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Frivolous Collection Due Process Hearing Requests

Taxes Note, Pen And Uk Tax Forms Lying On Desk

Generally, a taxpayer can file a request for a Collection Due Process (CDP) Hearing (Form 12153) in response to a Final Notice of Intent to Levy (CP-1058, or LT-11) or Notice of Federal Tax Lien Filing.  The taxpayer can raise collection alternatives to the proposed levy action such an offer in compromise, installment agreement, or an inability to pay in their request for an appeal.  Additionally, the taxpayer can request a lien subordination, lien discharge or lien withdrawal in response to the lien filing.  Filing a timely request for a CDP hearing suspends any collection action against the tax periods specified on the request until the taxpayer has had the opportunity to have a hearing with the IRS Office of Appeals.

The Form 12153, request for a CDP hearing or Equivalency hearing, requires that the taxpayer provide a reason for the dispute or the request for a hearing will not be honored.  If the taxpayer provides frivolous arguments, in whole or in part, those arguments will not be heard.  The frivolous arguments or the taxpayer’s desire to delay collection (from the point of the IRS) will be ignored and the taxpayer will not have any further administrative or judicial review.  This means that the taxpayer will not have appeal rights or an ability to go to Tax Court.  Moreover, the IRS can impose a $5,000 penalty for any portion of a request for a hearing that is a “specified frivolous submissions” under IRC section 6702(b) or that impedes collections.

However, if a request is not timely, the Collection Due Process hearing is converted to a request for an Equivalency hearing (if the proper box is checked).  A request for an Equivalency hearing does not suspend collections, however, as a general rule the IRS will not proceed with collection action during the Appeal period.  But, if a taxpayer provides a frivolous reason for the hearing and/or the taxpayer files the appeal solely to delay collection, the IRS will proceed with levy action during the appeal period.

What does the IRS consider to be a frivolous argument?  The IRS considers arguments made by tax protestors as frivolous arguments.  Tax protestors contest the validity of a tax assessment, the validity of any notices issued by the IRS, and challenges the authority of IRS employees.  If any of these arguments are made by a taxpayer, the IRS will respond by assessing additional penalties for making such arguments.  Moreover, the taxpayer will not have the opportunity to be heard and their request for a hearing in part, or in whole will be ignored.  The problem with this scenario is that the IRS has discretion to assess a frivolous penalty without providing a taxpayer with a reason, besides the generic boilerplate response “specified frivolous submissions or the taxpayer’s desire to delay or impede tax administration.”

What is concerning, is that many tax practitioners file a request for a CDP hearing to preserve their client’s right to appeal on a proposed levy action and their right to go to Tax Court.  An IRS Revenue Officer can perceive a request for a hearing as a delay in collection and can use it against the tax practitioner by scaring him or her to withdraw the CDP since the Revenue Officer cannot proceed with enforced collection action on the tax periods that are specified on the request.  Therefore, make sure to provide valid reasons on the request for a CDP hearing.