time period of Oct. 1, 2018 through Sept. 30, 2019, to determine the manner in which IRS Collections issues IRS levies.¹ The audit reported a number of problems. However, before reviewing the results from the TIGTA audit, it is important to understand the applicable rules related to the issuance of a lien or levy. Subsequent to discussing the TIGTA audit results, this blog will also summarize a recent IRS change that impacts the request for a Collection Due Process (CDP) hearing.

The IRS Restructuring and Reform Act of 1998 requires the IRS to notify taxpayers and their authorized representatives of the right to a CDP hearing after the filing of a lien and prior to issuing a levy. Moreover, the IRS is required to suspend levy action during the time frames required pursuant to Internal Revenue Code Section 6330. TIGTA is responsible for annually determining whether the IRS is complying with these requirements.

Collection Enforcement

With limited exceptions, the IRS must provide taxpayers with written notice of due process rights to contest the filing of a lien or Notice of Intent to Levy. §§ 6320(a)(1) and 6330(a)(1). This due process is referred to as the CDP hearing, and it also provides taxpayers with the opportunity to challenge the underlying liability. CDP rights include the right to a fair and impartial hearing before the Office of Appeals. § 6330(b)

The IRS is required to give taxpayers notification of their CDP rights 30 calendar days prior to issuing Form 668-A, Notice of Levy. §§ 6330(b) and (c).  If the taxpayer has any new or subsequent tax assessments applied to the account, the IRS is required to notify the taxpayer again prior to levy. When a lien is involved, IRS must provide the taxpayer with notice of the lien within five business days after the IRS files a Notice of Federal Tax Lien. § 6320(a)(1)

The Code requires that IRS suspend all levy actions during the 30 calendar days prior to the levy for those periods that are the subject of the requested hearing, as well as throughout the entire period that a hearing (including any appeals from the hearing) is pending. §§ 6330(a) and (e).

TIGTA Audit

Levies can be issued through the Automated Collection System (ACS) or Integrated Collection System (ICS). When ACS is involved, Revenue Officers contact taxpayers who have deficiencies or who are delinquent with their tax filings by phone, and levies can be issued by computer or by the Revenue Officer. This differs from ICS, where Revenue Officers in the field contact these taxpayers by phone or in person.

During the applicable period, 194,498 taxpayers received an ACS levy notice. Of these taxpayers,

• 145 had their CDP rights violated since they did not receive any notice
• 16 received notice, but the notice was not timely
• 129 had CDP notice transactions posted on their IRS accounts reflecting that the letter was issued, but the code was subsequently reversed and the notice was not issued
• 84,513 had an additional tax assessment posted prior to the levy, with the IRS not issuing a new notice to four of those taxpayers prior to the levies being issued
• three received levies while a CDP hearing was pending

During the applicable period, 58,546 taxpayers received an ICS levy notice. Of these taxpayers,

• 25 were not notified of their CDP rights prior to the levy
• 190 were not timely notified of their CDP rights
• 95 had CDP notice transactions posted on their IRS accounts to show that the CDP notice was issued, but the code was subsequently reversed and the notice was not later reissued prior to the levy
• 16,958 had an additional tax assessment posted prior to the levy, with the IRS not issuing a new notice to 51 of those taxpayers prior to the levies being issued
• 40 received levies while a CDP hearing was pending

Requesting a CDP

To request a CDP hearing, a taxpayer files Form 12153 with the IRS Office of Appeals reflected on the notice. § 6330(b)(1). CDP hearing requests are subject to the mailbox rule, such that they are deemed timely so long as properly addressed and postmarked before the deadline. Reg. § 301.6320-1(c)(2), Q&A-C4, and Reg. §301.6330-1(c)(2), Q&A-C4. However, if a taxpayer mails the Form 12153 to the wrong address, it is not timely filed. § 7502(a)(2)(B); Reg. § 301.7502-1(c)(1)(i). Incidentally, taxpayers who timely file Form 12153 but who lose during the CDP hearing have the opportunity to appeal the determination. § 6330(d). The U.S. Tax Court has exclusive jurisdiction to hear any CDP appeal. § 6330(d)(1).

The IRS notice contains two addresses. The address at the top of the notice is supposed to be used to request the CDP hearing, whereas the address at the bottom of the notice is supposed to be used to send payment to the IRS. Taxpayers have mailed Form 12153 to the address for payment, and because this is the wrong address, the request for a CDP hearing is technically not timely.

Because of the importance of filing Form 12153 with the correct address and the confusion that can be caused by the notices, on July 6, 2020, the director of the Field Division of the Small Business/Self-Employed Division of the IRS, the Acting Director, Collection Policy, provided interim guidance to determine the timeliness of CDP hearing.² The guidance was issued to match the recommendation in Program Manager Technical Assistance 2020-002, which suggested that the IRS will deem Form 12153 as timely filed so long as it was sent to one of the addresses on the notice, even if it is the wrong address.³ This approach will be applied for all CDP hearing requests as of July 6, 2020, as well as any request that was open in inventory on that date. The Internal Revenue Manual (IRM) will be updated by July 6, 2022, and include this provision in IRM Section 5.1.9.3.2.

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