“We need to take advantage of every tool possible in representing our clients before the IRS. One important tool is Collection Due Process but can you use it if you are not an attorney?” – by Patti Logan, EA
OK, I am not an attorney nor am I a tax court practitioner so can I use the collection due process (CDP) procedures to help my client?
Back in 1998, Congress granted taxpayers the right to take a proposed levy or a filed lien to the United States Tax Court. The idea was to have the court look at whether filing a lien or proposing a levy is an abuse of discretion. And if it is, the Court will disagree with the IRS’s actions and allow the taxpayer to resolve the case another way.
IRS will send your client one letter or notice proposing a levy and offering them a chance to appeal the proposed levy. Or within 5 days of filing a Notice Of Federal Tax Lien, the IRS has to send the taxpayer a notice of the filing which also gives them the right to appeal the filing. If your client disagrees with either action, they have the right to take the issue to Appeals and then if the case still cannot be resolved, the taxpayer can file a petition to the U. S. Tax Court after IRS Appeals has issued a determination.
Back to my original question, if the taxpayer is represented by a CPA or EA who has not passed the U. S. Court Practitioner exam, can they really use the CDP? Yes! Appeals will hear our case just like an attorney’s presentation.
During the process though, as the representative, you MUST be prepared to present an alternative resolution to the case. That means that you and your client have to be prepared to give Appeals all the information they need to make a determination in your client’s favor. Normally since you are working with collection, you will have to prepare a collection information statement, Form 433A, Form 433B, Form 433F, Form 433-A(OIC) or Form 433-B(OIC). If Appeals schedules a hearing for your client and you want an installment agreement, and offer in compromise or propose that the account be reported as uncollectible because your client cannot afford to meet their current obligations as well as pay the back taxes, Form 433 is what Appeals will review.
Ok, let’s look at an example: John Smith came to your office because he owes $49,000 in individual income taxes. He claims that he cannot afford to pay the taxes and pay for his current living expenses. While interviewing him, you discover that although he is able to earn almost $10,000 a month in 1099-MISC income, he also has young-onset Parkinson’s. He wants to have a deep brain stimulation surgery which is used to treat the debilitating motor symptoms of the disease. The cost of the surgery is covered by his health insurance but he has to re-train his brain which means he is expected to be out of work for six months. He has saved $50,000 for his living expenses while he is unable to work.
You have prepared a Collection Information Statement which shows the $50,000 in savings but you have also included a letter from his physician, the physical therapist and occupational therapist supporting John’s claim that it will take approximately six months until he can return to work.
Sounds good, right? Well, the revenue officer (RO) assigned the case says that he cannot tell whether John is really going to have the surgery. The RO said that IRS does not allow future expenses if there is no track record of those same expenses. You meet with the revenue officer and the group manager hoping to convince them that this is a different type of situation and that it is appropriate to report the account as uncollectible rather than to force him to cash in his savings to pay taxes. The reply you get from IRS is a Notice Of Intent To Levy and Notice of Right of Hearing. What is that? It is John’s ticket to Appeals and then to the Tax Court.
So you file the request for a hearing, Form 12153, Request for a Collection Due Process or Equivalent Hearing, with the revenue officer and ask to go to Appeals. Generally it takes about 2 to 3 months before the appointment for the Appeals’ hearing. During this time, you should review your case with a critical eye. Does the material support the collection resolution you are proposing? Is there anything else you could add? Would it be beneficial for the IRS to meet your client? Can you get a face-to-face meeting or will IRS require you to do a video conference?
In the case of our client, John Smith, meeting him would be great but IRS is saying that they can get the information they need to resolve the case just by reading the doctor’s and therapists’ reports. No matter how you try to convince them that you need them to meet your client, Appeals refuses. The settlement officer assigned the case then tells you that he is upholding the IRS’s proposal to levy.
After the hearing IRS sends a determination letter that supports the IRS’s intention to levy John’s savings. The next step would be to file a petition to the U. S. Tax Court. You are not an attorney so does that mean John is out of luck? No. You could turn the case over to a tax attorney, send John to a low income tax clinic or John could file a pro se petition to court. What happens then? If John files his own petition, the U. S. Tax Court will notify the IRS Counsel. That gives you, his representative, another bite at the apple to convince IRS again that a levy is an abuse of discretion.
Want to learn more about the Collection Due Process? The Tax Alliance Conference planning committee is bringing an excellent speaker, Frank Agostino, to our June 5–7, 2018 conference. He will cover CDP’s in much more depth. If you want to learn exactly how to request and prepare for a CDP hearing and take the necessary actions afterwards, join us for the conference. We don’t believe you will find better CPE especially when you consider the cost! Check it out at www.taxalliance.org.