What is a Collection Due Process Hearing? A Collection Due Process Hearing (“CDP”) is an informal hearing with an Appeals Officer from the IRS Independent Office of Appeals, provided by the Internal Revenue Code, to permit taxpayers to challenge the process the IRS has employed in imposing and collecting taxes. For example, a taxpayer is granted a right to a hearing before the IRS levies on the taxpayer’s property.[1] Some grounds the taxpayer may raise at a CDP hearing are:
(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions; and
(iii) offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.[2]
I have used a CDP to determine if the IRS has calculated tax correctly, applied payment to the balance owed properly, and to propose payment arrangements.
Can amount of tax be disputed in a CDP? Subject to some exceptions, the general rule is that the amount of tax or the existence of tax is not to be litigated at a collection due process hearing. However:
The person may also raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive any statutory notice of deficiency for such tax liability or did not otherwise have an opportunity to dispute such tax liability.[3]
The 9th Circuit Court of Appeals was confronted recently with a taxpayer who attempted to dispute the tax liability at a CDP. In Kwolek v. Commissioner[4], the Court ruled that the taxpayer had timely received a statutory notice of deficiency from the IRS requiring the taxpayer to file an appeal of the additional tax liability in Tax Court within 90 days and the taxpayer had failed to timely file. Since the taxpayer had not exercised her rights to contest the underlying tax in Tax Court, she was barred from doing so at a CDP hearing.
Practice Point. A taxpayer cannot generally expect to litigate the amount of tax at a CDP hearing. While there are some limited situations where the taxpayer can do so, those situations may be hard fought and are not guaranteed. A taxpayer should challenge the tax liability during audit, before IRS Appeals timely following an audit, or in Tax Court if at all possible. Otherwise, the taxpayer may be barred from challenging tax liability at a CDP hearing.
However, notwithstanding the general rule that the amount of tax may not be argued at the CDP, some exceptions to this general rule exist and should be analyzed. Taxpayers who owe delinquent tax and face liens or levies may contact Jared Le Fevre to discuss taxpayer’s collection due process rights and procedures and how to suspend IRS collection actions or contest the amount of tax.
About the Author. Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, U.S. Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal, state, and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
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[1] IRC § 6330.
[2] IRC § 6330(c)(2)(A).
[3] IRC § 6330(c)(2)(B).
[4] 847Fed Appx. 507 (Mem), 2021 WL 1923753 (9th Cir. 2021).