IRS's collection appeals program.

A major part of the Internal Revenue Service Restructuring and Reform Act of 1998 focused on new collection due process rights. Taxpayers were given significant new appeal processes, known as "collection due process" (CDP).These rights stopped the IRS from enforcing liens and levies while the taxpayer appealed the action. Over time, CDP cases created a substantial workload for the Service's Appeals Division. Some would argue that many (perhaps most) of the CDP appeals are mere delaying tactics. Whether true or not, practitioners and taxpayers have become familiar with these rights and have exercised them many times. However, while the CDP provisions have garnered all of the attention, there is a second (lesser-known) Appeals process that can be very useful to taxpayers. The Collection Appeals Program (CAP) was designed to provide a quick way to appeal procedural problems with the collection process.

CAP Details

A CAP appeal differs from a CDP appeal in that the former is broader and can be used by third parties (i.e., those holding the taxpayer's property subject to a lien or levy). No third party can use CDP, even if it can prove the IRS is in error. Thus, the CAP affords taxpayers an opportunity for relief not otherwise available, but at a price. While a taxpayer can use a CDP hearing to challenge any aspect of a collection action (including the validity of the underlying assessment), a CAP appeal cannot be used to challenge the underlying assessment or for hardship issues (although the Taxpayer Advocate can intervene in hardship cases). In effect, a CAP appeal is only for collection procedural issues. Nevertheless, it offers taxpayers an expedited review of IRS collection actions before they occur.

Liens: Internal Revenue Manual (IRM) Section 8.7.2.2 outlines the CAP rules. For hens, the CAP can be used (either before or after a lien notice is fried) to (1) challenge a refusal to withdraw the notice or to discharge or subordinate a lien or (2) prevent attachment of the lien, and (as was noted) it can be used by nominees and third parties holding taxpayer property. In short, it can be used to appeal any procedural aspect of a lien, including whether an IRS refusal to withdraw it is appropriate.

Levies: The CAP can be used before or after a levy is made, before or after a seizure and, as with liens, can be used by nominees and third parties holding taxpayer property (however, for a seizure, the appeal must be made within 10 business days after the Notice of Seizure is given to the taxpayer).Thus, a third party in possession of a taxpayer's property can use the CAP to challenge an IRS order to turn the property over to the Service to satisfy a claim against the taxpayer. Likewise, the CAP can be used to challenge a seizure of the taxpayer's property.

In addition to these opportunities, the CAP can be used to appeal a proposed denial, termination or default of an installment agreement. However, the CAP cannot be used to appeal a termination or rejection of an offer-in-compromise, a trust fund recovery penalty, penalty appeal, jeopardy levy or an audit reconsideration or claim. Nor can a CAP appeal be used in a case pending before a court, a criminal investigation or for challenges on moral, Constitutional or religious grounds. In short, it has to be used at the beginning of a collection controversy, and must address a procedural defect in the IRS's action. Frivolous appeals will not be considered.

A critical difference between a CDP and a CAP case is the time it takes to move through the process. CDP hearings take months (even years, in some cases); not so with CAR.

CM's role: The CAP process is designed to be very compressed and quick. Before it begins, however, the IRM requires a discussion with the collection manager (CM).This normally starts with a telephone request that a CM review an action eligible for the CAP; he or she then has 24 hours to respond. If the CM agrees with the taxpayer's position or request to release a lien, for example, the process stops there. If the CM agrees with the Revenue Officer's position, the taxpayer has up to 10 business days to request a CAP hearing by filing Form 9423, Collection Appeal Request (although any written request for a CAP will be accepted). While a taxpayer can request a CAP appeal within 10 business days of the CM's meeting, the collection stay created thereby will expire two business days after the meeting. Thus, the IRS can reinstitute collection action once the two-day period has expired, until the CAP hearing request is received.

For installment agreements, the appeal must be filed within 30 days from the rejection, termination or default notification. A levy is prohibited for that period plus 15 days, to allow for mailing and receipt of the request.

Basis for contention: Form 9423 asks the reason for disagreement with the IRS, and requires the taxpayer to offer solutions to the problem. The IRM is silent on the actual "solutions"; however, it is reasonable to assume that the Service will expect one or more options that solve the taxpayer's concerns, while continuing to protect the government's interest.

Timeframe: The Appeals Division tries to hold the conference within two business days of receipt of the request, but the taxpayer can ask for a reasonable delay (e.g., by phone), normally of up to five business days. If, for some reason, a taxpayer does not elect a conference within the time period, the Appeals Officer will make the decision based on the information at hand. While the IRM does not specify the conditions under which the Appeals Officer can grant the delay request, it seems logical that scheduling issues (particularly when a practitioner will be involved in the conference) should be a sufficient reason to grant a delay. Once the conference has been held, the Appeals Officer has five business days to decide the case, although the IRM notes that complex cases (such as installment agreement terminations) may take longer.

Generally, the Appeals Officer's decision is communicated to both the taxpayer and the Revenue Officer involved. A closing letter is then sent to both within three business days of the oral communication, specifying any agreement reached with the taxpayer, any relief given, the decision's rationale and whether Collection's action was fully supported.

The Appeals Officer's decision is binding on both the taxpayer and the IRS. However, if the taxpayer omits pertinent information or commits fraud, the Service can, essentially, void the decision. Further, the decision is not subject to judicial review.

The tight time requirements highlight the fact that the CAP is about the collection process, affording the taxpayer an expedited review of alleged IRS procedural defects. They also ensure that the case is processed quickly, giving taxpayers an almost immediate decision and ensuring that third parties hold the taxpayer's property no longer than necessary. All told, from the phone call to the CM to the case decision, a CAP appeal can take a minimum of 10 business days (effectively, two weeks), and normally takes a maximum of 15.

Clearly, the short time limits do not allow taxpayers to use the CAP simply to delay pertinent collection activity, as the potential delay will only be two to three weeks, at most.

Recommendation

When appropriate, taxpayers should consider using both the CAP and the CDP procedures. For example, the CAP could be used to prevent a seizure of the taxpayer's property, while a CDP could be filed to challenge the underlying basis for a collection action.

The CAP initiative gives taxpayers a fast and focused process to challenge IRS collection actions. It can be used in conjunction with a CDP hearing to provide immediate relief, while preserving the taxpayer's rights to use a CDP hearing to its tidiest extent. (For more details on CDP, see News Notes, "CDP Hearing Process," p. 632, this issue.)

FROM MICHAEL MARES, J.D., CPA/ABV, WITT MARES PLC, NEWPORT NEWS, VA