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Part 8. Appeals

Chapter 22. Collection Due Process

Section 2. Technical Review (Cont. 1)

8.22.2  Technical Review (Cont. 1)

8.22.2.2 
Collection Due Process (CDP) Hearing under IRC 6330 and/or IRC 6320

8.22.2.2.6 
CDP - Uniform Acknowledgment and Substantive Contact Letter requirements

8.22.2.2.6.2  (12-01-2006)
CDP - "No Response cases"

  1. If there is no response to the substantive contact letter, you must make a second attempt to contact the taxpayer.

  2. The case activity record must clearly document a minimum of 2 attempts.

  3. Letter 4000, Final Chance Letter is the preferred method for your second attempt.

    Note:

    If the second attempt is by telephone, you must thoroughly document the contact in the case activity record.

  4. Ask the taxpayer if they have any further information for consideration before making a determination on the information already available; do not schedule a second conference unless circumstances warrant rescheduling, such as the taxpayer did not receive the original conference letter due to a change of address.

  5. Give a taxpayer that is delaying or not responding a reasonable, but specific, deadline to respond. As a general rule, allow 14 days in the Final Chance Letter. However, depending on the facts and circumstances, fewer than 14 days may be considered.

    1. Giving a taxpayer fewer than, or more than, 14 days may be considered reasonable depending on the facts and circumstances.

    2. We need to establish that we gave the taxpayer a reasonable chance to respond as well as provide them with the opportunity for a fair and impartial CDP hearing.

    Example:

    The taxpayer has been provided 3 opportunities of 14 days each to provide a financial statement. Each opportunity was granted after the taxpayer called with a somewhat plausible reason why he wasn't able to comply earlier. The SO is ready to close the case yet grants the taxpayer a final opportunity of 5 days to provide a CIS.

  6. Document with a clear entry in the case activity record that you informed the taxpayer that if we do not timely receive the requested information, the hearing will consist of the administrative file and whatever information the taxpayer has already provided.

  7. If using Letter 4000 retain a copy for the file. In general, a court will more likely rely on written correspondence; with sufficient documentation in the administrative file there is less likelihood of the hearing officer having to testify if the taxpayer files for a judicial review stating Appeals did not give them a reasonable opportunity to respond.

8.22.2.2.6.3  (10-30-2007)
Special Considerations: Multi-Lingual and Specialized Industry

  1. Recognize and be sensitive where there are indications the taxpayer:

    • may speak little or no English

    • is illiterate, unsophisticated or appears intimidated

  2. The Multilingual Initiative (MLI) will identify individuals who are willing to assist other Appeals employees as interpreters.

    Note:

    See http://mli.web.irs.gov/v3/contact_mli/ContactMLI.asp if interpreter services are required.

    Also, see IRM 22.31.1.

  3. A minor child is able to serve as an interpreter for his/her parent during an Appeals conference, per guidance issued by Disclosure.

  4. Recognize and be sensitive to taxpayers with issues that require:

    1. specialized industry knowledge (e.g., oil and gas, agriculture)

    2. specialized legal expertise (e.g., community property law)

  5. Give special consideration to transferring the case to an Appeals office with the required industry or cultural knowledge even if the case does not qualify for a face-to-face hearing.

8.22.2.2.6.4  (03-11-2009)
Type of Hearing - Face-to-Face, Telephonic or Correspondence; Requirements and Exceptions

  1. A CDP hearing may be:

    1. face-to-face

    2. telephonic

    3. correspondence

    4. a combination of any of the three

  2. Accommodate taxpayers who request AND qualify for a face-to-face hearing at an Appeals office near:

    1. their school

    2. place of employment

    3. residence

  3. Transfer to the office the taxpayer requests following established procedures.

    Note:

    A list of Appeals offices available for a face-to-face hearing is available at the following Appeals website: http://appeals.web.irs.gov/tech_services/collection/Appeals_CDP_Face-to-Face_Hearings.htm.

  4. Exceptions to a face-to-face hearing:

    1. Taxpayers who have been identified as potentially dangerous taxpayers (PDT), without CI /TIGTA protection at the hearing

    2. Taxpayers who include a frivolous, delaying, or impeding reason on their hearing request. See IRM 8.22.2.2.10.3.

    3. Taxpayers who are not eligible under IRS policy, for the collection alternative they seek

      Caution:

      The decision to deny a request for a face-to-face conference due to lack of eligibility should not be solely based on the records of the IRS.

  5. Give a reasonable opportunity (14 days) to taxpayers to obtain a face-to-face conference who appear to be ineligible for the collection alternative they seek. Allow taxpayers to:

    1. demonstrate they are eligible (e.g., the taxpayer has already filed the required return or there was no filing requirement for a particular tax period) or

    2. become eligible (e.g., by filing required returns or making required deposits) for the collection alternative they seek

  6. Give the taxpayer a reasonable opportunity (an additional 14 days) to demonstrate or become eligible after the taxpayer requests a face-to-face conference. We recommend you confirm the eligibility deadline by letter. Following are examples of this provision:

    Example:

    A taxpayer requests an installment agreement in her request for a hearing but has not filed 2001, 2002 and 2003 income tax returns. By letter in response to the Substantive Contact Letter, the taxpayer insists she will have refunds and requests a face-to-face hearing. The SO then informs the taxpayer in a letter that she must, within 14 days from the date of that letter, send the SO the delinquent returns to qualify for an installment agreement and to obtain a face-to-face conference to discuss the installment agreement. The taxpayer refuses to submit the delinquent returns by the required date. The taxpayer is not entitled to a face-to-face conference.

    Example:

    A taxpayer states that levy action would create an economic hardship and leave him unable to pay necessary living expenses. He appears to qualify for Currently Not Collectible status; however, the last tax return filed was for tax year 2006. The SO, in the Substantive Contact Letter, asks the taxpayer to contact him or her within 14 days of the date on the letter, to discuss why he has not filed returns for the last several years. The taxpayer calls and states that he has not been required to file returns since 2006. Research of IRPTR corroborates the taxpayer's statement. The taxpayer's case can be transferred for a face-to-face hearing should he request one.

    Example:

    In response to the Substantive Contact Letter, the taxpayer calls and requests a face-to-face conference to discuss an offer in compromise. IRS records show that he has not filed his 2003 and 2004 income tax returns. The SO returns the taxpayer's call to find out the reason for the taxpayer's failure to file required returns. The taxpayer admits he should have filed the returns but did not; the taxpayer's oral testimony convinces the SO that the taxpayer had the returns prepared for filing. The SO tells the taxpayer that he must file his delinquent returns in order to obtain a face-to-face conference and gives him 14 days to send the returns to the SO. The SO confirms the deadline in a letter to the taxpayer. The SO receives the tax returns within 14 days and calls the taxpayer and schedules a face-to-face conference.

  7. There may be instances in which a taxpayer will need more than 14 days to prepare a delinquent return because he is unable to prepare the return himself.

    Note:

    A taxpayer's eligibility for a collection alternative does not include the taxpayer's ability to pay the unpaid tax.

    Exception:

    Appeals may use its discretion to grant a face-to-face conference if such a conference is appropriate to explain to the taxpayer the requirements for becoming eligible for a collection alternative. The most common reason for taxpayers lacking eligibility is because they have failed to file returns.

    Note:

    Low-income and limited English proficiency (LEP) taxpayers or taxpayers speaking English as a second language (ESL) who request a face-to-face conference or a collection alternative for which they are not eligible may not be able to understand over the telephone an explanation of what they need to do to become eligible for a collection alternative. They may not be able to understand that they have an obligation to file a return, may not be able to articulate why they believe they are not required to file a return or know how to go about preparing a return. It may be easier to meet face-to-face where the SO is able to look at the taxpayer's financial records.

8.22.2.2.6.4.1  (03-11-2009)
CARAT Codes for Face-to-Face Transfer Requests

  1. Action Code TF:

    1. The TF code is input on the date the taxpayer's request for a transfer for a face-to-face conference is allowed or denied.

      Note:

      TF is applicable for requests that would require either a transfer or reassignment.

  2. Sub-Action Codes - Allowed Transfers:

    1. One of the following three Sub-Action Codes must be used when a transfer request is allowed for a face-to-face conference:

      Sub-Action Code Definition
      OT Transfer or reassignment was allowed to accommodate the taxpayer at an office closer to their employer or school.
      AT Transfer or reassignment was allowed to help the taxpayer better understand the process even though the taxpayer would not otherwise qualify for a face-to-face conference.
      ET Transfer or reassignment was allowed to an office closest to taxpayer's residence.

  3. One of the following three Sub-Action Codes must be used when the transfer request is denied for a face-to-face conference.

    Sub-Action Code Definition
    DF Transfer or reassignment was denied because taxpayer raised only frivolous issues.
    DC Transfer or reassignment was denied due to compliance issues.
    DO Transfer or reassignment was denied for other reasons.

  4. The definitions for these codes are also available on the ACDS Utilities menu under CARATS Action/Sub-action codes.

8.22.2.2.6.5  (12-01-2006)
Priority Consideration - In-Business Trust Fund Pyramiding taxpayer

  1. The In-Business Trust Fund (IBTF) pyramiding taxpayer warrants priority consideration.

    1. The definition of a pyramiding IBTF taxpayer is one who is in-business, NOT current with FTDs, and owes employment taxes for a prior quarter.

    2. Use feature code "PY" to identify pyramiding trust fund taxpayers. It is the responsibility of the Settlement Officer assigned the case to ensure the case is properly identified with PY feature code.

    3. The Settlement Officer will make a substantive contact, either telephonically or by letter, within ten (10) days of assignment. If the contact is by phone, ensure clear and complete case activity record documentation of the discussion.

    4. We recommend direct assignment of IBTF pyramiding taxpayers to Settlement Officers upon receipt in Appeals. If assigned to a Collection Specialist for screening, he or she should not hold a case longer than 5 calendar days. If inventory issues prevent timely screening, the case should bypass the Specialist.

  2. The Trust Fund Recovery Penalty (TFRP) could be an issue with corporate taxpayers. If the TFRP has not been addressed by Collection, and a short TFRP statute for assessment exists (less than 180 days), notify Collection of the short ASED statute and document the notification. This will not be a request for an investigation of the TFRP, but merely notice of a possible statute problem.

  3. If the taxpayer is a corporation where personal liability for employment taxes cannot be established without a TFRP, indicate in the case file whether a TFRP investigation is ongoing.

    Note:

    There is no prohibition against Collection investigating and/or asserting the TFRP against responsible officers while the corporation has a CDP hearing.

8.22.2.2.6.6  (05-27-2004)
Decedent in CDP Case

  1. If a taxpayer dies after requesting a CDP hearing, the actions to take depend on the existence of probate or various requirements under local law.

  2. If a representative signed the Form 12153, the representation with respect to the Form 2848 signed by the deceased taxpayer is now invalid as the Form 2848 terminates by operation of law upon the death of the taxpayer. Actions taken prior to the taxpayer's death are valid, so if a CDP conference has taken place, Appeals should still issue a Notice of Determination or Decision Letter.

  3. The executor or administrator of the estate should decide whether to continue the hearing, assuming an executor or administrator is appointed. If the executor does not withdraw the hearing request, the CDP hearing may be on hold pending resolution of probate.

    Note:

    It is in the Service's best interest to issue the determination in this case because it will ensure that the Service has the ability to proceed with collection action if the executor or administrator does not cooperate during the probate proceeding.

  4. Probate law varies widely from state to state. If there is a probate, the CDP hearing should proceed to determine if proper procedures were followed and to inform the executor or administrator of potential fiduciary liability if the taxes are not paid from the decedent's estate.

  5. If the Service files a proof of claim, the liability may be fully paid through the probate estate. If the liability becomes moot through payment, Appeals should ask for withdrawal of the CDP request. Appeals should contact the Advisory Unit to advise them of the situation so proof of claim filing or other appropriate action can be taken.

  6. If there is no requirement for probate, any successor in interest (e.g., trustee, surviving joint tenant, etc.) MAY be authorized to sign on behalf of the estate. However, first determine that there is no requirement for probate and the successor in interest qualifies. When in doubt, the beneficiary may petition the probate court to be appointed.

  7. If no successor in interest is willing to sign the withdrawal or continue the CDP hearing, issue the determination on the available information.

  8. Even if it appears there are no assets remaining upon decedent's death issue the determination so that Collection may investigate whether any assets were transferred after the IRC 6321 lien arose.

    Note:

    The federal tax lien attaches to all property or rights to property belonging to the taxpayer. Donees receiving property subject to the federal tax lien generally do not have an interest superior to the federal tax lien.

  9. Appeals employees should contact local Area Counsel concerning local law on probate for the given jurisdiction.

8.22.2.2.6.7  (01-01-2006)
Criminal Investigation (CI ) Indicators ( TC 914, 916, 918) on CDP cases

  1. A CDP/EH case may be received with a CI indicator TC 914, 916 or 918. These balance due modules will have an IDRS Z- or -Z freeze code.

    1. A TC 914 (-Z) is the indicator for an active Criminal Investigation. A Settlement Officer should generally delay a CDP hearing during the pendency of criminal investigation and proceedings, unless the determination is made consistent with Policy Statement P 4-84 that the CDP hearing and any appeals will not impede prosecution. Inform the Special Agent assigned the investigation of the CDP request and place the case in ACDS status E/OTH.

    2. A TC 916 (Z-) is an indicator that the specific tax module may be part of a Refund Scheme. Contact the Questionable Refund Detection Team (QRDT) located in the campus that placed the 916 (identifiable by the first two digits of the DLN). Inform the QRDT of the CDP Hearing request. They will advise you whether you can work the CDP case or should suspend it (and place in status E/OTH).

    3. A TC 918 (Z-) is the indicator that posts to the entity and establishes a Refund Scheme Freeze in all modules. Contact the Questionable Refund Detection Team (QRDT) located in the campus that placed the 918 (identifiable by the first two digits of the DLN). Inform the QRDT of the CDP Hearing request. They will advise you whether you can work the CDP case or should suspend it (and place in status E/OTH).

8.22.2.2.6.8  (10-30-2007)
Bankruptcy filing effect on CDP cases

  1. If a taxpayer files bankruptcy after filing for a CDP or equivalent hearing, suspend Appeals proceedings and place in ACDS E/BNK status.

  2. Do not issue a Notice of Determination or Decision Letter or solicit a Form 12257 Waiver or Form 12256 Withdrawal.

  3. There are certain exceptions and permissible actions which do not violate the automatic stay, that should be taken on CDP/EH cases with a concurrent bankruptcy proceeding. See IRM 8.7.6.2 for a discussion of the following:

    1. Verification of the Bankruptcy Filing

    2. Suspending the CDP Proceeding

    3. Monitoring and Reactivating a Suspended Case

    4. Determining if the Automatic Stay has Lifted

    5. Resuming the CDP Process

  4. Check IDRS for a bankruptcy filing before issuing the Notice of Determination or Decision Letter. Bankruptcy filings are identified on TXMOD by TC 520, cc's 60-67, 83 and 85-89. Bankruptcy postings may take place between when the case is received, IDRS is reviewed, and the case is closed.

  5. Consult Area Counsel if you learn that a Notice of Determination or Decision Letter was issued during a bankruptcy case. If Counsel agrees, use Letter 4130 (CG), Rescission of Notice of Determination Concerning Collection Actions Under Section 6320 & 6330 After Bankruptcy Filing, available on APGOLF to rescind the Notice of Determination or Decision Letter.

  6. 11 USC 362(a)(8) precludes the commencement or continuation of a proceeding before the Tax Court concerning the debtor. For cases filed on or after October 17, 2005, 362(a)(8) was amended and prohibits the commencement or continuation of a Tax Court proceeding concerning:

    1. a corporate debtor's tax liability for a taxable period the bankruptcy court may determine (generally, a taxable period that ends before the plan confirmation date), and

    2. an individual debtor's tax liability for a taxable period ending before the bankruptcy petition date (i.e., pre-petition tax liabilities).

    Thus, if the automatic stay is in effect and applies to the tax liabilities at issue when the taxpayer appeals the determination to the Tax Court, the appeal is void and the Tax Court lacks jurisdiction over the appeal.

  7. Prior bankruptcy may constitute a prior opportunity for a hearing on the liability, if the same tax periods are later involved in CDP. However, the facts and circumstances of the bankruptcy case need to be evaluated to determine whether the taxpayer had an actual opportunity to litigate liability in the bankruptcy.

    1. A taxpayer may have been denied the ability to invoke a bankruptcy court's jurisdiction to determine a tax liability based on the type of bankruptcy filed and whether the estate had any assets to be distributed to creditors.

    2. A bankruptcy court may abstain from considering a tax dispute that can be considered in another forum, such as Tax Court.

    3. If a request for IRC 505(a)(1) determination of liability was granted or an objection to the Service's proof of claim was filed, then liability for the tax is generally precluded from consideration in a later CDP proceeding.

    4. If no such hearing was held, Appeals cannot conclude that such a hearing was available to the taxpayer without considering the facts of the case.

    5. Appeals should consult with Area Counsel before denying a taxpayer the ability to raise liability issues under IRC 6330(c)(2)(B) based on the existence of a prior bankruptcy.

8.22.2.2.6.9  (01-01-2006)
Procedures for Taxpayers Serving in Combat Zones, a Contingency Operation, or a Qualified Hazardous Duty Area

  1. Payment and collection activity of any federal tax liability will be suspended for the period of time that an individual serves in one of the situations described below, plus the period of continuous qualified hospitalization attributable to an injury received while serving in one of these situations, plus the next 180 days:

    • Individuals serving in the Armed Forces in an area designated by the President of the United States as a combat zone for purposes of section 112, or serving in support of such forces, including individuals serving in an area certified by the Department of Defense as being in direct support of military operations in a combat zone, for which the person receives special pay for duty subject to hostile fire or imminent danger;

    • Individuals deployed outside the U.S. away from the individual's permanent duty station while participating in an operation designated by the Secretary of Defense as a contingency operation (as defined in 10 U.S.C. § 101(a)(13)); or

    • Individuals serving in the Armed Forces in a qualified hazardous duty area.

  2. The suspension of payment and collection activity may also apply to individuals serving in support of the U.S. Armed Forces in one of the above situations, such as:

    1. Merchant Marines serving aboard vessels under the operational control of the Department of Defense

    2. Red Cross personnel

    3. Accredited correspondents

    4. Civilian personnel acting under the direction of the U.S. Armed Forces in support of those forces

  3. Appeals will hold these cases and suspend on ACDS as E/OTH. Follow-up periodically to determine when collection is no longer suspended and a CDP hearing can be scheduled.

8.22.2.2.6.10  (03-11-2009)
Tax Cases Controlled by the Department of Justice

  1. The Department of Justice (DOJ) has the sole authority to settle or otherwise compromise liabilities in the following cases:

    1. Where litigation such as a suit to enforce lien (TC 520 cc 70) or suit to reduce lien to judgment is pending (TC 520 cc 80).

    2. Where they reduced a liability to judgment. (TC 550 with definer code 04 indicates the judgment was obtained and the CSED was extended as a result).

    3. If there is a TC 910 Criminal Investigation Division (CI) indicator on the account. This indicates the taxpayer was either convicted or entered into a plea agreement. Contact the appropriate Advisory Group to verify whether restitution was ordered. If restitution was ordered, the tax period may be under the control of the DOJ.

  2. If there is any indication that one or more of the above conditions exist:

    1. Advise the taxpayer that Appeals will not be able to resolve the case if it is under the jurisdiction of DOJ

    2. Contact Area Counsel for guidance

  3. If the taxpayer requests an OIC DOJ may request an offer investigation and recommendation from Appeals whether DOJ should accept or reject the offer..

8.22.2.2.7  (05-27-2004)
Recording Requirements

  1. IRC 7521 provides for audio recordings of in-person interviews, upon advance request, regarding:

    • determination of tax

    • collection of tax

  2. Appeals will allow audio recordings on all types of cases that have face-to-face conferences. In all such cases, the taxpayer must follow the requirements of IRC 7521:

    • giving 10 days advance notice

    • providing their own recording equipment

    The hearing officer will also make an audio recording of the conference with IRS equipment.

  3. Taxpayers raising only frivolous issues are not eligible for a hearing. See IRM 8.22.2.2.10.3.

  4. Procedures for audio recordings are described in Notice 89-51, 1989-1 C.B. 691; Appeals employees will follow these provisions, or its successor, when allowing recordings in cases within Appeals jurisdiction. While this Notice requires 10 calendar days advance notice from the taxpayer before a conference is to be recorded, if the taxpayer does not give the required 10 days notice, Appeals may, in its discretion, and depending upon the availability of IRS recording equipment, conduct the conference as scheduled or set a new date.

  5. Appeals will allow stenographic recordings by court reporters provided they have the following credentials and the taxpayer qualifies for a face-to-face conference:

    1. Qualified as a court reporter of the United States District Court.

    2. An independent reporter qualified to take depositions for use in a United States District Court.

    3. Licensed or certified by any state to be a court reporter or to take depositions.

  6. Appeals will audio record any stenographic recordings and request a copy of the stenographer's record. If costs are involved in obtaining a copy of the record, and the costs are determined to be too high, do not secure a copy of the stenographer's record.

  7. Video recordings will not be allowed.

  8. Hearing officers should inform the Appeals Team Manager (ATM) when recording situations arise. Two Appeals employees should be present at recordings where frivolous/constitutional arguments have previously been presented. More procedures are found in IRM 8.6.1.

8.22.2.2.8  (03-11-2009)
Appeals Referral/Courtesy Investigation Procedures - General

  1. Additional information or investigation is occasionally required to make a CDP/EH determination.

  2. Send an Appeals Referral/Courtesy Investigation (ARI/OI) to the Collection Field Revenue Officer Group covering the taxpayer's location for such an investigation. The following, which is not all-inclusive, lists examples of additional information or investigation that may be required:

    • Collection Information Statement (CIS) analysis and verification when complex, specific questions, or concerns exist

    • Asset verification requiring actual field observation, such as a search of court house records or personal observation and evaluation of the assets of an operating business

    • Potential alter ego, nominee or transferee issues

    • Trust Fund Recovery Program (TFRP) investigation. See IRM 8.22.2.4.7.11.1.

  3. Make a written request using Form 2209, Other Investigation, Form 10467, Appeals Division Feedback Report and Transmittal Memorandum, or other forms that are locally acceptable.

  4. State the reason for the request and outline the specific information/action needed:

    Example:

    We are conducting a CDP/EH hearing and the taxpayer has raised (specify the collection alternative) which require (specify what is Collection should do). Please see the attached form(s) (identified) and verify necessary items.

    1. Attach the financial statements.

    2. At the top of the ARI/OI, write in red ink, "CDP Case in Appeals."

      Note:

      Do not send an ARI/OI if you can verify the items without the Collection function's assistance.

  5. When sending an ARI/OI to Collection, notify the taxpayer in a brief letter the following:

    "You have requested Appeals consideration of [specify issue] that require the expertise of the investigative functions of the Service. We have requested assistance to research and verify the information you have provided. It may be necessary for Service personnel to contact you for information necessary to expedite this review. The Service employee may need to contact third parties to verify some of this information. The information we have requested is needed to help us reach a resolution of your appeal. Appeals will retain jurisdiction of your case."

  6. Attach a copy of the taxpayer referral letter to the ARI/OI. The purpose of the letter is two-fold:

    1. To more fully inform the taxpayer of the purpose and length of Appeals' consideration.

    2. To assure Collection employees that the taxpayer is aware that contact may be necessary and appropriate while their case is under Appeals' jurisdiction.

  7. E-Mail, encrypted, a copy of the ARI/OI to APS. Use the appropriate "*AP-TS-APS" mailbox (your Area, East or West)-(your APS local office). APS will:

    1. update ACDS to DDJRET, which will automatically update the status to E/DD.

  8. Use encrypted E-Mail to alert APS when Compliance completes the ARI/OI investigation. APS will:

    1. return the case to the appropriate ACDS status

    2. enter the date of receipt of the information in the" From " field on ACDS.

8.22.2.2.8.1  (10-30-2007)
Third-Party Contact Requirement

  1. The provisions of IRC §6103 and corresponding regulations apply to third-party contacts made for the purpose of collecting or determining a tax liability.

  2. IRC 7602(c) requires the IRS to:

    1. Provide advance notice to the taxpayer that third-party contacts may be made

    2. Periodically provide a list of all third-party contacts to the taxpayer

    3. Provide a list of third-party contacts to the taxpayer upon request

  3. Advance third-party contact notification can be verified on IDRS. Transaction Code (TC) 971 Action Code (AC) 611 posted on an IDRS module identifies third-party notification. IDRS systemically generates TC 971 AC 611 when either Notice 518 (for delinquent return modules) or Notice 504 (for balance due modules) is issued.

  4. While Appeals does not typically make third-party contacts or receives cases where 3rd party contact notices were not already provided, hearing officers must review for TC 971 AC 611 when contacting a third party.

  5. If a TC 971 AC 611 is not present, the hearing officer will send the taxpayer Letter 3164, Third Party Contact Letter.

  6. With respect to OIC investigations, there is no need to verify the issuance of the Notice of Third Party Contact. The Form 656 operates as a waiver of the Third-Party Notice requirement.

8.22.2.2.9  (12-01-2006)
CDP Hearings When Prior OIC was Terminated

  1. Appeals cannot "reinstate" an OIC where there was a default of the OIC and the termination of the OIC was legally authorized.

  2. A taxpayer agrees to the terms set forth in the OIC and the compromised amount remains a tax liability until the taxpayer meets all the terms and conditions of the OIC.

  3. With respect to OIC's entered into because of doubt as to collectibility or effective tax administration, the taxpayer must agree to comply with the filing and paying obligations under the Internal Revenue Code for a 5-year period after the offer is accepted by the Service.

  4. If a taxpayer fails to meet any of the terms of an OIC and the offer is terminated, the Service has the right to collect the full amount of the original liability from the taxpayer.

  5. When the Service determines that an OIC should be terminated, it sends the taxpayer a default letter.

    Note:

    A taxpayer may not protest the termination of an OIC to the Office of Appeals.

    Note:

    Appeals retains jurisdiction of offers accepted through CDP or "pure " offers rejected by Collection and subsequently accepted in Appeals.

  6. Although the hearing officer cannot reinstate a terminated OIC when there was a default by the taxpayer, they must consider, pursuant to IRC 6330(c)(2)(a)(iii), any new OIC proposed by the taxpayer as a collection alternative.

  7. If the taxpayer declines to raise a new collection alternative and the hearing officer determines that the collection action is otherwise appropriate, include in the notice of determination a statement listing the act(s) of default that preceded the termination of the OIC by the Service. The notice of determination must set forth findings and decisions that explain how the Service met the requirements of IRC 6330(c)(3).

  8. In some cases, the taxpayers contend that the Service's termination of an offer in compromise (OIC) was not legally authorized because there was no default or because there was no "material breach" . The Service's position is that the taxpayer must strictly comply with the terms and conditions of an accepted offer or the taxpayer will be in default. In particular, the taxpayer must strictly comply with his or her agreement under the OIC to timely file returns and pay taxes during the 5-year period after the offer is accepted. The Service is legally authorized to terminate the OIC and reinstate the original tax liability if there has been a default by the taxpayer. The only relevant inquiry is whether there has been a default. Whether the taxpayer has "materially breached" the OIC or has "substantially complied" with the OIC is irrelevant.

  9. If the hearing officer determines that there was no default by the taxpayer and the termination of the OIC was therefore not legally authorized, the purported termination by the Service had no legal effect. In such a case, the OIC does not need to be "reinstated " because legally the OIC never ceased to be in effect. The hearing officer should issue a notice of determination stating that the Service will not proceed with collection. In such a case, the hearing officer must take steps to ensure that the Service corrects its record to reflect that the OIC remains in effect.

8.22.2.2.10  (10-30-2007)
Exclusions From CDP Consideration

  1. The following issues are excluded from consideration in CDP hearings:

    1. IRC 6330(c)(4) precluded issues

    2. Child Support Obligations

    3. Frivolous issues or issues that reflect a desire to delay or impede the administration of federal tax laws

8.22.2.2.10.1  (10-30-2007)
IRC 6330(c)(4) - Issue already raised and considered

  1. An issue is precluded under IRC 6330(c)(4) where the taxpayer participated meaningfully in any previous administrative or judicial proceeding where the same issue was already raised and considered.

  2. The previous administrative hearing should be a hearing with Appeals and the files for that hearing should show the taxpayer presented arguments with respect to the issue to the hearing officer, and the files should show the reason(s) for Appeals's decision on the issue. Similarly, if a court has entered a decision on an issue in a judicial proceeding to which the taxpayer was a party, then the taxpayer is precluded from having the issue considered in the CDP hearing.

    Example:

    Taxpayer A has a CDP lien hearing with respect to his 2000 income tax liability. Taxpayer A had a previous CAP hearing prior to filing of the NFTL during which he proposed an installment agreement, which was rejected. Taxpayer A's financial situation has not changed since he proposed the earlier installment agreement. Taxpayer A would be precluded from presenting the identical installment agreement in his CDP hearing.

    Example:

    Taxpayer B has a CDP levy hearing with respect to his 2000 income tax liability. Taxpayer B had a previous CDP lien hearing with respect to the same tax period during which she submitted a doubt-as-to-collectibility (DATC) OIC, which was rejected. Subsequently, taxpayer B's financial circumstances have worsened. Taxpayer B would not be precluded from submitting a DATC OIC in her levy hearing. Because of the changed financial circumstances, this would not be the identical issue raised at the prior hearing.

    Note:

    If there is a question whether a given issue was FULLY "raised and considered," or whether the taxpayer participated "meaningfully" give the taxpayer the benefit of the doubt -- at least as it relates to prior administrative hearings. At the end of the CDP hearing, the explanatory attachment to the Notice of Determination will discuss all of the issues and state the disposition of each one.

8.22.2.2.10.2  (10-30-2007)
Child Support Obligations

  1. IRC 6305 states that federal courts have no jurisdiction to restrain or review the assessment and collection of Child Support Obligation (CSO) cases. The statute also states that the assessment and collection are not subject to review by the Secretary in any proceeding. This has been interpreted to mean that CSO cases have no CDP or CAP hearing rights. A special notice, Letter 3524, Final Notice - Notice of Intent to Levy is issued on CSO " Bal Dues" . Both the Notice and Demand and this special Notice of Intent to Levy notice are all that is required on these cases. Advise the taxpayer to contact the CSO agency to resolve the matter.

8.22.2.2.10.3  (03-11-2009)
Frivolous Issues or Issues that reflect a desire to delay or impede the administration of federal tax laws

  1. The Tax Relief and Health Care Act of 2006 (TRHCA) added IRC 6330(g) to IRC 6330. IRC 6330(g) provides "...if the Secretary determines that any portion of a request for a hearing under this section or IRC 6320 meets the requirement of clause (i) or (ii) of IRC 6702(b)(2)(A), then the Secretary may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review."

  2. The requirements of clause (i) or (ii) of IRC 6702(b)(2)(A) are met and Appeals may disregard any portion of the CDP or EH hearing request when the request:

    1. is based on a position which the Service has publicly identified as frivolous, or

    2. reflects a desire to delay or impede the administration of the federal tax laws.

    Note:

    Requests that fail to list a reason for the dispute are considered non-processable requests and are returned to Collection as Premature Referrals. See IRM 8.22.2.2.2.1.

  3. Frivolous positions : Hearing requests made on or after January 14, 2008 contain a frivolous position if they state a position identified as frivolous in Notice 2008-14 (effective January 14, 2008). Hearing requests made from March 16, 2007 to January 13, 2008 contain a frivolous position if they state a position identified as frivolous in Notice 2007-30 (effective March 16, 2007).

    Example:

    The taxpayer writes on Form 12153 that he is morally opposed to war and refuses to pay the portion of his taxes equal to the percentage of the federal budget being spent on the war effort. Notice 2008-14, section 1(h), identifies as a "frivolous position" a taxpayer’s disagreement with the government’s use of tax revenues or similar arguments described in Rev. Rul. 2005-20. This revenue ruling describes as frivolous the refusal to file returns or pay taxes based on moral, religious or ethical objections to the government programs or policies for which the taxes will be used. This includes the use of taxes to pay for military expenditures. Because this position is included in Notice 2008-14, it is a "specified frivolous position."

  4. Desire to delay or impede the administration of federal tax laws : A hearing request contains a statement reflecting a desire to delay or impede the administration of federal tax laws if it contains one or more of the following attributes:

    1. A reason that is not a "specified frivolous position," but is a frivolous reason reflecting a desire to delay or impede federal tax administration

    2. A reason that is not a "specified frivolous position" but is a moral, religious, political, constitutional, conscientious, or similar objection to the imposition or payment of federal taxes

      Note:

      With the exception of a legitimate, unsettled constitutional question, these objections always reflect a desire to delay or impede the administration of federal tax laws.

      Example:

      The taxpayer writes on Form 12153 that he is not required to pay federal income taxes because the Oklahoma Constitution exempts the taxpayer from having to pay federal taxes. This position is not a "specified frivolous position" because it is not listed in Notice 2008-14. However, the position is nonetheless frivolous and it shows a desire to delay or impede federal tax administration.

      Example:

      The taxpayer writes on Form 12153 that the interest he earned on unregistered publicly offered, long-term bonds issued by a state government is exempt from federal income tax by the 10th Amendment to the Constitution. The Supreme Court has held that it is not unconstitutional for Congress to tax such interest. This is not a "specified frivolous position" listed in Notice 2008-14. However, it is well-settled law that such interest is taxable and as a result, this position demonstrates the taxpayer’s desire to impede the administration of taxes.

      Note:

      In a situation such as this, ensure the taxpayer is aware of the Supreme Court decision before disregarding the position or hearing request.

  5. Hybrid request : A hearing request that contains both a frivolous/desire-to-delay issue and a legitimate issue.

    1. Appeals will disregard the frivolous/desire-to-delay portion of the hearing request. However, the entire request cannot be disregarded because of the presence of a legitimate issue.

    Example:

    The taxpayer disputes the appropriateness of a frivolous return penalty, claiming there was no managerial approval of the penalty as required in IRC 6751(b)(1). IRC 6751(b)(1) provides that no penalty shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate. The taxpayer also challenges the constitutionality of paying taxes. The penalty challenge is legitimate and requires Appeals to review the underlying "frivolous" document that prompted the penalty and confirm that the manager approved the penalty. The hearing will only involve the accuracy of the frivolous return penalty; the "constitutionality" issue will be disregarded.

8.22.2.2.10.3.1  (03-11-2009)
Procedures to disregard a CDP/EH hearing request

  1. Taxpayers first send their CDP or EH requests to Collection:

    1. When the taxpayer fails to state the reason for a dispute, which includes failing to "check" a box on Form 12153, Collection will attempt to "perfect" the request by sending the taxpayer (or their authorized representative) a letter asking him/her to state their disagreement with the CDP Lien and/or Levy notice.

      Note:

      The relevant Form 12153 boxes to check for stating a dispute are boxes #7 and subsequent.

    2. If the taxpayer (or their authorized representative) fails to respond within the 15 days provided to perfect, the hearing request will be considered non-processable and will not be forwarded to Appeals.

      Note:

      Appeals will return requests that fail to state a reason for the dispute as a Premature Referral .

    3. If the taxpayer responds with either a frivolous or non-frivolous request, Collection will forward the request to Appeals.

  2. Collection (both ACS and SBSE), following their IRM procedures, will develop the following requests and, without delay, will forward to Appeals:

    1. Requests containing only "specified frivolous positions "

    2. Requests containing only statements that reflect a desire to delay or impede the administration of federal tax laws

    3. Hybrid requests (a combination of frivolous and legitimate requests)

  3. APS will card-in the case following established procedures in IRM 8.22.1 and forward the case to the ATM for assignment.

  4. The hearing officer must conduct an initial review of the case following guidance in a subsequent subsection entitled Case Review and Documentation Requirements. See IRM 8.22.2.2.4. The following must be reviewed, documented, and corrected as currently required:

    1. Timeliness

    2. No prior involvement

    3. Accuracy of information on case summary card such as TYPE, periods, feature codes

      Note:

      Input new feature code "FV" for requests that are solely frivolous, delaying or hybrid requests.

    4. Verification of legal and administrative requirements

    5. CSED suspension (TC 520 review)

    6. CDPTS

8.22.2.2.10.3.2  (03-11-2009)
Requests containing only specified frivolous positions or reflect a desire to delay or impede

  1. Letter 4380 - Solicitation to amend or withdraw CDP/EH request. The hearing officer will send the taxpayer Letter 4380 within 30 days of assignment of a request containing only specified frivolous positions or only reflecting a desire to delay. Letter 4380 allows the taxpayer 30 days to:

    1. Amend the request to state a legitimate reason and withdraw the frivolous reason or reason reflecting a desire to delay or impede federal tax administration, or

    2. Withdraw the frivolous/desire-to-delay hearing request.

      Note:

      Due to the seriousness of disregarding hearing requests, assign frivolous hearing requests or requests that reflect a desire to delay or impede to employees trained to recognize such requests.

      Note:

      Prepare a separate Letter 4380 for each taxpayer if the hearing request is signed by both joint taxpayers. This is required even if the taxpayers are living at the same address.

  2. Document any discussion with the taxpayer about withdrawal of the frivolous or desire-to-delay position, or withdrawal of the entire hearing request.

  3. If, after sending Letter 4380, the taxpayer responds with a legitimate reason, within 15 calendar days, send the appropriate Substantive Contact Letter:

    1. Use L3855 if the taxpayer also withdraws the frivolous or desire-to-delay position.

    2. Use L3846 if the taxpayer provides a legitimate issue but fails to withdraw the frivolous or desire-to-delay position.

  4. If, after sending Letter 4380, the taxpayer either fails to respond within 30 days or responds with another frivolous or desire-to-delay statement, take the following closing actions:

    1. Prepare Letter 4381. This letter informs the taxpayer that Appeals is disregarding the CDP or EH hearing. This letter can be signed by the hearing officer.

      Exception:

      Letter 4381 must be signed by the ATM if the "disregard" decision is made by an Appeals Account Resolution Specialist (AARS).

    2. Prepare CDP Customized 5402

    3. Use closing code 13 (new closing code indicating "disregarded " hearing request)

      Note:

      With the selection of closing code 13, the following verbiage will populate the "Special Features, Remarks, and/or Appeals Case Memorandum" section of the CDP 5402: Taxpayer's CDP or EH hearing request is based on a specified frivolous position identified by the IRS in Notice 2008-14 or intends to delay or impede the hearing process.

8.22.2.2.10.3.3  (03-11-2009)
Hybrid Requests

  1. A Hybrid Request is defined as a hearing request that contains either a "specified frivolous position" or an issue that reflects a desire to delay or impede the administration of federal tax laws as well as legitimate issues.

  2. Use the Substantive Contact Letter 3846 (2008 revision) to schedule a conference to discuss the legitimate issues. See IRM 8.22.2.2.6. This letter will serve two purposes:

    1. Schedule a conference via telephone.

    2. Solicit a withdrawal of the "specified frivolous position" or position determined to reflect a desire to delay or impede federal tax administration.

  3. If during the conference scheduled to address the legitimate issues of a hybrid request, the taxpayer does not want to discuss the legitimate issues and only pursues the frivolous or desire-to-delay arguments, warn the taxpayer that the conference will be discontinued. If the taxpayer continues to espouse only frivolous or desire-to-delay arguments, discontinue the conference.

  4. Document any discussion with the taxpayer about withdrawal of the frivolous or desire-to-delay position.

  5. Following established procedures, issue a Notice of Determination or Decision Letter and specifically respond to only the legitimate issue(s). If the taxpayer did not withdraw the frivolous or desire-to-delay issue, include a statement that the taxpayer also raised arguments considered frivolous by the courts or positions that reflected a desire to delay or impede the administration of federal tax laws. Do not directly quote the frivolous or desire-to-delay arguments.

    Note:

    Closing code 13 does not apply to hybrid requests. Use the standard CDP or EH closing codes.

8.22.2.2.10.3.4  (03-11-2009)
Imposition of 6702(b) penalty for failure to withdraw frivolous/delaying position

  1. Collection is responsible for recommending assessment of the IRC 6702(b) penalty. Collection may impose a $5,000 penalty against each taxpayer making a frivolous or desire-to-delay argument in their request and fails to withdraw the reason or the entire CDP hearing request in writing. Collection may also recommend assessment of the IRC 6702(b) penalty against taxpayers who submit hybrid requests and fail to withdraw the frivolous/desire-to-delay position.

  2. When the taxpayer fails to withdraw a frivolous or desire-to-delay position, whether in a disregarded hearing request or a hybrid request, Appeals (APS) must provide Collection with the following documents which Collection will need to recommend the imposition of the IRC 6702(b) penalty:

    1. A copy of the taxpayer's frivolous CDP/EH hearing request.

    2. A copy of Letter 4380 or 3846, the letter Appeals issued soliciting a withdrawal of taxpayer's "specified frivolous position" or desire-to-delay position.

      Note:

      Include a copy of L3846 in addition to the L4380 if the taxpayer in response to L4380 provided a legitimate reason but failed to withdraw the frivolous or desire-to-delay position.

    3. A copy of the Notice of Determination or Decision Letter (for cases where the taxpayer makes a hybrid request).

    4. Copy of case history notes documenting discussions with the taxpayer about withdrawal of the frivolous or desire-to-delay positions, or withdrawal of the entire hearing request.

    5. Copy of any written communications received from the taxpayer as a result of the withdrawal solicitation in either L4380 or L3846.

8.22.2.2.11  (03-11-2009)
Tax Liability Issues and Relief from Tax Liability

  1. The provisions of IRC 6330(c)(2)(B) are a statutory bar to contesting liability however a taxpayer may "raise at the hearing challenges to the existence or amount of the underlying tax liability for any tax period" if the taxpayer did not:

    1. receive a notice of deficiency

    2. have an earlier opportunity to dispute the tax liability

  2. Receive a notice of deficiency:

    1. Issuance of a valid notice of deficiency is a prerequisite to a proper assessment where the assessment is based on a deficiency.

      Note:

      The issue of whether a notice of deficiency was properly issued to the taxpayer relates not only to whether the taxpayer is precluded from raising liability (preclusion issue) but also to whether a valid assessment was made for verification purposes. If the assessment is invalid, the preclusion issue is moot. Collection cannot proceed without a valid assessment. The Tax Court has held that, without regard to whether the taxpayer raises specific issues challenging the assessment or the assessment procedures, Appeals must verify the validity of the assessment as part of Appeals' verification duties under IRC 6320(c) and IRC 6330(c)(1). This includes verifying whether the notice of deficiency was properly issued to the taxpayer where the assessment is based on a deficiency. The taxpayer’s actual receipt of the notice of deficiency is not required for the assessment to be valid. See IRM 8.22.2.2.4.7.

      Caution:

      Appeals must also review and verify an IRC 6020(b) assessment for the proper imposition of the IRC 6651(a)(2) penalty. See IRM 8.22.2.2.4.7. and See IRM 8.22.2.2.11.7.

    2. When the taxpayer denies receiving the notice of deficiency upon which the assessment is based, the court has not been willing to accept just transcript entries showing issuance of a notice of deficiency or a consent to assessment to preclude raising liability.

    Caution:

    The Tax Court considers a properly made assessment a verification issue that the court can address even if the taxpayer did not raise any specific issues and may not have raised a legitimate liability issue during the CDP hearing. The administrative record must show (with proof) that the notice of deficiency was properly issued even though the taxpayer never raised it as an issue. See IRM 8.22.2.2.4.7.

  3. When a hearing officer relies upon receipt of a notice of deficiency to preclude a taxpayer from contesting liability, the hearing officer should obtain a copy of the notice of deficiency or letter and the certified mailing list and ask the taxpayer the following questions, as applicable:

    1. "What was your address on [the date the notice of deficiency was mailed]?"

    2. "Did you receive a copy of a notice of deficiency for [insert tax year]?"

    3. "Do you have a copy of the notice of deficiency mailed to you with respect to [insert tax year]?" (Obtain copy if answer is yes.)

    Note:

    Photocopy original returns and Exam files obtained to determine liability and promptly return the originals.

  4. Ask these or similar questions, as appropriate, and follow-up any negative answers with further questions to determine their veracity. Ask similar questions with respect to any other document (other than a 30-day letter preceding a notice of deficiency) that offered the taxpayer an opportunity to go to Appeals to contest a tax liability or penalty.

  5. Do not solely rely on the mailing of a Notice of Deficiency. It is not sufficient as it is not enough to prove receipt. While there is a presumption in the law that mail will be delivered to the address on a properly mailed letter, to establish receipt based on this presumption, we would also need to know whether the taxpayer actually lived at the address to which the mail was sent at the time of mailing - to create a presumption of receipt.

    Caution:

    Counsel will likely concede that the taxpayer can raise liability if we cannot produce these documents.

  6. The foregoing questions are intended as one way of proving receipt. Consider other evidence of receipt:

    1. correspondence from the taxpayer acknowledging receipt of a NOD

    2. Postal Form 3849 obtained from the local post office that delivered the NOD.

  7. Based on all of the relevant information and the taxpayer's responses to these questions, the Notice of Determination or Decision Letter and the case activity record must:

    1. state whether IRC 6330(c)(2)(B) permits or precludes the taxpayer from contesting the underlying liability

    2. reflect the questions and answers regarding the taxpayer's receipt of the Notice of Deficiency (NOD) or other document providing the taxpayer with opportunity to contest liability

    3. clearly state the basis on which the hearing officer concludes that a taxpayer has received a NOD or other opportunity to go to Appeals (or not as the case may be), rather than just stating that something was sent

  8. An earlier opportunity to dispute the tax liability:

    1. If the taxpayer previously received a CDP Notice with respect to the same tax and tax period under IRC 6320 or IRC 6330 and did not request a CDP hearing with respect to that earlier CDP Notice, the taxpayer already had an opportunity to dispute the existence or amount of the underlying tax liability.

  9. In order for the taxpayer to "have an opportunity to dispute such tax liability" the taxpayer must be ADVISED, in writing, i.e., in some letter or publication of the opportunity to dispute whatever the issue is with Appeals. We do not assume that taxpayers are aware of their legal rights unless they have been advised.

  10. The following does not constitute an opportunity to dispute the liability:

    1. Having an opportunity to pay the tax and file a claim for refund, and not having done so.

    2. Having an opportunity to file an amended return during the applicable time period .

    3. The receipt of a 30-day letter for a tax liability subject to deficiency procedures because the statute requires receipt of a notice of deficiency in order for the taxpayer to be precluded from challenging the liability.

  11. Having an opportunity to dispute the liability means the chance to go to Tax Court or other judicial review, or otherwise having the chance to go to Appeals in non-deficiency cases.

  12. Taxpayer may raise in CDP a liability based on an assessment from a self-filed return.

  13. Take the following actions if the taxpayer submits an amended return:

    1. review the return in detail

    2. secure any verifying documentation needed before considering the liability in Appeals or sending to Examination

    3. give the taxpayer a written deadline to produce necessary documentation.

    Note:

    If the return is not complicated or will take only a brief amount of time, we recommend the liability be considered in-house.

    Note:

    If the deadline is not met, consider any other CDP or EH issues or necessary verification and balancing.

  14. Appeals can reduce a liability on a voluntarily filed return. There is no period of limitation for requesting abatement. Appeals cannot make a new assessment after the ASED has expired.

  15. Appeals cannot issue a refund:

    1. more than three years from the date the return was filed, or

    2. two years from the date the of payment, whichever is later.

  16. Appeals has the discretion to work an underlying liability case precluded under IRC 6330(c)(2)(B) under its general authority and recognizes there are times when it is prudent to do so.

    1. Audit reconsideration would be appropriate in cases when we know the liability would be reduced.

    2. The taxpayer must provide evidence of eligibility for reduction of liability before reconsideration will be given.

    3. A liability that should not be considered in the CDP hearing must not be addressed in the Notice of Determination or Decision letter except to note that liability was addressed under separate consideration from the CDP or Equivalent hearing.

    4. The reconsideration of the liability can be achieved either in-house or sent to Exam or Collection on an ARI/OI. If considered in-house, the Appeals employee should have the liability case carded-in and assigned a separate WUNO. If sent to Exam or Collection, the Appeals employee will change status code to E/OTH.

    5. Taxpayers not in compliance or who appear to be delaying collection, would not be eligible for such treatment.

    6. ATMs must approve the reconsideration of the liability by making an entry in the relevant case activity record.

  17. If the liability is not considered as part of the CDP proceeding, tell the taxpayer that Appeals will not consider the liability issue, but will conduct a hearing to review/consider collection alternatives. Provide Publication 3598 and advise the taxpayer that if the qualifications for reconsideration of a deficiency assessment are met, to submit a request for audit reconsideration directly to the address indicated in the publication.

8.22.2.2.11.1  (01-01-2006)
Math Error Notice Assessments in CDP cases

  1. In a CDP hearing, a taxpayer may raise, and Appeals must consider, a liability that arose as a result of math error notice adjustments.

  2. Pursuant to IRC 6213(b), when there is a mathematical or clerical error made on the taxpayer's return, the Service is not required to issue a statutory notice of deficiency if an amount of tax in excess of the erroneous amount shown on the return is due and the taxpayer has been notified that the corrected tax has been or will be assessed.

  3. IRC 6213(g)(2) defines the term "mathematical or clerical error" and enumerates thirteen circumstances in which the Service may summarily assess the deficiency resulting from the "mathematical or clerical error" .

  4. If a determination is made that the tax liability was incorrectly assessed under the math error procedures, the resulting tax assessment is incorrect.

  5. Frivolous returns, in some instances, were processed incorrectly under Math Error Notice procedures prior to January 1, 2001. These returns reported "0" on the line items for wages and tax liability and a Form W-2 was attached reporting income in the box for "wages, tips, other compensation" . In some instances, an information return was filed reporting income sufficient to create an income tax liability.

  6. Accordingly, if these conditions exist in CDP cases in Appeals, the tax assessment is incorrect and the Appeals employee will take steps to have the tax abated.

  7. Frivolous returns filed by taxpayers that were processed incorrectly under Math Error Notice procedures may not be valid returns. Consequently, the three-year period of limitations for assessment under IRC 6501(a) does not typically apply, and the Service may retain any amounts properly collected (including any withholding credits). Return the tax year to the Service for commencement of deficiency procedures.

    Note:

    Any amounts collected prior to the expiration of the statute of limitations for assessment may be retained by the IRS. These amounts should not be refunded.

8.22.2.2.11.2  (04-01-2007)
TEFRA Liability Issues in CDP

  1. In a CDP hearing with taxpayers who are partners in TEFRA entities, taxpayers will generally not be able to raise challenges to the underlying liability, to the extent that it involves the deficiencies in tax relating to disallowance or adjustment of losses, deductions, or credits regardless of whether the deficiencies were assessed, by settlement agreement, by defaulted Final Partnership Administrative Adjustment (FPAA), or by federal court decision. Taxpayers also cannot contest erroneous mathematical computations applying the determined partnership items to their returns unless a claim was filed within 6 months after the IRS mailed the computation to the taxpayer. See IRC 6230(c)(1)(A) and IRC 6230(c)(2)(A).

  2. The tax year of the partnership or S corporation subject to TEFRA procedures will determine whether the taxpayer can raise challenges to the underlying liability to the extent that it involves penalties or additions to tax relating to the TEFRA entity. Where a reduction in the penalties or additions to tax appears warranted, discuss the issue with the Appeals TEFRA Technical Guidance Coordinator.

    1. For partnership tax years ending after August 5, 1997, the applicability of penalties is determined at the partnership level; thus even if penalties were included in a settlement agreement, a defaulted FPAA, or a federal court decision, the taxpayer can raise partner level defenses to the penalty;

    2. For partnership tax years ending before August 6, 1997, the applicability of penalties is determined at the partner level, thus the taxpayer may raise partner level defenses to the penalty; however, penalties included in a Form 870-L or Form 870-L(AD) settlement agreement are considered to have been resolved with finality;

    3. For S corporation tax years that are subject to TEFRA procedures, the applicability of penalties is determined at the shareholder level, thus the taxpayer may raise shareholder level defenses to the penalty; however, penalties included in a Form 870-(AD) are considered to have been resolved with finality.

  3. Taxpayers can seek interest abatement as part of a CDP hearing, and may argue for abatement relating to a specific period of time. Abatement of any amount of interest cannot be incorporated into a CDP liability challenge if the taxpayer has previously sought IRC 6404(e) relief. Hearing officers should evaluate the specific circumstances of an individual investor's case, but generally Appeals personnel should not grant abatement of interest under IRC 6404(e) in any TEFRA-related CDP case without special circumstances. Where abatement appears warranted, discuss the issue with the Appeals TEFRA Technical Guidance Coordinator who will coordinate a response with the Appeals Program Analyst responsible for the abatement of interest program.

  4. Where a reduction in the penalties or additions to tax appears warranted, first discuss the issue with the Appeals Technical Guidance Coordinator for TEFRA. In the event a taxpayer claims that he did not receive proper notification of the adjustment, the hearing officer should review the case file for the following indications of proper notification such as:

    1. A notice of FPAA was received;

    2. Settlements entered into by investors by signing waivers, closing agreements, or settlement agreements;

    3. Investors who have filed bankruptcy petitions will also presumably have received a notice of deficiency, even for a TEFRA year, because their partnership items would have been converted to non-partnership items on account of the bankruptcy filing.

  5. For years covered by TEFRA, where a notice of deficiency is the rare exception, investors who have not entered into settlement agreements may attempt to challenge the underlying liability on the grounds that they "did not otherwise have an opportunity to dispute" such liability. This argument, however, will fail for most investors because after an FPAA is mailed to the Tax Matters Partner (TMP), IRC 6226(a) allows the TMP 90 days in which to file a petition for a readjustment of partnership items with the Tax Court, the United States Court of Federal Claims, or the United States District Court in which the partnership's principal place of business is located under IRC 6226(b). If the TMP does not file, any notice partner or notice group may file a petition with any of these courts within 60 days after the close of the 90-day period. Regardless of which partner files the petition, IRC 6226(c) provides that:

    1. Each person who was a partner in the partnership at any time during the year being litigated shall be treated as a party to such action.

    2. The court having jurisdiction of the case shall allow such persons to participate in the action.

  6. Every investor of a partnership for whom a petition was filed in the Tax Court, the United States Court of Federal Claims, or the federal district court in response to an FPAA is precluded from challenging his liability at a CDP hearing because the investor has had the opportunity to dispute the liability.

  7. An investor's claim that he never received notice of the FPAA (and therefore that he did not have the opportunity to dispute the partnership liability) generally must be rejected. IRC 6223(g) obliges a TMP to "keep each partner informed of all administrative and judicial proceedings for the adjustment at the partnership level of partnership items" . IRC 6230(f) further provides that the failure of the TMP to provide any notice or perform any action required under the TEFRA procedures on behalf of a partner does not affect the applicability of any proceeding or adjustment to such partners.

  8. By complying with the notice requirements of IRC 6223, the IRS generally gives all partners in a TEFRA partnership "an opportunity to dispute" the resulting liability within the meaning of IRC 6330(c)(2)(B).

  9. For additional information see IRM 8.19.8.

8.22.2.2.11.3  (01-01-2006)
Innocent Spouse Issues

  1. When Form 8857, Request for Innocent Spouse Relief, and Form 12153, Request for Collection Due Process or Equivalent Hearing (or other valid written request for CDP hearing), are received simultaneously in ACS or Field Collection, the Collection employee will request the return(s) and administrative file(s) before sending the case to Appeals. Collection will also ensure input of IDRS Transaction Code (TC) 971 with Action Code (AC) 065.

  2. If Form 8857 is received in Appeals after the CDP case is already in Appeals, and the periods addressed on Form 8857 are included on the CDP Request, the hearing officer will:

    1. request the return(s) and administrative file(s)

    2. add "SD" Feature Code to the CDP Case Summary Card

    3. prepare and forward Transmittal Form 3210 clearly marked "EXPEDITE - CDP CASE" along with the Form 8857, and any other relevant information to the Covington Centralized Innocent Spouse Operation (CCISO) at the following address:

      Covington Campus

      Attn: CDP Coordinator, Stop 840 F

      P.O. Box 120053

      Covington, KY 41012

    Note:

    The case may be retained in Appeals when Appeals has sufficient information to grant relief without further investigation. The case may also be forwarded to field Exam for investigation if there is either a need for a face-to-face discussion with the taxpayer, or the facts indicate very complex or unusual issues likely to be outside the scope of CCISO. Send the case to Exam through the local Appeals Area Innocent Spouse Coordinator.

    Note:

    ATM approval is required to keep the spousal defense case in Appeals or to send it to a field group in lieu of CCISO.

    .

  3. The hearing officer, using the APGOLF ACDS Update form, will request via encrypted E-Mail to their local-servicing APS:

    1. ACTION = DDJRET with the date the file was forwarded for investigation

    2. input TC 971 AC 065 on Innocent Spouse modules

  4. Appeals will retain the CDP case and will also retain jurisdiction of the spousal defense case. Prior to sending the case to Compliance for investigation, Appeals will notify the affected taxpayer by letter the following:

    1. that the file is being forwarded to Compliance (either CCISO or a field Exam office) for investigation

    2. that both the requesting spouse (RS) and non-requesting spouse (NRS) will receive further communication from that office

  5. Appeals will delay, for the requesting spouse only, any hearing on non-spousal defense issues or collection alternatives until a determination is made regarding the innocent spouse claim. If the hearing request was joint, the hearing may continue on the non-requesting spouse.

  6. Spousal defenses raised under IRC 6015 in a CDP hearing are governed in all respects by the provisions and procedures of IRC 6015. If spousal defense is raised as an issue in a CDP case, there are two different suspensions of the collection statute:

    1. Under CDP, the CSED is suspended until the CDP request is withdrawn, a waiver is filed, or the determination becomes final, either by lapse of time (failure to request judicial review) or by final ruling of the Tax Court including the expiration of all judicial appeal periods; in any event, the CSED cannot expire within the ninety (90) calendar day period following the date the determination becomes final.

    2. Under IRC 6015(e)(2), the CSED for claims filed under IRC 6015(b), IRC 6015(c), and IRC 6015(f) are suspended from the date the claim is filed until it is withdrawn, a waiver is filed, or expiration of the ninety (90) calendar day period provided for filing a petition with Tax Court or, if a Tax Court petition is filed, until the Tax Court decision becomes final, plus 60 additional days.

8.22.2.2.11.3.1  (03-11-2009)
Innocent Spouse - CCISO Recommends Full Relief

  1. CCISO/ Exam will take the following actions where they determine the RS is entitled to the full amount of relief requested:

    1. Issue the preliminary innocent spouse determination letter to the RS and notification of the decision to the NRS

    2. Issue the final determination letter to the RS

      Note:

      CCISO will not issue the final determination letter if the NRS appeals CCISO's preliminary determination to grant full relief. See IRM 25.15.12.14.1.2.

    3. Forward a copy of all letters and the administrative and supporting files to Appeals

  2. Appeals may ask the RS to withdraw the CDP request or sign a Form 12257 Waiver if:

    1. spousal defense was the only issue raised in the CDP request, and

    2. full relief has been granted by Compliance.

  3. Appeals will state that it has adopted the decision of CCISO in its entirety in the final combination CDP/Innocent Spouse Notice of Determination if the RS:

    1. chooses not to withdraw the CDP request,

    2. does not sign the waiver,

    3. or collection alternatives and other issues are also involved

  4. If the NRS requests an Appeals conference, Appeals will follow the procedures in Rev. Proc. 2003-19 providing the NRS the opportunity to represent his or her position.

    1. Issue the NRS Letter 3289, Final Appeals Notice

8.22.2.2.11.3.2  (03-11-2009)
Innocent Spouse - CCISO Recommends Partial or No Relief

  1. If CCISO/Exam makes a determination that the RS is not entitled to relief, or is not entitled to the full amount of relief requested, CCISO/Exam must:

    1. return the Form 8857, investigation and administrative files, and all history to Appeals for a final determination

    2. mail a letter to the RS that the spousal defense claim is being returned to Appeals for final determination

  2. If the NRS requests an Appeals conference pursuant to Rev. Proc 2003-19 to protest a grant of partial relief, Appeals will follow the procedures by providing the NRS the opportunity to present his or her position.

    Note:

    CCISO will not issue either a preliminary or final determination letter on CDP innocent spouse claims they recommend partial or no relief

  3. The hearing officer will fax or hand-carry to their servicing APS office, the following documents requesting creation of a separate Innocent Spouse WUNO.

    1. A copy of the CDP Case Summary Card noted at the top "Please create Innocent Spouse WUNO. with feature code = DP and Note - xref (WUNO of the related case)" .

    2. The date CCISO's completed investigation was received in Appeals. APS will input this date for the REQAPPL, RECDATE, and ASGNDATE.

  4. Appeals will make the final determination on the partially or fully denied relief as part of the CDP hearing process.

  5. Use Letter 4390 to close a timely CDP case with an Innocent Spouse claim. Letter 4390, Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 and Your Request for Relief from Joint and Several Liability under Section 6015, is a new combination determination letter that addresses CDP and Innocent Spouse Issues and provides the different judicial filing timeframes.

  6. If the taxpayer agrees to sign the CDP Waiver Form 12257, you will need to also issue Letter 3288 (Innocent Spouse NOD for RS), Letter 3289 (Innocent Spouse letter for NRS).

  7. Use the following Letters for an Innocent Spouse claim within an equivalent hearing CDP:

    1. Letter 4439, Decision Letter Concerning Equivalent Hearing Under Section 6320 and/or 6330 of the Internal Revenue Code and Your Request for Relief from Joint and Several Liability under Section 6015. Letter 4439 is a new combination letter that addresses CDP equivalent hearing and Innocent Spouse Issues and provides the Innocent Spouse judicial filing timeframe.

  8. APS will date all letters to the RS and NRS with the same issuance date and issue the letters simultaneously.

  9. If the RS agrees to the disposition of the spousal defense issue, Appeals may solicit a Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases. See IRM 25.15.3.10. .

  10. A Form 8857 can be withdrawn up to the point the preliminary determination letter is issued. If a CDP/EH case with a Form 8857 is withdrawn and the Service issued a preliminary determination letter on the Innocent Spouse claim, than the Spousal Defense (SD) case carded-in separately remains open but the "DP" feature code is removed (as the CDP case is closed).

    Note:

    Appeals employees should not solicit withdrawals on CDP cases with Form 8857 claims just to close an old CDP case. If the SD claim is denied, under CDP the taxpayer is entitled to pursue other collection alternatives.

  11. Under the CDP statute Appeals is required to make the final determination with respect to the taxpayer's entitlement to innocent spouse relief. If CCISO erroneously issues a final determination letter, Appeals will not issue the Notice of Determination until after the period for filing for a judicial review of the innocent spouse determination. If the taxpayer does not file for innocent spouse review from CCISO's determination letter, follow procedures to make a final determination of the spousal defense in CDP and issue the determination for both CDP and Innocent Spouse.

8.22.2.2.11.4  (12-01-2006)
EITC Consideration

  1. EITC liability issues will be considered in a CDP or EH case when the taxpayer:

    1. is legally entitled to such consideration because they did not receive the statutory notice of deficiency

    2. did not otherwise have an opportunity to contest the tax liability

  2. The EITC issue may be considered along with, but outside the jurisdiction of, a CDP or EH case when the taxpayer is precluded from raising the liability in CDP. The ATM must approve review of the EITC liability outside the jurisdiction of the CDP case.

  3. The following guidance only pertains to those CDP or EH cases where Appeals has determined that law requires review of the EITC liability or that review is appropriate under an exception approved by an ATM.

  4. If the EITC issue is considered in CDP, the CDP case is carded in with Feature Code "EI" .

  5. If the EITC issue is considered outside of CDP, a separate "I" case is carded in on ACDS with Feature Code "EI" . This case should reference the CDP case as the key case. The CDP case will not show the "EI" Feature Code.

  6. A three-digit code is used to track information regarding the source of EITC cases. The hearing officer will identify this three-digit code from the following list and request that APS load the code into the ACDS PROJCD field. The project codes are:

    Project Code Project Definition
    600 EIC Unsubstantiated Math Error Protest
    601 EIC Informant Claim
    602 EIC Decedent
    603 EIC Prisoners
    604 EIC Duplicate Address
    605 EIC Return Preparer
    606 EIC Ineligible Special Project
    607 EIC Ineligible Other (1040X)
    608 Schedule C and EIC
    609 EIC Audit Reconsiderations
    610 EIC Filing Status
    611 EIC QRP
    612 EIC Schedule C Preparer
    613 EIC Ineligible Preparer
    641 EIC Missing TIN (Pre-Math Error Authority)
    642 EIC Miscellaneous CIB Referrals
    652 Duplicate Use of TIN (Fiscal Year 1999)
    653 Self-Employment Tax and EIC
    654 EIC Repeater
    691 EIC Fraud
    692 EIC Compliance Study
    693 Los Angeles DORA Study
    694 EIC Recertification
    695 Disqualified Income and EIC (Austin and Brookhaven SC
    725 EIC Duplicate TIN Repeater (FY98 and 2000)
    099 Dependent Database

  7. For more information on Project Codes see IRM 4.19.14.2.

8.22.2.2.11.5  (10-30-2007)
Son of Boss transactions

  1. The Service determined that Son of Boss transactions are abusive and were designed, marketed, and undertaken solely to create tax benefits unintended by any reasonable interpretation of the tax laws. The Service believes that it would prevail in litigation on the merits of these transactions and that the imposition of penalties would be upheld. For efficient tax administration reasons, however, the Service offered taxpayers an opportunity to resolve their civil tax liabilities under the Son of Boss Settlement Initiative (Announcement 2004-46) and avoid litigation.

  2. Tax Liabilities

    1. Taxpayers that elected to participate in the Son of Boss, Notice 2000-44, settlement initiative were expected to full pay upon submission of the signed Form 906 Closing Agreement to the Revenue Agent. Those taxpayers that indicated they could not pay the liability in full were referred to Collection for a collection determination. The language in the settlement initiative requires that the taxpayer full pay the liabilities under the settlement initiative. It does not require the taxpayers to full pay liabilities unrelated to the settlement initiative. Therefore, non-payment of prior liabilities was not cause for removal from the program.

    2. Son of Boss non-participant taxpayers either did not elect to participate or were removed from the Son of Boss Settlement Initiative. The resulting balance due is based on an audit or amended return filed by the taxpayer. Taxpayers not participating in the Settlement Initiative will have mandatory penalties imposed. Taxpayers participating in the Son of Boss Settlement Initiative were eligible for certain tax benefits and penalty relief.

    3. Son of Boss non-participant taxpayers have all appeal rights. When a case is identified by National Office, Appeals Processing Services will input information on ACDS. Location Field 8 on ACDS will be used to identify Son of Boss (SOB) cases with the three letters " SOB" . The notes section will state "Son of Boss Tax Shelter" . Ensure that the SOB identification is present in Location field 8 if you have an SOB case.

    4. Any disposition of a case that is identified as a "Son of Boss" case will require the review and approval of the Director, Field Operations (DFO) for your respective part of the country. The ATM will prepare a briefing paper as necessary to fully explain the Son of Boss issues. The facts of the case and the basis for the determination should be in the attachment. The ATM will fax or e-mail (encrypted) a copy of the attachment and the briefing paper to Dale Veer at 651-726-7409 so that these cases can be tracked by the National Office. The ATM will e-mail through appropriate channels the following documents to the Senior Operations Advisor: • Form 5402 • Attachment • Case Activity Record • Briefing Paper – if issues not included in the Attachment require explanation. Once the DFO has signed Form 5402 and the closing letter, the case will be returned to the originating ATM to be closed.

  3. Claims for Penalty Abatement

    1. Announcement 2004-46, Son of Boss Settlement Initiative, was issued on May 24, 2004. It provided the terms under which investors in Notice 2000-44, and substantially similar transactions, could resolve their civil tax liabilities and avoid litigation. Section 2(b) of Announcement 2004-46 explained the application of appropriate penalties. Under section 4, taxpayers that participated in the initiative submitted closing agreements and either fully paid or made other financial arrangements acceptable to the Service. Section 5 stated that Appeals Office consideration would not be available for Son of Boss transactions for those taxpayers who were ineligible or did not participate in the initiative.

    2. Appeals will not consider requests for abatement of the asserted penalty because "the taxpayer filed a qualified amended return under Treas. Reg. 1.6664-2(c)(3)(i)(A) before being contacted by the Service" or any other liability issue(s) related to Son of Boss transactions. Appeals may consider collection matters and issues pursuant to Announcement 2004-46.

    3. Contact the Appeals Technical Guidance Coordinator for Son of Boss with questions concerning Son of Boss procedures in Appeals.

8.22.2.2.11.6  (03-11-2009)
Doubt as to Liability (DATL) Offers

  1. A Doubt as to Liability (DATL) Offer is a challenge to the underlying liability.

  2. An offer based upon DATL generally should not be considered if challenges to the liability are precluded. IRC 6330(c)(2)(b) states that the underlying liability may not be challenged at the CDP/EH hearing if the taxpayer:

    1. received a statutory notice of deficiency

    2. otherwise had an opportunity to dispute the tax liability. See IRM 8.22.2.2.11.

  3. Where IRC 6330(c)(2)(b) does not apply, Appeals must consider a CDP DATL-OIC that was determined in United States Tax Court even in cases where the taxpayer signed a Closing Agreement. Do not send these cases back to Compliance as premature referrals thinking the offer is irrelevant because the matter was conclusively decided or settled. TIPRA requires consideration of the DATL-OIC and one of the following determinations in writing:

    1. Accept

    2. Reject

    3. Withdrawn

    4. Return

  4. TIPRA statute rules apply where the taxpayer is not precluded by IRC 6330 (c)(2)(B) from challenging the liability and files a DATL-OIC. See See IRM 8.22.2.4.7.1.

  5. A DATL-OIC must be carded-in as a separate WUNO. See IRM 8.22.2.4.7.4. Procedures for establishing CDP/EH DATL or DATC OIC WUNOSee.

  6. The taxpayer is entitled to submit a DATL OIC even though the law precludes the liability from being considered as part of the CDP case. Take the following steps for a precluded DATL-OIC:

    1. Use the Form 3210 template on the Appeals OIC web page to send the DATL-OIC to the Brookhaven DATL Unit. The Form 3210 clearly informs Brookhaven that there is an open TIPRA statute on the DATL offer.

    2. Document in both the case activity record and the Notice of Determination/Decision Letter that a precluded DATL-OIC was submitted and that the DATL-OIC was forwarded to the Brookhaven DATL Unit.

      Exception:

      Do not send a precluded DATL-OIC to Broohaven where Appeals determined the original liability. In DATL-OIC cases where Appeals determined the original liability, Appeals will work the DATL-OIC under Appeals general authority. See IRM 8.23.3.10. Follow local procedures to transfer a DATL-OIC to an Appeals Officer.

8.22.2.2.11.7  (03-11-2009)
IRC 6020(b) Substitute For Return (SFR) assessments-verify valid return and correct imposition of penalties

  1. Where the Service is proposing assessment of substitute returns and issuing notices of deficiency, the deficiency notice must include the IRC 6651(a)(1) - failure to file penalty - and IRC 6652(a)(2) - failure to pay penalty - in order to assess the penalties along with the tax after the notice defaults.

  2. The hearing officer, as part of the verification process, must review that the tax and penalty were properly assessed even if the taxpayer does not specifically disputes the assessments or whether some of the taxpayer's arguments are frivolous. See IRM 8.22.2.2.4.7.

  3. Where the taxpayer is challenging a TC 300 liability, review transcripts and the ASFR file to determine if there is:

    1. a valid IRC 6020(b) return

    2. a valid imposition of the IRC 6651(a)(2) penalty.

  4. IRC 6651(g) provides that a return that the Secretary prepares under IRC 6020(b) functions as a return filed by the taxpayer for purposes of determining the failure-to-pay addition to tax under IRC 6651(a)(2).

  5. As recent as 2004, the Service was assessing the IRC 6651(a)(2) penalty under Automated Substitute for Returns (ASFR) procedures. ASFR procedures, alone, do not create a IRC 6020(b) return. Unless a valid IRC 6020(b) return is the basis of the FTP penalty, the FTP assessment is erroneous and should be abated.

  6. To prepare the return under IRC 6020(b), the Service attaches a completed Form 13496 to other documents, which, when combined, satisfy each of the elements of a valid IRC 6020(b) return. Specifically, the package of documents consists of:

    • Form 13496, signed and dated;

    • Form 4549, Income Tax Examination Changes; and

    • Form 886-A, Explanation of Items.

  7. The latter two forms, which must be generated on or before the date the Form 13496 was signed, contain the information necessary to calculate the taxpayers liability for the period and the amount of the failure-to-pay addition to tax.

  8. See Chief Counsel Notices 2007-005 for additional information.

8.22.2.2.12  (10-30-2007)
Penalty Liability Issues

  1. Taxpayers may use CDP proceedings to challenge their liability for a penalty if they did not:

    1. receive a notice of deficiency

    2. have an opportunity to contest their liability

  2. The penalty may not be challenged in CDP if the statute authorizing the penalty specifically excludes the taxpayer from requesting rescission in a CDP hearing.

8.22.2.2.12.1  (10-30-2007)
Trust Fund Recovery Penalty

  1. Trust Fund Recovery Penalty (TFRP) liabilities are not subject to deficiency procedures.

  2. Taxpayers with TFRP liabilities are considered to have had an opportunity to dispute the liability if:

    1. they receive the TFRP proposal Letter 1153, which offers them an opportunity to go to Appeals, and

    2. they decline the opportunity.

  3. If the taxpayer challenges the TFRP penalty in CDP, take the following steps in determining whether the liability can be considered:

    1. Review the ICS history of the corporation for delivery of Letter 1153. The preferred method for delivery of Letter 1153 is personal service to the potentially responsible person followed up with documentation in the ICS history.

    2. If you are unable to determine from or access corporate ICS history, request a copy of the L1153 and proof of delivery. see IRM 5.7.4.7 for 1153 delivery requirements.

    3. A "Request for Copy of 1153 letter for a CDP hearing with respect to a Trust Fund Recovery Penalty Case" template is on APGOLF to facilitate the request of the TFRP administrative file from the appropriate Advisory Group, Control Point Monitoring (CPM) unit.

    4. After completing the form, fax the "Request" to the appropriate Advisory Group CPM unit. A list of their fax numbers can be found on the Appeals Collection Issues TFRP web page.

    5. Advisory will send the entire case file if proof of receipt cannot be determined.

  4. Return the file promptly to the Advisory CPM when it is no longer needed. The taxpayer may file an 843 claim so Advisory's ability to locate the case file is critical when trying to support the Service's position.

8.22.2.2.12.2  (10-30-2007)
Section 6702 Frivolous Return Penalties and Questionable W-4 Penalties

  1. Frivolous Return Penalties and questionable W-4 penalties do not receive a notice that gives the taxpayer an opportunity to go to Appeals. Therefore, issues involving these penalties may be raised in CDP.

  2. A taxpayer may challenge the assessment of the IRC 6702 penalty on the ground that the assessment was not personally approved in writing by a superior in accordance with IRC 6751(b).

  3. IRC 6751(b)(1) provides that no penalty shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate. An exception to the "personally approved (in writing)" rule is IRC 6751(b)(2)(B) that provides that managers need not approve any addition to tax under IRC 6651, 6654, or 6655, or any other penalty automatically calculated through electronic means. The assessment of a IRC 6702 penalty does not qualify as one calculated through electronic means defined by IRC 6751(b)(2)(B), therefore the assessment of the penalty requires approval in writing.

  4. There is no legal basis for abatement of these types of penalties due to Reasonable Cause; therefore Appeals has no legal authority to abate these penalties using reasonable cause criteria.

  5. Example of a valid reason for abating the frivolous return penalty:

    Example:

    A taxpayer who is duped by a person who he/she thought was a legitimate tax advisor into filing frivolous returns. Upon receiving CDP Notices and talking to an IRS representative, they file complete and correct returns and agree to pay the tax.

8.22.2.2.12.3  (10-30-2007)
Reasonable Cause Penalty requests

  1. A taxpayer who receives a letter or notice informing them of their right to contest a penalty before Appeals, prior to receipt of a CDP Notice entitling them to a CDP hearing, has had an opportunity to contest the liability.

    Example: Receipt of the 854C letter or a similar letter informing the taxpayer of the right to go to Appeals is an opportunity to contest the liability.

  2. Associate an open PENAP case for which a determination has not been made with a CDP case for a determination under the CDP case. Do NOT add feature code "DP" to the associated PENAP case.

  3. Considering a penalty challenge the taxpayer failed to pursue earlier:

    1. card-in as a separate PENAP case

    2. may consider under Penalty Appeal procedures simultaneously with the CDP consideration

    3. may be assigned to another hearing officer at local discretion

    4. send the appropriate penalty appeal closure letter to address the penalty appeal issue before issuing the CDP Notice of Determination

    5. explain in the Notice of Determination that while the taxpayer raised the penalty issue in CDP the taxpayer was precluded from doing so and that the challenge to the penalty liability was considered pursuant to the Penalty Appeals procedures

    Note:

    Use Form 5402 as the transmittal memorandum on post-assessment penalty cases. Prepare Form 3870 with the abatement information. Use blocking series 96X (penalty abatement refusal) for the TC 290 (-0-) transaction. This will prevent a later abatement of a penalty sustained by Appeals.

8.22.2.2.12.4  (10-30-2007)
Section 6707 or 6707A Disclosure Penalties

  1. The IRS has issued guidance in Rev. Proc. 2007-21 and Rev. Proc. 2007-9, IRB 613 for taxpayers and material advisers who seek rescission of a section 6707 or 6707A disclosure penalty if the penalty relates to a reportable transaction other than a listed transaction.

  2. IRC 6707A, added to the code by the American Jobs Creation Act of 2004, provides a monetary penalty for the failure to include on any return or statement any information required to be disclosed under IRC 6011 regarding a reportable transaction. The provision recognizes the IRS's authority to rescind penalties for taxpayer who are required to disclose those transactions.

  3. Rev. Proc. 2007-21, effective for rescission requests for which notice and demand for payment is made after October 22, 2004, establishes the procedures for requesting and the standards for applying rescission.

  4. In accordance with IRC 6707A(d) and IRC 6707(c), a person (i.e., a taxpayer under IRC 6707A or material advisor under IRC 6707) requesting rescission of a penalty assessed under either IRC 6707A or IRC 6707 must request rescission in writing:

    1. within 30 days after the date the Service sends notice and demand for payment of the penalty pursuant to section 6303.

    2. within 30 days from the date of payment if the person pays the penalty (not including interest) in full prior to the Service sending notice and demand for payment.

  5. A person may not request rescission in a collection due process hearing.

  6. The method of requesting rescission that is provided in Rev. Proc. 2007-21 is the exclusive method of requesting rescission.

8.22.2.2.12.5  (03-11-2009)
Section 6673(a)(1) U.S. Tax Court-imposed penalty

  1. Under IRC 6673, the Tax Court may impose a penalty of up to $25,000 against a taxpayer for:

    1. making frivolous arguments before the court

    2. filing a petition for delay

    3. unreasonably failing to pursue administrative remedies

  2. If the Tax Court imposes the IRC 6673 penalty, the IRS assesses and collects the penalty in the same manner as a tax.

  3. Collection Due Process (CDP) rights extend to collection of the IRC 6673 penalty and a notice of a right to a hearing must be given to the taxpayer when the IRS intends to collect the penalty.

  4. The issues a taxpayer may raise at the CDP hearing involving the IRC 6673 penalty are limited. Because the court set the penalty amount, Appeals does not have the authority to reduce the penalty in return for future compliance:

  5. The penalty cannot be compromised under doubt as to liability. Treas. Reg 301.7122-1(b)(1) states that doubt as to liability does not exist where the liability has been established by a court decision or judgment. See also Rev. Proc. 2003-71. Since the penalty is imposed by the court, it has obviously been established by court decision.

  6. Counsel generally recommends against compromise of the IRC 6673 penalty under doubt as to collectibility or effective tax administration grounds. The penalty is an important tool used by the Tax Court to deter frivolous litigation. However, compromise on doubt as to collectibility grounds may be appropriate if the taxpayer has abandoned frivolous arguments and has come into tax compliance.

  7. The hearing officer should minimally verify the following:

    1. that the Tax Court actually imposed the penalty by obtaining a copy of the Tax Court decision or order imposing the penalty.

    2. that the penalty was assessed accurately, i.e., correct penalty code.

8.22.2.2.13  (03-11-2009)
Abatement of Interest Under IRC 6404

  1. A request for interest abatement may be raised by a taxpayer in a CDP hearing.

    1. IRC 6330(c)(4) applies to determine whether the taxpayer is precluded from raising the claim.

    2. IRC 6330(c)(2)(B) does not apply because a request for interest abatement under IRC 6404 is not a challenge to the existence or amount of the underlying tax liability.

  2. IRC 6330(c)(4) provides that to be precluded the issue must have been raised and considered in a prior administrative or judicial proceeding in which the taxpayer meaningfully participated. "Considered" is interpreted as the issuance of a decision by the administrative body or court.

  3. Because IRC 6404 claims are heard by Appeals, the taxpayer would be precluded from raising the interest abatement claim if a final determination letter had been issued, regardless of whether he sought judicial review by the Tax Court.

  4. If Appeals is considering an interest abatement claim at the time a CDP hearing request is made, but has not yet issued a final determination letter, the taxpayer is not precluded from raising the claim. In this instance, include the interest abatement claim in the CDP hearing.

  5. Taxpayers are not required to file a formal 843 claim for interest abatement consideration in CDP. Instead, if the taxpayer only writes a general statement on their CDP hearing request, e.g., "I think penalties and interest should be abated" , inform the taxpayer that they need to submit, in writing, a statutory basis for abatement, i.e., what happened during the processing of the case that warrants abatement and to provide an outline of the events. Section 4.06 in Rev. Proc. 87-42 details the information the taxpayer should provide when formally requesting abatement of interest:

    1. the type of tax involved,

    2. when the taxpayer was first contacted by the Service in writing with respect to the deficiency or payment

    3. the specific period for which abatement of interest is requested

    4. the circumstances of the case, and

    5. the reason(s) why the taxpayer believes that failure to abate the interest would result in grossly unfair treatment.

  6. Where the taxpayer provides a detailed explanation, request a separate ABINT WUNO: Fax or hand-carry the following document to your servicing APS when interest abatement is properly raised and considered in CDP:

    1. A copy of the CDP Case Summary Card noted at the top "Please create an ABINT WUNO with feature code = DP and Notes - XREF (WUNO of the related CDP)" .

    2. Identify for APS the date when you determine that interest abatement is at issue in CDP. APS will use this date for the REQAPPL, RECAPP, and ASGNDATE.

  7. If the taxpayer fails to provide a detailed explanation for interest abatement, address the interest abatement request in the "Issues" section of the Notice of Determination (Letter 3193) or Decision letter (Letter 3210) attachment. An ABINT WUNO is not required.

  8. If the taxpayer provides a detailed explanation for interest abatement consideration, issue the taxpayer one of the new combination letters:

    1. Timely CDP request - Letter 4389 - Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 and Abatement of Interest Under Section 6404

    2. EH request - Letter 4440 - Decision Letter Concerning Equivalent Hearing Under Section 6320 and/or 6330 of the Internal Revenue Code and Abatement of Interest Under Section 6404

  9. Appeals Processing (APS) has a Complex Interest Team (CIT) that may assist with interest computations (complex or restricted). Hearing officers can request interest computation assistance following the procedures in See IRM 8.22.2.4.3.1. Interim Adjustments. The hearing officer, instead of preparing a Form 3870, will prepare the ACDS Update Form found under "ACDS Updates" on APGOLF.

  10. Interest on employment, excise, and other taxes that are not subject to deficiency procedures do not qualify for abatement of interest under IRC 6404(e). However, the IRS has authority to abate interest under IRC 6404(a) if the interest is:

    1. excessive in amount;

    2. assessed after the expiration of the applicable period of limitations; or

    3. erroneously or illegally assessed.

  11. The taxpayer may also qualify for relief from interest under IRC 7508A(a)(2) if the taxpayer is affected by a Presidentially-declared disaster or a terroristic or military action.

  12. See IRM 8.7.7.14, Abatement of Interest Claims, for additional information on interest abatement consideration.

8.22.2.2.14  (03-11-2009)
CDP/EH Forms, Letters, and other documents

  1. The first column of the following table provides the number and name of the various CDP or Equivalent Hearing forms and letters available on either APGOLF or the Appeals Collection Issues CDP webpage. The second column describes the purpose of the form/letter and the third column provides the IRM section where additional information and guidance on the letter/form is found.

    Form or Letter Number and Name Purpose IRM Section
    Letter 3193 - NOTICE OF DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320 and/or 6330

    • Required by statute on timely requested CDP hearing requests

    • Sent separately, certified, to each joint filer per RRA 98, PL 105-206, section 3201(d); a copy sent to the POA

    		 See IRM 8.22.2.2.16.
    Letter 3210: DECISION LETTER CONCERNING EQUIVALENT HEARING UNDER SECTION 6320 and/or 6330

    • Serves the same purpose as a Notice of Determination except that it is not a judicially reviewable letter unless the taxpayer believes they made a timely request. The taxpayer has 30 days to file a petition in Tax Court to challenge Appeals determination that their request was untimely. If the Tax Court finds the request was timely it will treat the Decision Letter as an NOD.

    • Decision Letters are sent separately to joint filers living at the same address

    • Decision Letter are not sent certified

    		 See IRM 8.22.2.2.21.
    Letter 3789: Rescission Letter - Notice of Lien Filed Erroneously Rescinds erroneous CDP Lien notice See IRM 8.22.2.2.2.2.
    Letter 3790: Rescission Letter - Notice of Intent to Levy Sent in Error Rescinds erroneous CDP Levy notice. See IRM 8.22.2.2.2.2.
    Letter 3846: Substantive Contact Letter for Frivolous or Delaying Hearing Request Schedules telephone conference and offers the taxpayer the opportunity to withdraw the frivolous portion of their request. See IRM 8.22.2.2.10.3.3.
    Letter 3855: Substantive Contact Letter Schedules a telephone conference; the taxpayer may request a face-to-face conference which, if they're eligible, will be granted. See IRM 8.22.2.2.6.
    Letter 3978: SUPPLEMENTAL NOTICE OF DETERMINATION CONCERNING COLLECTION ACTION(S) UNDER SECTION 6320 and/or 6330 Issued after Remand. See IRM 8.22.2.3.1.
    Letter 3999: Combination Substantive Contact Letter and Uniform Acknowledgement Letter Schedules a telephone conference; also serves as a Uniform Acknowledgement Letter if issued within 30 days of assignment to the hearing officer. See IRM 8.22.2.2.6.
    Letter 4000: Last Chance Letter Used if taxpayer fails to respond to Substantive Contact Letter to offer the taxpayer the mandatory second opportunity to provide information for consideration. See IRM 8.22.2.2.6.2.
    Letter 4130: Rescission of Notice of Determination Used if Notice of Determination erroneously issued and taxpayer has not filed for a judicial review; used if NOD issued after taxpayer files for bankruptcy See IRM 8.22.2.2.6.8.
    Letter 4299: NOTICE OF DETERMINATION Concerning Collection Action(s) Under Section 6320 and/or 6330 Case Resolved in Bankruptcy Court IRM 8.7.6.2.3
    Letter 4300: DECISION LETTER Concerning Equivalent Hearing Under Section 6320 and/or 6330 of the Internal Revenue Code Case Resolved in Bankruptcy Court IRM 8.7.6.2.3
    Letter 4382: Cover Letter For Form 12257 Transmits Waiver Form 12257 to taxpayer See IRM 8.22.2.2.18.
    Letter 4383: Withdrawal Acknowledgement Letter Acknowledges taxpayer's withdrawal of CDP/EH request IRM 8.22.2.2.1
    Letter 4388: Solicits CDP or EH withdrawal Solicits withdrawal where Collection resolved the taxpayers issue See IRM 8.22.2.1.3.
    Letter 4389: Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 and Abatement of Interest Under Section 6404 Explains to the taxpayer the different timeframe for filing for judicial review of CDP and Abatement of Interest (the separate Claim Disallowance Letter no longer required). See IRM 8.22.2.2.13.
    Letter 4390: Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 and Your Request for Relief from Joint and Several Liability under Section 6015 Explains to the taxpayer the different timeframe for filing for judicial review of CDP and Innocent Spouse (the separate Innocent Spouse Notice of Determination no longer required). See IRM 8.22.2.2.11.3.2.
    Letter 4439: Decision Letter Concerning Equivalent Hearing Under Section 6320 and/or 6330 of the Internal Revenue Code and Your Request for Relief from Joint and Several Liability under Section 6015 Decision on EH; provides timeframe for filing for a judicial review of the Innocent Spouse issue See IRM 8.22.2.2.11.3.2.
    Letter 4440: Decision Letter Concerning Equivalent Hearing Under Section 6320 and/or 6330 of the Internal Revenue Code and Abatement of Interest under Section 6404 Decision on EH; provides timeframe for filing for a judicial review of the Abatement of Interest issue See IRM 8.22.2.2.13.
    Form 14041: Waiver Form for Right to Request A New Settlement/Appeals Officer Under Section 6320 and/or 6330. (Previously numbered Form 12218) Taxpayer waives prior involvement of hearing officer which allows officer to conduct current hearing. See IRM 8.22.2.2.4.5.
    Form 12256: Withdrawal of Request for Collection Due Process or Equivalent Hearing Taxpayer withdraws either CDP or equivalent hearing request. See IRM 8.22.2.2.1.
    Form 12257: Summary Notice of Determination and Waiver of Right to Judicial Review Taxpayer waives right to file judicial review. See IRM 8.22.2.2.18.
    Form 12523 - Bankruptcy Resolution Checklist for CDP/EH file   IRM 8.7.6.2.6
    Form 13929 - Bankruptcy Resolution Transmittal Memorandum - CDP Cases   IRM 8.7.6.2.6
    Form 13933 - COIC-investigated OIC Cover Sheet Used to transmit CDP OIC meeting COIC criteria to COIC; COIC uses same form to acknowledge OIC. See IRM 8.22.2.4.7.3.1.
    (Form # pending): CDP/EH Attachment Attachment template for NOD and Decision Letter See IRM 8.22.2.2.16.
    (Form # pending): Collection Due Process (CDP) hearing - TP disputes TFRP Civil Penalty Request for copy of 1153 letter and proof of delivery See IRM 8.22.2.2.12.1.

8.22.2.2.15  (03-11-2009)
Tax Court Petition Filing Timeframes

  1. The Pension Protection Act of 2006, signed by President Bush on August 17, 2006, moved all new CDP cases to Tax Court. The Act is effective for:

    1. Determinations made 60 days after enactment, or October 16, 2006

    2. CDP cases involving employment taxes, unemployment taxes, TFRP, frivolous return penalties, section 6682 penalties, etc. that were previously heard in District court

    Code Section Timeframe for filing for judicial review
    6320/6330 - Collection Due Process 30 days from issuance of Notice of Determination
    6015(e) - Innocent Spouse 90 days from issuance of Notice of Determination
    6404(h) - Abatement of Interest 180 days from issuance of Notice of Determination

  2. If the taxpayer wants Tax Court review of a partial or complete denial of relief under IRC 6015 or IRC 6404, as well as other issues raised and determined in the CDP hearing, such as a collection alternative, the taxpayer should petition the court within 30 calendar days after the issuance of the CDP Notice of Determination.

  3. If the taxpayer only wants Tax Court review of a partial or complete denial of relief under IRC 6015 or IRC 6404, the taxpayer may petition the Tax Court within 90 or 180 days, respectively, of the Notice of Determination. Caution the taxpayer that if he/she files a petition after the 30 day period for seeking judicial review of Appeals' CDP determination, the Tax Court can only review the taxpayer's IRC 6015 or IRC 6404 defenses.

8.22.2.2.16  (03-11-2009)
Letter 3193, Notice of Determination; Contents of attachment

  1. At the conclusion of a CDP hearing, the hearing officer will prepare a Notice of Determination and attachment, unless the taxpayer agrees to sign a Form 12257 Waiver.

  2. The Notice of Determination most frequently used in CDP cases is Letter 3193, Notice of Determination Concerning Collection Actions(s) Under IRC 6320 and/or IRC 6330.

  3. There are other NOD's that should be used when Innocent Spouse or Abatement of Interest were raised as issues, or when the CDP issues were resolved in bankruptcy court. See table in subsection below for appropriate NOD. See IRM 8.22.2.2.14.

  4. Following are the required contents of the summary statement and the attachment. An attachment "template" that will facilitate the preparation of the attachment can be found on APGOLF.

8.22.2.2.16.1  (01-01-2006)
Summary Statement

  1. The Summary of Determination, which is part of the Notice of Determination and Decision Letter itself, must be done IN ADDITION TO the separate attachment.

    1. The purpose of the summary is to succinctly state the determination, (i.e., "Enforced collection action is appropriate," or "Your proposed installment agreement is accepted)."

    2. It should also contain a statement describing any conditions of a settlement that might result in future enforced collection action.

    3. This summary may be a simple statement:

      Example:

      "The proposed levy (or the filed Notice of Federal Tax Lien) is the appropriate action in this case" or "Your proposed alternative of a short term payment arrangement with a substantial initial payment is accepted. Failure to meet the attached terms may result in collection action."

8.22.2.2.16.2  (01-01-2006)
Tax and Tax Periods Considered in Hearing

  1. List the type(s) of tax and period(s), date of the CDP notice(s), and date of taxpayer's CDP request at the beginning of the attachment. This is to assist the court in determining if the taxpayer's petition concerns the actual taxes and tax periods listed on the CDP notice and considered in the hearing. See Exhibit 8.22.2-1.

    1. Describe the type(s) of tax and tax period(s) at issue. When discussing the periods or types of taxes, particularly if there are multiple periods involved, repeat the period when describing some fact that is not pertinent to all periods.

    2. Identify penalties by the IRC section that imposes the penalty, if a specific penalty is at issue.

    3. Expressly state if the challenge is directed specifically at interest or collection fees or some liability imposed by a specific Code provision.

    4. Limit the liability to the liability referenced in the CDP Notice entitling the taxpayer to a hearing. Only mention non-CDP periods in the "Balancing" section in a general sense, if necessary. Specifically describing non-CDP periods is not appropriate as this might cause a taxpayer to try raise non-CDP periods in court.

    5. State whether the hearing is provided under IRC 6320 with respect to a lien filing or IRC 6330 with respect to a levy or proposed levy.

8.22.2.2.16.3  (10-30-2007)
Brief Background

  1. Describe in the Brief Background section:

    • Each written or oral request for documentation,

    • How much time the hearing officer gave the taxpayer or their representative to produce the documents,

    • To what extent the requested documents were produced,

    • That a face-to-face meeting was offered (if one was offered) and if the taxpayer agreed to a telephone hearing or a correspondence hearing in lieu of a face-to-face meeting,

    • When the taxpayer agreed to the alternative and how the agreement was communicated to the hearing officer. This description will become important if, during judicial review, a claim is made of not being given an opportunity for a face-to-face hearing or insufficient time to submit requested documents,

    • Any discrepancies regarding issues of timeliness, which is vital for any potential court cases, future retained jurisdiction cases, and case review.

      Example:

      If there is a statement in the case file that the CDP hearing request was postmarked on a certain date, but the envelope is not available, and the Form 12153 is stamped received on the purported postmark date.

      Address these facts and explain the reason for selecting your date for determining timeliness.

8.22.2.2.16.4  (03-11-2009)
The Big 3 CDP statutory review

  1. Hearing officers are required by statute to consider three areas, herein referred to as the Big 3:

    1. Verification that the requirements of any applicable law or administrative procedure have been met

    2. Issues raised by the taxpayer

    3. Whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary

8.22.2.2.16.4.1  (03-11-2009)
Verification that the requirements of any applicable law or administrative procedure were met

  1. The hearing officer must document the verification in both the case activity record and the NOD or Decision Letter attachment.

    1. State that Appeals has obtained verification from the IRS office collecting the tax that the requirements of any applicable law, regulation or administrative procedure with respect to the proposed levy or NFTL filing have been met. Note that computer records indicated that the notice and demand, notice of intent to levy, and notice of a right to a Collection Due Process hearing were issued. Make note of and verify, when applicable, any IRM requirements before the planned levy or lien action.

      Note:

      There is no need to document the specific dates these requirements were accomplished other than the CDP notice date and taxpayer CDP hearing request date, unless some legal or procedural requirement was an issue raised by the taxpayer. See IRM 8.22.2.2.4.7.

    2. If any provision of the Internal Revenue Code, regulation, or administrative procedure has not been followed, describe the failure and the effect such failure has on the final determination.

      Note:

      If there has been some violation of procedure leading up to the lien filing or sending the levy notice, such violation of the IRM does not mandate rescission of the notice or lack of support for the action. The hearing officer must determine the harm the violation caused to the taxpayer, and weigh and consider the violation accordingly as part of the taxpayer's legitimate interest in the least intrusive collection method necessary.

    3. Document "no prior involvement" with respect to the specific tax periods either in Appeals or Compliance; also document previously handling of a non-CDP case, whether Form 14041 waiver was secured, or the case was transferred to another employee.

    4. Document that the collection statute has been suspended. Instead of saying "TC 520" , say the collection period allowed by statute to collect these taxes has been suspended by the appropriate computer codes for the tax periods at issue.

    5. Discuss nonfrivolous issues raised by the taxpayer regarding legal and administrative procedures in the "Issues" section in necessary detail to address the taxpayer's issue.

    6. If Appeals finds no procedural or legal defects in the actions taken by field Collection or ACS, this section should have a statement to the effect that "The RO (ACS) followed all legal and procedural requirements and the actions taken or proposed were appropriate under the circumstances."

    1. Note:

      Certain specific levy actions do have other legal requirements, particularly seizure actions, and if a seizure was specifically a planned action after a jeopardy levy, those requirements should also be BRIEFLY mentioned.

8.22.2.2.16.4.2  (03-11-2009)
Issues Raised by the Taxpayer

  1. Issues raised by the taxpayer is the second of the "big three" discussion areas.

  2. The taxpayer may raise any nonfrivolous issue relating to the NFTL or the proposed levy including:

    1. Spousal defenses (relief under section 6015),

    2. The appropriateness of collection actions,

    3. Other collection alternatives,

    4. The existence or amount of the tax, but only if the taxpayer did not receive a notice of deficiency for that liability or did not have an opportunity to dispute the tax liability.

  3. The case activity record and Notice of Determination/Decision Letter attachment must list all issues:

    1. All nonfrivolous issues raised by the taxpayer on the Form 12153

    2. Additional issues raised orally or in subsequent correspondence (whether the hearing is face-to-face, telephone or correspondence) until the conclusion of the hearing.

      Note:

      A taxpayer or their authorized representative may raise additional issues during the CDP hearing, prior to the issuance of the Notice of Determination/Decision Letter.

      Caution:

      DO NOT FORGET to document the issue on the Form 12153 even if the taxpayer abandons the issue and makes no further mention of it during the conference.

    3. As appropriate, raise and discuss with the taxpayer issues the taxpayer fails to raise, including issues that were fully considered in a prior administrative hearing for which the taxpayer may now qualify.

      Example:

      Taxpayer does not request a streamlined installment agreement as a streamlined agreement was raised, discussed, and denied in an earlier CAP hearing. Taxpayer made a payment toward their liability and now qualifies for a streamlined agreement.

  4. Document Issues in the NOD/Decision Letter attachment:

    1. With detail necessary to convince someone who may have no understanding of any of the issue(s) that Appeals' determination was correct.

    2. That reflects independent consideration of the issue. The following statement does not reflect independent consideration:

      Example:

      "Since the Revenue Officer found you did not qualify for withdrawal of the lien, your request is denied."

    3. Include a decision on any spousal defense appropriately raised by the taxpayer, including relevant factual findings.

      Note:

      Only discuss the Innocent Spouse issue if the taxpayer raises it.

    4. If the taxpayer requests a notice of federal tax lien withdrawal and provides an explanation of why the lien should be withdrawn, be sure to address in the light of the four grounds stated in IRC 6323(j).

    5. State whether the taxpayer is precluded from raising an issue under IRC 6330(c)(4) and the facts that underlie that conclusion.

    6. Specifically state that no other issues were raised. If frivolous issues were raised, then state that no other nonfrivolous issues were raised. This helps preclude the taxpayer from raising new issues in any judicial challenge to the Notice of Determination.

  5. Documenting Collection Alternatives:

    1. Clearly outline any agreement, any relief and any actions required and advise the taxpayer of the consequences if the terms are not met for any arrangements or if there is a change in the taxpayer's economic situation.

      Example:

      If you determine that the account is currently not collectible, inform the taxpayer of the effect of an increase in income on his CNC status.

  6. Additional OIC documentation requirements:

    1. For accepted OICs, DO NOT document the details of the RCP. Prepare a separate Appeals Case Memo (ACM) with the details of the RCP.

    2. For rejected OIC's, document all the details of the determination of the Reasonable Collection Potential (RCP) so the taxpayer will be aware of the reasons for the rejection and what must be offered to make an acceptable offer. Also, clearly document that the OIC was rejected and the reason for the rejection.

      Note:

      Do not issue Rejection Letter 238. Discuss the rejection details in the attachment to the NOD/Decision Letter.

      Note:

      Section 7122 regulations specify that an OIC has not been rejected until the IRS issues a written notice to the taxpayer or his representative, advising of the rejection and the reason(s) for rejection, and the right to appeal.

  7. Documenting Liability Issues:

    1. Whether the taxpayer raised the liability.

      Note:

      If the liability was based on an original, self-assessed return, document that the taxpayer was given clear instructions in writing to submit an amended return by a certain date. Retain the letter documenting this action in the administrative file. If the taxpayer is precluded from challenging the merits of the tax liability under IRC 6330(c)(2)(B) document the facts that underlie that conclusion. If there is no challenge to the liability, state: "The taxpayer did not dispute the liability."

    2. If you reconsider the liability under Appeals' general authority, because IRC 6330(c)(2)(B) precludes reconsideration within the CDP hearing.

      Caution:

      The discussion should only describe resulting adjustments to the taxpayer's liability. A liability not considered in the CDP hearing is not addressed in the attachment except to note that liability was addressed under separate consideration from the CDP.

  8. Do not address frivolous statements included on a multi-page attachment. Instead, review the information to the extent possible to comfortably ensure there are no non-frivolous issues to address. Take the following steps:

    1. Quote a few of the taxpayer's statements, giving the flavor of the comments

    2. Document that we do not consider such issues

8.22.2.2.16.4.3  (03-11-2009)
Balancing

  1. The third of the "big three" issues, consideration of whether the proposed collection action balances the need for the efficient collection of the taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary, needs to be tied to:

    • the taxpayer's actions

    • compliance history

    • financial circumstances

    This section should state clearly and in detail how the hearing officer's determination balances efficient collection and intrusiveness. This will vary based on the situation.

    1. Balancing the need to collect with intrusive actions must be done even if the only issue raised by the taxpayer is liability.

    2. Balancing in situations where the taxpayer is unresponsive, proposes no collection alternatives, or is unable to dispute the liability supports the requested levy action or retention of the filed Notice of Federal Tax Lien, as applicable.

    3. If the notice of levy or seizure is valid or the tax liability is upheld, the letter should so state, even if the hearing officer decides to provide the taxpayer a collection alternative.

    4. If collection action is to be permitted, include a statement that tracks the language of IRC 6330(c)(3)(C) and state as follows: The [insert the collection action taken or proposed, e.g., lien filed or proposed levy] balances the need for the efficient collection of taxes with the legitimate concern of [name] the taxpayer(s)] that any collection action be no more intrusive than necessary, because [provide explanation].

    Example:

    "You requested an installment agreement instead of levy action. You previously had an installment agreement and did not make any payments. You have continued to accrue more quarters of tax liability, making only sporadic deposits. Your current proposal does not give us any reason to believe your performance on a new installment agreement would be any more reliable. Therefore, levy action now is the appropriate action albeit more intrusive than an installment agreement."

    Example:

    "You qualify for the Service's streamlined installment agreement and will be able to pay the total liability within five years if the agreement is maintained. All tax returns that are due have been filed and you have adjusted your withholding which should now be sufficient to cover your future tax liabilities. Levy action is prohibited so long as you maintain this installment agreement. Since the problems that led to these delinquent periods appear to have been resolved and you should be able to pay this off within the streamlined installment agreement parameters, this installment agreement balances the need for efficient collection of taxes with your legitimate concern that any collection action be no more intrusive than necessary."

    Example:

    "The financial information you have provided indicates that your income does not cover your necessary living expenses. As such our determination is to report your account currently not collectible (CNC). This designation appropriately balances the need for efficient collection of taxes with your legitimate concern that any collection action be no more intrusive than necessary. Levy action is not appropriate when a taxpayer is in CNC status due to economic hardship so the proposed levy action will not be allowed unless, or until, the Collection function determines the payment of the tax liabilities will not impose an economic hardship."

  2. Incorporate MY EVALUATION into the balancing discussion. The balancing discussion is the rationale for your determination.


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