The Collection Due Process (CDP) is a time to take a break from the IRS by proposing a deal to avoid the IRS collection penalty. The process was enacted alongside the Internal Revenue Service Restructuring and Reform Act of 1998 (’98 Act). The IRS had limitless power in getting their taxes before the ’98 Act. Uncle Sam could forcefully spoil your paychecks, collect your bank accounts, and use other harsh liens and levies that came with no way out.
The Act changed a lot for taxpayers as it limited the IRS penalties to two types of appeals. Now they get their tax penalty through a lien calming your property to replace the tax debt, and levy comes to possess the property. However, a taxpayer has the option to request an extra 30 days window from receiving the notice. The IRS will notify the court when the 30 days elapse and place you on the levy. During that period, you can use your CDP levy appeal lifeline. This will restrain the IRS from using the levy until the court makes a final judgment.
In case you miss the ultimatum of 30 days, you still have another option. There is the chance of appealing a hearing before it reaches another year after the CDP notice. However, a regular hearing differs from an equivalent CDP hearing. There are three differences as follows:
The US Tax Court and the IRS do not offer an equivalent hearing.
The status of limitation will continue to run, unlike during a CDP levy appeal.
The court does not allow the IRS to levy you with a pending CDP levy appeal during the CDP. But the IRS can levy you with a pending equivalent hearing or CDP lien appeal.
When you file a CDP appeal or an equivalent hearing, it may take between 3 to 12 months for approval. Taxpayers file their Appeal via Form 12153, titled Request for a Collection Due Process or Equivalent Hearing, through an authorized revenue officer.
In a case where there is no authorized officer, you can use the IRS Service Center responsible for issuing the final notice. Afterward, you must fill out the Collection Information Statement (IRS Form 433-F). The information will include your monthly income and expenses and the value of your entire assets like bank accounts, stock, real estate, etc. Afterward, you create an alternative solution to the enforced collection and submit it for consideration.
However, there are three other alternatives as well; a payment plan, an offer of compromise, and currently not collectible (CNC).
You cannot avoid the IRS appeal officer, and there is nothing to fear about them. These officers are independent and flexible compared to IRS agents. In addition, they have the power to approve resolutions that the IRS and other related bodies won’t.
If the appeal system doesn’t solve the issue, the next step will be a Notice of Determination. A taxpayer will receive this letter explaining the summary of past Appeals, a way forward, and in which court to seek the following Appeal.
The letter will indicate whether you qualify for further law or administrative procedures. The Notice of Determination includes:
The resolve issues submitted by the taxpayer regarding the unpaid tax
The decision taken after a proper spousal defense by the taxpayer
The decision to resolve the challenges presented by the taxpayer relating to the unpaid taxes
If the Appeal is fair to the taxpayer and adequate to the IRS collecting the taxes
The agreement, relief, and actions reached between the taxpayer and the judiciary
Advice on where to seek help within 30 days of the Notice of Determination.
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