CDP procedures finalized.

Treasury has issued final regulations on taxpayers' rights to collection due-process (CDP) hearings as provided under the Revenue Reconciliation Act of 1998 in Secs. 6320 and 6330. Regulations provide the procedures for:

1. Notifying taxpayers when the IRS files a notice of Federal tax lien (NFTL);

2. Notifying taxpayers before the Service levies a tax;

3. Notifying taxpayers of their right to a CDP hearing for both of the above; and

4. Conducting CDP hearings and appealing the results.

The final regulations apply to any NFTL filed, or any levy occurring, after Jan. 8,1999.

Notice Procedures

The IRS should issue an NFTL within five business days after it files a lien. The Service must send pre-levy notices to taxpayers at least 30 days before the levy. Notices should include the statutory provisions and procedures on release of liens or relating to levy and sale of property, and should also include alternatives that may prevent further levies (such as an installment agreement).

The IRS must deliver an NFTL to taxpayers either by personal delivery (leaving the notice at the taxpayer's dwelling or usual place of business) or by certified or registered mail sent to the taxpayer's last-known address. An NFTL informs taxpayers of their right to request a CDP hearing.

A proper delivery starts the period within which a taxpayer must request a CDP hearing, even if the taxpayer does not receive the notice. If a taxpayer does not receive a notice and the IRS determines that it did not properly deliver the notice, it will provide the taxpayer with a substitute CDP notice and an opportunity to request a hearing. The validity and priority of an NFTL are not affected.

Requesting a CDP Hearing

Taxpayers must request a Sec. 6320 NFTL CDP hearing by the 30th day after the fifth business day within the period in which the IRS must give notice of filing. In case of a substitute notice, the taxpayer must make a request by the 30th day after the date of the substitute notice. Taxpayers must request a Sec. 6330 pre- or post-levy CDP hearing by the 30th day after the date of the CDP notice. Requests must be in writing (to resolve potential disputes over timeliness).

Form 12153, request for a Due Process Hearing, should be included with the notice the taxpayer uses to request a hearing. However, a written request in any form that includes the taxpayer's name, address and daytime telephone number, and is signed and dated by the taxpayer or authorized representative, will be accepted. The request should include a statement explaining why the taxpayer disagrees with the NFTL or levy, and should be filed with the IRS office and address indicated on the CDP notice. If the CDP notice does not provide that address, it must be filed with the compliance director for the area where the taxpayer resides or has its principal place of business.

Importantly, when a potential exists for multiple CDP notice filings for the same tax liability, taxpayers must request a hearing in response to the first notice. The IRS's position is that a taxpayer is entitled to only one CDP hearing on a particular tax and period, determined by the first filing of either a Sec. 6320 NFTL CDP notice or a Sec. 6330 (levy) CDP notice. Therefore, if a hearing is not requested as a result of the first notice, the taxpayer forgoes any right to a CDP hearing and judicial review for that tax liability.

If a request for a CDP hearing is not timely, the taxpayer might still request an "equivalent hearing" with Appeals, which would follow the same procedures and consider the same issues it would have for a CDP hearing. Appeals does not, however, issue a determination notice, but instead issues a decision letter. The issue consideration is the same; the difference is that .neither Sec. 6320 nor Sec. 6330 authorizes a taxpayer to appeal the Appeals decision. (A taxpayer may under certain circumstances, however, request Tax Court review of an Appeals denial of joint and several liability relief under Sec. 6015.)

Taxpayers are encouraged to discuss their concerns with the IRS employee involved in the collection action or filing the NFTL before or after requesting the CDP hearing, perhaps resolving some matters before (or without) Appeals' involvement. Appeals still includes any resolved matters in the NFTL determination notice, unless the taxpayer waives in writing Appeals' consideration of the matter.

How Is a Hearing Conducted?

Consideration in Appeals should be by an employee that has had no prior involvement with the tax liability (unless the taxpayer waives this requirement). The hearing is informal, may not necessarily involve a face-to-face meeting and may consist of telephone or written communication, or both. Before the hearing, the hearing officer should have obtained verification that statutory and administrative requirements have been met.

Appeals has authority to consider and determine the validity, sufficiency and timeliness of any CDP notice.

The taxpayer is to provide all relevant information Appeals requests.

A spousal defense might be raised if the Service has not previously made a final determination as to such spousal defense in a final determination letter or statutory deficiency notice.

Underlying Tax Liability

At the taxpayer's request, Appeals may consider the validity of the underlying tax liability not considered in any other previous administrative or judicial proceeding. If Appeals has previously considered any dispute of underlying tax liability for the tax in question, any further consideration at a CDP hearing would be discretionary with Appeals. If consideration is granted, any underlying tax liability issue would not be considered a part of the CDP hearing. Additionally, underlying tax liability determinations made by Appeals, which resulted from the hearing, and included in the determination notice, may not be reviewed by a district court or the Tax Court.

Any challenge of the underlying tax liability must be raised in the first CDP hearing offered; Sets. 6320(c) and 6330(c)(4) preclude raising the same issue in a subsequent CDP hearing, unless there is a change in circumstances that affects the determination. Significantly, it is the position of Treasury, that just the prior opportunity for consideration of the underlying liability precludes a challenge to the underlying tax liability during a subsequent CDP hearing. Essentially, the waiver of an opportunity to challenge the underlying tax liability at the first opportunity is a waiver of right of an administrative challenge at a CDP hearing.

Hearing Conclusion and Determination Notice

At the conclusion of a CDP hearing, Appeals will issue a determination notice. This notice should respond to all appropriate issues and challenges raised by the taxpayer, as well as to offers made. It should also address whether the continued existence of the filed NFTL or proposed collection "represents a balance between the need for the efficient collection of taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary" (Kegs. Sets. 301.6320-1(e)(3), Q&A-E8(i), and 301.6330-1(e)(3), Q&A-E8(i)). The taxpayer then has the right to appeal the determination to the Tax Court or district court within 30 days, commencing on the day after the date of the determination notice.

The regulations provide no timing requirements as to when a CDP hearing must actually be held, or when a determination notice mint be issued, except that they must be done "as soon as possible."

Other Provisions

Other provisions of the regulations include:

* An NFTL can cover more than one tax period; the notice covers each tax period listed in the NFTL.

* If the IRS files for the same tax period in more than one place of filing, the taxpayer will be notified of each place of filing.

* Notice is not given to a nominee of a person holding the taxpayer's property, but only to the person liable for the tax (as described in Sec. 6321).

* Notice is given in case of a subsequent NFTL filing for the same tax period(s). However, such subsequent notices do not necessarily provide the taxpayer the right to a CDP hearing.

Statute of Limitations and Continued Collection Activity

The limitations periods under Secs. 6502, 6531 and. 6532 are suspended by Secs. 6320(c) and 6330(e) after a taxpayer requests a CDP hearing.

Levy actions subject to a CDP levy (but not a lien) hearing are suspended. Levy actions are not suspended during an NFTL CDP hearing. The IRS is not prohibited from proceeding with enforcement actions, for taxes or periods or both, not covered by a CDP notice and hearing, and may file an NFTL for periods and taxes that are the subject of a Sec. 6330 (levy) CDP notice.

In issuing the final regulations, Treasury rejected commentators' proposals that "potentially affected third parties" (not liable for the tax) also be entitled to notice of their rights when a lien is filed and to a hearing with Appeals before the IRS levies on the property. Treasury concluded that persons entitled to receive CDP notices were only those liable for the tax (as described in Sec. 6321). They also reasoned that other administrative (or judicial, when necessary) remedies are available to protect the rights of potentially affected third parties.

FROM RONALD J. BLAIR, CPA, MBA, DIRECTOR OF FINANCIAL AFFAIRS & LECTURER IN FEDERAL TAX, SCHOOL OF MANAGEMENT, THE UNIVERSITY OF TEXAS AT DALLAS, DALLAS, TX