Collection Due Process: Understanding Taxpayer Rights When the IRS Moves to Collect

Key Takeaways

• Taxpayers generally have CDP rights when the IRS files a Notice of Federal Tax Lien or intends to levy property.
• A timely CDP hearing request can pause certain IRS collection actions and preserve the taxpayer’s right to seek Tax Court review.
• The 30-day response window is critical; missing it may limit available appeal rights.
• During a CDP hearing, taxpayers may challenge the proposed collection action, request collection alternatives, or, in limited cases, dispute the underlying tax liability.
• Taxpayers should review IRS notices carefully and seek guidance early to preserve their rights and evaluate available options.

When taxpayers fail to satisfy their federal tax obligations fully, the IRS has broad authority to collect outstanding liabilities. This can include filing a Notice of Federal Tax Lien (NFTL) or levying a taxpayer’s wages, bank accounts, or other property. Before the IRS can take certain collection actions, however, taxpayers are entitled to procedural protections. One of the most significant is the right to request a Collection Due Process (CDP) hearing with the IRS Independent Office of Appeals.

A CDP hearing gives taxpayers an opportunity to challenge the IRS’s proposed collection action, pursue collection alternatives, and, in some circumstances, dispute the underlying tax liability. It can also provide a path to the US Tax Court if the taxpayer disagrees with the result at Appeals.

The IRS collection process can be difficult to navigate, particularly given the number of notices, deadlines, and procedural rights that may arise along the way. Understanding when those rights become available, and how to preserve them, can help taxpayers respond effectively.

When Do Taxpayers Have CDP Rights?

CDP rights most commonly arise when the IRS files an NFTL or intends to levy a taxpayer’s property.

A federal tax lien generally arises automatically after the IRS assesses a liability, provides notice and demand for payment, and the taxpayer fails to pay. The IRS may then file an NFTL, which provides public notice of the government’s interest in the taxpayer’s property. An NFTL can have significant consequences for taxpayers, including complicating their ability to sell or refinance a property, obtain credit, or secure financing arrangements, as prospective lenders may be reluctant to proceed while federal tax liens remain outstanding.

A levy allows the IRS to seize a taxpayer’s property to satisfy an unpaid tax debt. This can include funds held in a bank account, wages, government benefits, and personal property. Generally, before issuing a levy, the IRS must provide the taxpayer with a Final Notice of intent to Levy and notice of the right to request a CDP hearing at least 30 days before the actual levy.

The Taxpayer Advocate Service illustrates these rights through its Taxpayer Roadmap, which tracks the stages a taxpayer may encounter from assessment through collection and potential litigation. The roadmap can be particularly helpful for taxpayers trying to determine where a notice falls within the broader IRS collection process. Taxpayers should pay close attention to Letter 3172, Notice of Federal Tax Lien and Your Right to a Hearing Under IRC 6320, and final levy notices such as Letter 1058 or LT11, each of which provides taxpayers with CDP rights.

How Does Someone Request a CDP Hearing?

Once a taxpayer receives an IRS notice providing CDP rights, the deadline to respond is critical. A taxpayer generally has 30 days to request a CDP hearing. The request is typically made using Form 12153, Request for a Collection Due Process or Equivalent Hearing. Filing a timely request allows a taxpayer to participate in an Appeals conference and prevents the IRS from moving forward with a levy while the CDP proceeding is pending.

Missing the 30-day deadline does not necessarily eliminate the possibility of Appeals review. A taxpayer may be able to request an Equivalent Hearing. However, an equivalent hearing does not provide all of the protections of a timely CDP hearing. Most notably, it does not allow a taxpayer to seek US Tax Court review of the resulting IRS Appeals decision.

What Can Be Raised During a CDP Hearing?

Taxpayers can raise a number of issues related to the collection action in a CDP hearing. For example, a taxpayer may challenge whether the proposed collection action is appropriate or propose an alternative method of resolving the liability. Depending on the circumstances, collection alternatives may include an installment agreement, offer in compromise, or other available collection relief. Taxpayers may also raise appropriate spousal defenses and may seek remedies, such as lien withdrawal, discharge, or subordination.

In certain cases, taxpayers can use the CDP process to challenge the existence or amount of the underlying tax liability. Under IRC Sec. 6330, a taxpayer may challenge an underlying liability during a CDP proceeding if the taxpayer did not receive a statutory notice of deficiency and did not otherwise have a prior opportunity to dispute the liability. If the taxpayer already had a prior opportunity to contest the liability, CDP generally cannot be used to obtain another opportunity to dispute the same issue. Taxpayers and their representatives should therefore review how the liability arose, what notices were issued, and whether the taxpayer previously had an opportunity to challenge it.

IRS collection notices can carry significant consequences, and important deadlines may begin to run upon receipt. Taxpayers who receive balance due or collection notices should consider consulting with an experienced tax controversy professional as early as possible to understand their rights and available options.

Get Help Navigating IRS Collection Notices

At EisnerAmper, our Tax Controversy and Dispute Resolution team assists taxpayers in evaluating IRS notices, preserving available appeal rights, and pursuing applicable collection alternatives. When CDP rights are available, we can help navigate the IRS Appeals process and determine the appropriate strategy for resolving any outstanding tax liabilities. Contact our team below to find out how we can assist.