Getting into a dispute with the IRS and winning is a challenge but it is possible through the collection due process.
Time is of the essence when you’re dealing with the Internal Revenue Service – just ask the tax preparers and tax advisors at Jackson Hewitt – and it is so true when you’re filing a collection due process (CDP) hearing.
You can file it to stop the taxman’s collection activities, which may have come in the form of the notice of federal tax lien (NTFL), or a bank levy filing, or a wage garnishment, but only for a while.
But don’t think that the CDP hearing is as easy as pie. The IRS is a bulldog, so to speak, when it starts its collection activities and taxpayers filing for it will have a fight on their hands. Being more informed about the process and its requirements will make the fight easier.
The CDP Request Explained
The CDP hearing is covered under Section 6320 of the Internal Revenue Code. Here, a taxpayer has the right to a hearing request before an impartial request under two circumstances, namely:
- When the taxpayer has been put on notice of the intent of the IRS to file a levy against him (IRS Letter 1058); or
- When the IRS has filed a federal tax lien (IRS Letter 3172)
As with official notices from the IRS, the concerned taxpayer has up to 30 days from the date stated on the letter to file a CDP hearing request.
Let’s take a closer look at each of these IRS Letters. The Notice of Intent to Levy (IRS Letter 1058) is the more serious letter of the two types because of its possible immediate financial effect. Basically, the IRS will strive for an immediate seizure of the funds in your bank account.
Take note that once the IRS gets the levy issued against your bank account, it can take as much of your funds as necessary for full payment of your tax debt. You may just end up with little to nothing in your bank account. You also have the responsibility of seeking a refund if the IRS levied too much money, a herculean task unto itself.
You should then file a CDP request within 30 days upon receiving the letter. Even when the levy has already been filed, don’t despair as you have 21 days to have it removed.
The Notice of Federal Tax Lien (IRS Letter 3172) may also have serious financial consequences, no thanks to the fact that it’s attached to your home. You will then have extreme difficulty in refinancing your home and in selling it, such is the effect of any IRS action against taxpayers.
How to File the CDP Request
Filing for a CDP request starts with the completion of the IRS Form 12153 (Request for a Collection Due Process or Equivalent Hearing). You can download a copy of the form and its instructions from the IRS official website.
You will be required to provide personal background information and your reasons or justifications why the taxman shouldn’t pursue the letters against you. As with most of the IRS tax forms, you have to be careful and thorough in properly completing the form – any mistake can result in a rejection. Better yet, always keep in mind that the IRS isn’t exactly your friend and, thus, will always try to find ways to do you one over.
Again, be sure to file your CDP request within the 30-day deadline. The IRS is strict with deadlines so much so that if you miss it, you aren’t entitled to a CDP hearing. The IRS, on the other hand, is required by law to stop collection activities against you pending the hearing’s outcome.
What happens of you miss the deadline? The IRS has the authority to start collection activities pending a hearing, said hearing of which came about after filing for an Equivalency Hearing. But we suggest following the 30-day deadline because then the IRS can still dip into your bank account and you don’t want the taxman doing so.
Once you have completed IRS Form 12153, you should send it to the address stated on the letter sent by the IRS through the mail. You are well-advised to contact the IRS department stated on the letter, too, and ask for the name of the particular person where the CDP request will be sent to. The IRS will send a letter about the next steps.
The CDP hearing is, in many ways, a David-versus-Goliath battle, an observation that rings true for most battles between the IRS and taxpayers. For this reason, you should seriously consider hiring a tax professional experienced in handling tax disputes so as to increase your chance of victory.
While the CDP hearing evens the playing field between the taxman and the taxpayers, it isn’t always in the favor of the latter. But it’s worth a try when you believe that the IRS is collecting beyond what it is owed.