On-Demand: Dealing with the IRS--Collection Due Process Hearing
December 10, 2019
This webinar will provide an overview of how CDP hearings work, examine strategies that can be utilized at a CDP hearing, and review alternatives if a CDP hearing cannot be attained.
Dan Gibson:For those practitioners, I'm not interested in stealing your compliance work, just looking to help you with any tax resolution problems that you will have. Also, joining me is AI. She is a senior manager here also in our Private Business Services group. She's going to be the audience and [buzzman 00:02:29], and she will be fielding your questions during the presentation.
Let's start at the beginning. Those people that are returning to the program, you've seen this before, but again, it's always good to go back through it again. There were three methods of assessment that we have, and it's always the starting point. You always need to have assessments. We have the self-assessment, where you file your own return, or a Substitute For Return, a lot of times referred to as an SFR. You have deficiency assessments, that's when you have an audit, or an examination after you file the return, and you're assessed additional tax.
Also, you have assessments through jeopardy and termination. Not going to dwell too much on that other than the fact that when there's an emergency, with respect to assessing people that potentially could be leaving the country, or maybe involved maybe in some criminal issue, the IRS has the ability to do a jeopardy assessment, or terminate a tax year on them. Remember, no assessment, no collection actions can be taken by the IRS.
When you ever in this situation, always make sure that the tax has been assessed properly. Also know your statutory periods. Know that the audit is a three year statute, starts when the return is received in collection, which we are dealing with a lot today, well, is a 10 year statute starting upon the assessment of the return. You really have to know, we'll talk about this a little bit more later, but you really have to know where you stand within that 10 year statute. There's strategies depending on where you sit on that as well.
Again, just to emphasize the fact that the IRS has certain powers out there. They can make life miserable for taxpayers. But just keep in mind, Congress has given citizens and tax practitioners tools as well. Going back 20 years ago to the 1998 hearing, and me being a geek that I am, I remember watching those hearings, and just listening to the testimony from taxpayers on the heart-wrenching stories that were going on in those hearings. Congress did do a lot of things. They provided us a lot of tools. They've modified some of those tools along the way. We need to be able to use them in order to be able to deal with the IRS effectively.
With that, we go to polling question number one, is a silent lien perfected? Now, the answer for that is you're going to be either yes or no. Just to clarify that, a lien itself is really just a blanket that if you think of it as a blanket that the IRS throws over all of your assets at that time, and then any future time that you've acquired any assets. It's like collateral. A lot of you have heard the term lien if you've borrowed money. It's really protecting the government's interest and money that you owe them.
You also hear this all the term, levy. Really, that's the point at which the IRS is taking stuff. Both of these terms, we'll talk about going through this presentation. The silent lien, it's a lien that is issued once there's been an assessment, there's been a demand for payment, and there's been no payment. That silent lien then is initiated by the service, allows them to put this blanket over your assets. If you try to liquidate your assets, they have the wherewithal to go after the liquidation.
As we'll learn about a little bit later, the silent lien is just that it's silent. It's not a publicly held lien at that point. The issue there is the fact that in order for the IRS to get the appropriate position in line, so that lien, they may have a bank in their way. They may have other creditors in the way. So they have to go out and perfect that silent lien. The answer to this question would be no.
Andal Iyengar:Okay. I just wanted to remind everyone that in order for you to receive your CPE Certificate, you must remain logged on for at least 50 minutes, and respond to three of the polling questions. Now, Dan did share there is the answer, but here's how you guys voted.
DG: Okay. Very good. Again, there's no right or wrong answers as far as you're not going to get your credit, trying to make sure you're still there. Okay, so again, we've seen this in the past, we'll go through it quickly. The life of a collection case always starts with the tax being assessed. The tax goes unpaid. If it's unpaid, then there's a billing notice that goes out. Very gently word billing notice, here's what you owe, can you pay it so much amount time, not a whole lot of pressure.
If it continues to go unpaid, as we said, there's a silent lien, and then it arises. It attaches to all your assets, current and future. If it continues to be unpaid, the IRS will then perfect the lien, which is basically going to the state, the county, the municipality that you live in, and they will file a UCC filing to perfect the lien so that it's now documented in that jurisdiction. It gets them a position in the line to get those assets. If you have a mortgage on your house, the bank has the first position, the IRS would now get the second position. If you own your house outright, the IRS now is in line, and you've got to be able to work with them if you decided to say, "Sell that property, or refinance that property."
If it then continues to stay on paid, there's what I call the levy letter campaign begins, and we're going to go through that in much more detail in the next few pages. But it starts out as a friendly nudge. There's two or three really non-threatening type of letters, and then it ends up, if you ignore those, the IRS will take your stuff. Now, in most cases, we're dealing with ACS. It's short for Automated Collection Service. I call it a robotic system, a computerized system, however you want to call it, that's supported by human beings. A lot of this is driven by automation. Human beings will step in whenever that's necessary, but a lot of this just goes out automatically through their computer system.
We'll go through step number five, which is the whole campaign that we have with these letters, and deliver more of a deep dive on this. Again, the IRS is a very powerful agency, but it's a very easy agency to stiff because your landlord, your light company, the people that pick up your garbage, and all that other stuff, they usually move pretty quickly when you don't pay them on time. The IRS, not so much. They're a little slow on the draw, and they don't react as quickly as some of these other creditors that you have. But unfortunately, they have much more power than any other creditor that you may have. So when they strike, they strike, and they strike hard. All right?
Again, we started getting this letter campaign starts coming off, and you have the CP14, the CP501, CP503, CP504. These are computer-generated. That's what the CP is. The CP is Computer Paragraph. It's all really computer-generated, letters that go out. They go out probably every two or three weeks apart, and then they end with the L1058, which is coming if you're dealing with a revenue officer that he's the one or she's the one issuing that. If you're dealing with ACS, which most of us are in these matters, you're getting an LT1.
This is the important one. This is the one that says, it's a final notice of intent to levy, and there's a notice of a hearing right. The hearing right, as we're going to go over today, you have 30 days now to respond to, in order to get a Collection Due Process Hearing, this is not extendable. All right? We're going to go through all these letters. We're going to go through what you need to fill out in order to get a Collection Due Process Hearing. I call it a Collection Due Process Hearing, the jewel of the collection process, or the citizen, or the practitioner.
In a lot of cases, I've done these, and I've had agents come back and say, "Oh, you don't need to do that. Why are you doing this? We could work together. You don't need to do a Collection Due Process Hearing. They do a head fake on you, trying to say, "Well, we'll hold off. We won't do anything for another 30 or 60 days," making you think that they're extending the time that you have to get the Collection Due Process Hearing. They couldn't be anything further from the truth because the 30 days of statutory, the IRS cannot extend it. It's by law, 30 days. You really have to stick to your guns and do the Collection Due Process Hearing. It's, again, really the crown jewel of this whole processing of working with them on a collection basis.
What happens here is when you're going through this letter campaign, and you know that there are amounts due, and you're getting the CP14, the 501, the 503, since these are weeks apart, you're looking at, I mean roughly on this, it could be two, three weeks, or maybe two, three months, maybe four, five months before you finally get this final notice of levy depending on how quickly the computer systems are working. That should be your signal, again, as a citizen or a practitioner, that you need to get to work. You need to get to work immediately, because now you have time in order to get all your stuff together that you get, and we're going to go through, as far getting all the financial information that you need to do, and get yourself prepared for the Collection Due Process Hearing.
Here's a copy of the CP14. I call this the polite reminder. There's nothing the IRS can do with this. For the layman, this may look a little threatening. It really isn't. It's a CP14. You look down to the little left hand corner there. They ask about the mounts that are due. They're showing you what it is. They're telling you that that's what their records show, and if you've already paid in full the last 20, you're fine, disregard this notice, the whole thing. Again, it's a polite reminder at this point.
A couple of weeks later, you get a CP501. It's a little bit more of a friendly nudge. Right? Yeah, there's nothing the IRS can do with this. It's just a reminder, and as you can see, again, at the bottom of the left hand corner here, that this tells you what's owed, and that it needs to be paid. So really nothing much that has to be done here. It's just a warning. Again, remember, as you're getting these things, you should be being mindful of what you need to do in order to address any collection issues that you may have. That's the copy of the 501.
Then the 503, it's basically just haven't heard from you. There's really nothing the IRS can do at this point, but they are nudging you a little bit further. All right? As you can notice, when you go to the left hand corner, the wording is their second reminder. So they're reminding you, we've sent this thing to you twice, and you still haven't paid it yet, and we're going to notify, and if you don't pay this, and this is wording that wasn't in the other two notices, if you haven't paid the amount by such and such a date, the interest will continue to increase, and you'll have additional penalties. They're just notching it up a little bit further for you.
CP504, this is still yet another notice that went out reminding the taxpayer about what they owe. There's this one exception, other than the fact that the IRS can now levy the state tax refund, there's really nothing else that the IRS can do at this point. They can go after the state tax refunds, if you have any, but that's all they can do at this point. As you can see, again, go down to the lower left hand corner, and you can see where they've listed it out. They even have on this one, intent to seize levy of your property and rights to your property. Well, at this point, again, the only thing that they can go after you for is your state tax refund. There really is no other assets that they can go to at this point.
As we've talked about before, we probably, if we're given two or three weeks in between getting each one of these notices, we probably have two, three months at this point. IRS really hasn't been able to do anything. All right? If we're doing things properly at this point, we should be getting everything, getting all our ducks in a row regarding whatever financial information we need to give the IRS, or whatever alternative payments that we need to give to the IRS. We should be taking advantage of this time at this point so that we go to the next notice, is a L1058.
This is the final note notice of intent to levy after three days, or after 30 days that if the hasn't been an action that's been taken. At this point that no action is taken, after 30 days, the IRS can come in and do everything. This is the real deal at this point. All right? This is the notice that if you're dealing with a particular revenue officer, which if your amounts are high enough, or you're a continuing collection problem for the IRS, you probably will be assigned a revenue officer. This is the notice that you're going to get. All right? As you can see, there's the date at the top left hand corner of this notice that says 5/15/2018.
If you go down to paragraph that I've got an arrow going into, you'll see it tells you, you need to file for a Collection Due Process, or an equivalent hearing, and send us this by June 15, or June 14, sorry. That's your 30 days. They need to receive this within that 30 day period in order to preserve your rights in order to get a Collection Due Process Hearing. They also tell you, if you miss that, then you have up to a year, you might still be able to get an equivalent hearing. All right? Again, this is the real deal, and you got to pay attention to this when you do get it.
Next is the LT11. This is a notice of intent to levy. Also very similar, it's a little tricky, and that's why I'm going to spend a little bit of time on this. Again, this is also the real deal. But there's also a sleight of hand in this notice. I don't know if they do it purposely, but you have to be kind of careful with this. This is coming from the Automated Collection Service, ACS, the LT11, which is the notice that is the issue here is that there is a line item in here that talks about the notice of a right to hearing, which is about the middle of this page. But it's not real clear.
If someone we're not looking at this closely, and though it is a somewhat threatening notice, don't get me wrong, as you can see here, where it says the IRS can seize, and it gives you the list of all the property that it has here. It can seize all this property. It really doesn't explain to you the fact that you now have the right to this hearing. Well, if you flip to the second page, there isn't a box that out here, and trust me, the IRS is not boxing this out. This is your explanation, is to your right, to request the Collection Due Process Hearing.
Why they put this on the second page, I'm not going to surmise what my thoughts are, but it is funny that they've stuck it on the second page here, and are they tried to hide something? Who knows at this point. But it could very easily be missed. When they started to do this, initially, I know I had a client that had this, and I almost missed it, because again, you look at the first page, and you think you're fine. It's not as threatening as the L1058. But again, as you look on page two, you've got to act, and you've got to act within 30 days to get that Collection Due Process Hearing.
As I've talked about before, as the letter campaign is coming through, and you've gotten two, three, maybe four months to do this thing, when we talk about this in some of the prior programs, you really do have to start putting together your Form 433. It's a Collection Information Statement, depending on what you're doing, who you're dealing with, the 433 is either in a form called a 433-F, an A, B, or an A (OIC), or a B (OIC).
Now, the F is, for whatever reason, the automated collection people only know how to deal with the 433-Fs when it comes to the financial statements that you provide for them. If you're dealing with ACS, you really do need to do an F. They don't know how to deal with an A and B, and the forms are not that different, but I guess these guys are just trained in a standard way of handling these apps that they really get no training in A and B. The revenue officers that are assigned to a collection case, you would use an A and a B, which the A is for personal, B is for business. If you were doing an Offer in Compromise, you'd be wanting to fill out an A (OIC) and a B (OIC), one for personal, one for business.
You need to know which one to prepare, depending on who you're dealing with within the IRS food chain. But as we talked about before, we need to get these things done quickly. All right? As soon as you've got a collection issue, and the IRS is bearing down on you, they're not going to go away. We need to start getting these things done right away. The 433 it's, I mean, if you can do a tax return, or if you can do a mortgage application, if you've done that in the past, not a whole lot of IOQ points needed to get these things done. There's a section in there where you're putting your net worth together, so you're listing out assets and liabilities.
You need to document those items to be able to prove the values and the liabilities. You have the list of the monthly income expenses so you can do a monthly cash flow statement for yourself. Again, you need to be able to document the income and the expenses, particularly, if expenses are fluctuating during the year. You need to have this stuff to support the information that you're putting into this financial statement, which is going to be really the foundation of everything that you do next. Okay.
We talked about the Collection Due Process Hearing, and there's also something called the equivalent hearing. The collection Due Process Hearing, you have 30 days after getting the final notice in order to get the Collection Due Process Hearing. If you blow that, and you're still within the one year of the final notice of levy, you get what's called an equivalent hearing. Now, there's features to both of these that are good and bad, and it plays upon the strategy of knowing where you're at in the statute of limitation 10 year window. All right?
Let's talk about the Collection Due Process Hearing, and the equivalent hearing. Just keep in mind that in both of these hearings, right, if we don't get the CDP, if at least we can get the equivalent hearing, we're in a much better position because if you can think about it, we're taking the case from the revenue officer, or from ACS, whose sole mission is to collect as much money in as little amount of time as possible versus putting it into the hands of someone who's called a settlement officer, someone who is trying to settle a case as opposed to enforcing money that ... deals people just can't abide by. You have an enforcer versus a settler. Which one would you rather deal with? I think I'd rather deal with the settler, quite frankly.
The CDP hearing, when you have one of those, the collection statute stops, but also the collection activity of the IRS stops as well. That's one thing that's comforting at that point. Though the statute period stops, that extends that 10 year period. Also, in a Collection Due Process Hearing, you have the ability to appeal to a Tax Court if you're not happy with the determination of the CDP hearing. If you blow the CDP hearing, and now you can do an equivalent hearing, collections will still continue. But by IRS policy, unless you're a really egregious taxpayer that doesn't pay their taxes, or habitually doesn't pay their taxes, they normally will stop at that point and allow the hearing to continue on without harassing the taxpayer.
Nice thing about this is the statute continues to run because the IRS can continue the collection that they want. This hearing is very helpful if you're in that 10 year window, and you're very close to the end of the 10 years, because the statute continues to run. It doesn't get held up, so there may be a strategy there where you may purposely want to blow the CDP hearing in favor of the equivalent hearing. The only downside to the equivalent hearing is you don't have appeals rights to the Tax Court.
You do lose a bit of leverage here, but by doing the equivalent hearing, or asking for it deliberately, and if you're near the 10 year period, you know the IRS has not always worked at the speed of light. So maybe you take advantage of the fact that they could blow the statute, which I've seen that happen in the past, where this something that sits on someone's desk for a couple of months, and they blow the statute of limitations, and the taxes owed just goes away by the power of further time at that point.
Okay. Let's say you blow everything. You didn't get your CDP, you didn't get your equivalent hearing, which by the way, only about 3% of taxpayers actually end up getting the Collection Due Process Hearing in this thing. They end up ignoring, like an ostrich ignoring their rights, and the IRS starts taking their stuff at that point. They start garnishing wages. They're cleaning up bank accounts, they start requesting payments from customers. It's making taxpayers life's miserable at this point, levying all this stuff.
The purpose of all that is at some point, they're just trying to get the taxpayer's attention. They've gone through this letter campaign where they've sent out four or five letters. Now, they have time to really make the taxpayer's life miserable, and at some point the IRS has to, or the taxpayer has to deal with the issues at that particular point in time. Here is the form that we would fill out. It's called a Form 12153. It's a request for due process, or equivalent hearing. Not a terribly complicated form. It's two pages.
The first page is, again, not terribly difficult, taxpayer information, telephone number, if you have a spouse, you'd be throwing that out as well, telephone numbers. Wouldn't advise putting the taxpayer's number in there if you're a practitioner, and you're representing someone. Just put your information in there and just notate that it's the POA's phone numbers, and then you fill out whatever information that the lien or levy notices are going against, the type of tax, the forms, and the tax periods.
If you go to the second page, line six, you would check off whatever box supplies that if you have a federal lien that the IRS has just placed on your assets, which by the way, they put it on your assets. They don't tell you until five days afterwards that they put it on your assets. But once you have it, then you have the ability to file this form. The form that we more than likely will be dealing with would be the final levy forms, and that's where we have the proposed levy or actual Levy. We check that box.
Very important in line seven, you must check this box if you want an equivalent hearing. For whatever reason, you stand the chance of blowing the Collection Due Process Hearing. Primarily, if it's filed late, you want to be able to get that equivalent hearing, so you have to check this box in line seven. Line eight, basically, what I would do, and what most people out in this space would do is say, check everything. Check installment agreement, Offer in Compromise. I can't pay the balance for the lien. Check all that subordination discharge withdraw. I would even check if you're married file. My spouse is responsible.
Then the other category, I would maybe put a bullet point in there, I am keeping all my payment options open, and want to be able to use them at any point in time. Something of that nature that's allowable. It's true. I mean, you could, when you file this, you may think you can get an Offer in Compromise. But you start putting financial information together and you find out that the taxpayer, there's no way they can get an Offer in Compromise, so you back down to either maybe getting an installment agreement, or currently not collectible, I can't pay the balance. You want to leave all your options open.
The other bullet point I would put in there would be penalty abatement. Always go for penalty abatements in these instance, particularly if it's a first time offender. Remember, taxpayer, the IRS is usually, particularly these hearings, are pretty amenable to if you come up with a good plan of at least reducing the penalties, if not getting them done totally.
Number nine, obviously, sign in the statement is extremely important, being represented. Check the box, I request my CDP hearing to be held by an authorized representative, and then have the rep sign their name as well. That's the form. If that can be filed, and filed with the GG file with ACS, or with the revenue officer, whoever you're dealing with at that point, they'll look at it, they'll push it on. Again, there may be some pushback on that. Maybe not. I've had agents suggest that I do this, and I've had agents push back and ask me why I'm doing this thing.
The issue is just doing this thing, not really having to question why. If they quit the question why, I've gone back and tell them, "Then withdraw your levy notice, and I'll withdraw my request the Collection Due Process Hearing," and they always go, "Well, I can't do that. That's not going to work for me." Well, it's not going to work for me either. So I continue on with the Collection Due Process Hearing because I think that's the best place to be when you're in a collection problem issue that you have to deal with.
We go to polling question number two. When applying for a Collection Due Process meeting, you would send the IRS what in order to request the CDP hearing? Hopefully, most of us will get that right. Form 433, as we've explained before, is the financials we do for the taxpayers having the collection issue. The 656 is a form that you would ... It's actually the offering compromise contract that you would put. It's almost like a cover letter for the Form 433 AOC and BOC.
The CP2000 is a notice of unreported income. It's a notice that comes pretty much right after you file a return. It's where they match 1099 and W-2s, and that sort of thing. If they don't match up, they usually will come back and question you as to why they don't match up. So number C is really the right answer for this.
AI:Just remember that in order to receive your CPE Certificate, you must remain logged on for at least 50 minutes, and respond to at least three polling questions.
DG: Andal, is there any questions that have come over, or?
AI: Yeah, there's just one question. It's notice number CP504 is received, and the taxpayer does not agree with the amount owed, at this point is the case closed with regard to the amount, or can something be done about it? What the course of action be?
DG: If I was at that stage at that point, my advice would be, don't do anything, but be very careful. Watch the next mailings, which normally come in, normally, the intent to levy, which is the next set of letters that come through. Normally, the revenue agent, revenue officer, I should say, would deliver them face to face, or it would come in certified mail. There should be no missing that letter. Once you get that letter, then you get your ticket to the Collection Due Process Hearing, and then you can bring up that issue with the officer at that point.
DG:The Collection Due Process Hearing is really a hearing meant more for collections as opposed to liabilities, all right? But there are some alternatives to deal with liabilities. One would be to offer up an audit reconsideration. If they the return that they have may be incorrect, you may be able to offer up information that might change the liability. You can also do an Offer in Compromise doubt as the liability, and present that to the settlement officer. I would make sure I'm talking to the settlement officer, someone who'll contact you and just let them know that you have some issues there, and see the best way.
Sometimes, it depends on the history, depends on how much, if that liability, if you say you've gone to Tax Court, and that liability's already been settled, the Tax Court has ruled a certain way, you're pretty much taken out of it at that point.
DG:All right? You got to be careful where you're at. If you're, again, just looking at the past history of the person is very important. But I would try to get myself into the Collection Due Process Hearing bit to talk to the settlement officer at that point.
AI:Okay. Okay, we're going to close the poll, share the results as then referenced, the correct answer is C.
DG: Okay. Very good. Okay. Yeah. Again, the Collection Due Process Hearing, again, when you get the Collection Due Process Hearing, just one thing before we move down to this slide, you may actually get a call from somebody from the Automated Collection Service. Now, we talked about the fact that this is a system that's really run by computers. You get some people that support it. Whenever you normally talk to people, if you call in the ACS, you get a different person every time. You never get the same person.
But in this, there's a rare exception here, when you have a Collection Due Process Hearing, initially, I guess, because the settlement officers are so overwhelmed with work, they'll often push this down to ACS, and you'll oftentimes get a ACS person. Now, they are lower level person, all right, to deal with, and quite frankly, I don't know that I've ever settled a case with them because, again, they're very rigid, they're structured, they're not really built for settlements. When I did my hearing application, I submitted a 433, A and B. They're only used to 433Fs, and it blows them away. I've never really been able to settle that stuff.
I've always talked to them because it's always bought me a little bit of time in getting stuff together, but never really settled anything with them, and I end up going to a settlement officer. But here, this Collection Due Process Hearing, why it's important, it kind of slows things down. All right? Because the taxpayers getting hit from all places. It almost reminds me, back in the day in my old days back, I was a kid playing football. In practice, we used to have this drill called Bowl in the Ring. Then we'd have one person sitting in the middle of a circle with about 12 guys surrounding him. Each had a number, and the coach would caught the number, and they would go and try to blow this guy out of the ring.
That's what the taxpayer feels like after dealing with the IRS. The Collection Due Process Hearing kind of protects him or her from getting beat up, and allows the practitioner, and the taxpayer to regroup and get their stuff together so they can sit down in the CDP hearing. These are the proposed alternatives that we have. We've gone through some of these in the past, maybe some not much detail, but these are the type of alternatives we talked about.
One thing I don't list in here, which is something that you may want to talk about, also, if you do some sort of a bankruptcy analysis, maybe have a case there to say, "You know what, if we want the bankruptcy, this is what you get versus what you guys are trying to push here." Maybe add a little leverage, particularly, if you're in an equivalent hearing where you don't have as much leverage to do the Collection Due Process Hearing.
When you're doing the meeting, the CDP hearing, or the equivalent hearing with the settlement officer, you really need to go in prepared. All right? Again, if it's done right, you should have had three or six months to prepare for this thing. Right? You shouldn't have your alternatives set, you should have your financials done, even have a backup plan if you're doing an Offer in Compromise, and that gets pushed back, can you do a Currently Not Collectible, can you do an installment plan?
You need to be able to deal with the variety of settlement officer personalities that are out there. You have some that very good, looking for settlements, looking for ways to get things done. Some that are a little unsure as to where or when they can do stuff. You got some guys and gals that are just ... they're like goalies at a soccer or a hockey. You throwing everything in the kitchen sink at them, and they're just kicking it out. All right?
Then you probably have people that are somewhat in between. You get to deal with these various personalities. I will tell you that most of these meetings now are phone meetings with settlement officers, which aren't always the greatest. I like to do the face to face if you can. But if you do a face to face meeting, or you request a face to face meeting, you do have to have everything submitted to them when before asking for that face to face meeting. You need to have your 433s in with all the support and everything in, in order to get a shot at a face to face meeting.
Particularly, if you have a sensitive issues, things that you think that you can only explain to somebody face to face, that, you want to be very careful of, otherwise, again, you're going to be stuck with a phone, which isn't the worst thing in the world. But as most of us know, making a human connection the eyeball to eyeball connection, I found this in these cases, make things a little bit more palatable for both sides, and maybe getting a better settlement.
Also, in these meetings, you want to look at other things that may crop up like mitigating liens. You have liens that the ... Liens are those things where we talked about before where there's a blanket over all the assets of the taxpayers. The taxpayers can't really do anything with their assets. They can't refile them, they can't sell them without the IRS swooping down and taking that money. But there were instances where the IRS shouldn't be doing liens, like if the liability is under 10 grand. There really should be no liens at all on that. You should check with that.
Some of the officers don't know that. They need to be instructed about that. Should be no liens if you have six year installment agreements, where the amounts are from 10,000 to 50,000. For those between 25 and 50 where you have direct debits. Once you have had three or four of those direct debits hit, you can be asking for those liens to be taken away. You also can structure a deal where you get lien discharges, or subordinations. The lien discharges, but where maybe you have a second home, or a piece of land somewhere that's collateralized by the ... Or there's a lien by the IRS on that, and you want to get clean title.
But you can actually submit a form and ask for that particular property to be discharged so that it could be sold and liquidated. Now, the IRS, obviously, is going to want to be at the table when that's being sold to get their piece of whatever they can get from that. If doing a deal like that is in their interest, trust me, they'll help you get through that so that that lien can be discharged.
Also, subordination. All right? They may have an instance where they have the first shot, again, to some property, whether it might be a building that you have, and now you have a bank that might be willing, or a hard money lender that might be willing to lend you money, but they want first shot. They want to be in place with the IRS. You do this lien subordination, which puts the IRS into a second position behind this creditor that comes in, but knowing that that refinance is going to help the IRS. Normally, they'll be just fine with that.
Now, we go into the polling question number three. How many years is the collection statute of limitations? Three is really, as we talked about before, is really for assessments. Six is for the assessment in the event that there's unreported income. No limit really is for fraud assessments, or for assessments involving fraud. Letter C, 10, is the correct answer.
AI: Please remember that in order to receive your CPE Certificate, you must remain logged on for at least 50 minutes, and respond to at least three polling questions. Dan, we have a question.
AI: How do you deal when the IRS reduces an overpayment, and no 30-day letter is mailed?
DG:Say that again?
AI: What do you do when the IRS reduces an overpayment on a previously filed tax return, and no 30-day letter was mailed?
DG: A 30 day letter for ... I guess I'd have to get some more information regarding that. A 30-day letter, when there's a ... because there's a 30-day letter when there's an audit, and you're trying to get an appeal, and then you have the 30-day letter when you're trying to do a Collection Due Process Hearing. I don't exactly know what they're asking for in that question.
AI:Okay. We can maybe wait and see if they have a clarification.
DG:Okay. All right, so let's move on. Okay.
AI:Okay. I am going to now close the poll and share the results. As mentioned, the correct answer was C.
DG:Good. All right. We'll talk a little bit more about what the IRS can do in seizing some of your assets. We have the levy, which the IRS can come in and obtain ownership of your property. Levies are intangible as well as tangible assets. The intangible is the bank and wages. Bank accounts, brokerage accounts, they're usually a one time event, meaning that when the bank gets a levy notice, they have to ... Whatever's in the bank, whenever they get this notice, that's all they give up. You may have $1 in your bank account when they get the notice. That dollar would be paid to the IRS.
The next day, you may deposit $100,000, and they can't get to it at that point. They have to issue another levy notice in order to get that money, right? On top of that, they have to wait 21 days before they give up whatever money that they have on that day, and this, again, allows the taxpayer to try to do something with the IRS to try to mitigate having to do their levies. Now, if you have your wages garnished, that's a continuous levies as well as, surprisingly enough, people are often shocked that the IRS could actually go after your social security as well. Once those levees are in place, they continue, their continuous. IRS doesn't have to renew that, and they normally will continue on until there's some sort of an agreement that's made between the taxpayer and the IRS, or the amount that was due was paid in full.
When you have tangible assets like a car, or your home, it's a levy, but it's actually called a seizure at that point. Again, if you're ever in these situations where you have IRS really bearing down on you, again, the levies are more than just the liens? The levies are actually the IRS just taking your stuff, and making your life miserable because you got checks bouncing. You're not getting what you think you need to get with your wages. All of a sudden, you have nothing coming into your check as in check from your wages is a net, basically nothing. All right?
You have to make sure, before you start working with the IRS, and saying when I say the magic words, let's work on an installment plan, which should really stop the IRS in its tracks, you need to make sure that you filed all of your tax returns up to date. That's step number one, and then for the current period that you're in, you need to show that you've paid in all of your current taxes for that year before they'll start working with you on an installment plan, and stop the actions that they've taken place.
These levees and seizures are really nothing more than a way of getting your attention. Right? The IRS is not looking to ground ... Well, I should say. In most cases, the IRS is not looking to ground up down to a pile of powder. They're looking to get paid, and they're looking to get paid in full. If they get paid in a more orderly manner, they're more than happy to deal with you, but you have to deal with them at this point. All right? Again, just keep that in mind when you're working with levies, and the IRS is bearing down on.
That takes us to polling question number four. For what hearing do you not have Tax Court appeals rights? That's Collected Due Process or the equivalent hearing. As we talked about before, the Collection Due Process is the crown jewel in all this. You want to be able to get there if you can, try not to blow it. Unfortunately, 97% of taxpayers that get involved in this that have this available somehow tend to blow it. But if you do blow it, you always have the equivalent hearing, not as good as the Collection Due Process Hearing, and mainly because you don't have the Tax Court appeal rights to do that, and think about the agent working with you at that point, or the revenue officer, or the settlement officer that's working for you at appeals, knows in the back of his mind that you can take his determination to Tax Court to see whether or not he's reviewed the case properly or not.
AI: Please remember that in order to receive your CPE Certificate, you must remain my band for at least 50 minutes, and respond to at least three questions. Okay, we are now going to close the poll and share the results.
DG:Okay. Very good. Okay, so we talked about this slide a lot, so I'm not going to pay a whole lot of attention here. But we got the 10 year statute. Very important to know where we're at. We've got tolling events that can disrupt this 10 year statute, whether it be the pending installment agreements, CDP request, Tax Court review. These things can can stall that statute of collections, and knowing where we're at in there in order to be able to strategize, should we have a Collection Due Process Hearing, maybe we should blow it to have the equivalent hearing.
Okay, so we have the meeting with the settlement officer, and he closes it, he or she closes it. If we have the equivalent hearing, we get what's called a decision letter that's issued to us. That's normally pretty final at that point. Right? There's no Tax Court appeal rights. Right? However, when you have the Collection Due Process Hearing, you're issued what's called a determination letter. The officer is determined what's going to happen, and that letter is supposed to address the quote balancing act that the IRS has. That is the government's need to collect, versus the taxpayer's ability to pay it.
All the issues and payment alternatives that you've brought up should be addressed in the determination letter. Any other issues that have been brought up, and it's a good idea, normally, to the document all this stuff as you're going along. When you get that determination letter, if you're not satisfied with the result, that's your ticket to Tax Court appeal, and it's your starting point in your case, or for arguing the case to the Tax Court appeal process. You want to be very careful to take those rights if you can.
Now, the Tax Court will not rehear your hearing again, but they will review what the settlement officer has done. They have an abuse of discretion standard. They will look through the determination letter and determine whether or not the settlement officer has fully vetted the issues, and if they haven't, they'll push it back, and you'll get, basically, a redo at that point for the Collection Due Process Hearing. Another bite of the apple.
Once your case is done, they're going to ask you to sign one of two documents. The first document, the Form 12256 Withdrawal of Request. I probably would never sign this one. As you look down about three quarters page down, you'll see you're withdrawing your requests. You're giving up a ton of rights here. Probably not a great document to ever sign. I don't think anyway, unless you're truly are withdrawing the Collection Due Process Hearing, and you don't want to ever do one for this issue again.
The next page is the 12257. This is the Waiver of Judicial Review. This is the one that you probably will sign, right, after you've gotten a determination letter, and you're satisfied with your results. Right? If you're satisfied with your results, you'll then waive your Tax Court rights, which is what the IRS wants to be. If you're in the right spot, right, and you want to get this thing done, this is the form that you're going to want to sign off on, because you've got your deal already. There's no need to go to Tax Court at this point.
Again, once you've gotten the determination letter from the CDP hearing, you have 30 days in order to get that. As I stated here, if you've got your CDP hearing, maybe if you've done a Doubt as to Liability. Tax Court has look at that de novo. De novo, which means from the beginning. As we talked about before, and if it's a collectability issue, they only can, upon an abuse of discretion standard, just deciding whether or not you've had a fair hearing or not. You have to look at whether the procedures were followed by the IRM, where the issues were addressed.
Is there a supportable position from the IRS? Was the hearing fair? If not, then again, it gets recycled back through appeals, and you get another chance to argue your case. With that, I will be ending. I don't know if you got any more questions there.
AI:We have a couple. I have clarification to the earlier question we had about the 30-day letter. The question is, the taxpayer had an overpayment, and ACS reduces the overpayment refund. What should be done if no correspondence is provided, which allows you to go to appeals?
DG:This is an overpayment issue.
AI: Yeah, it's an overpayment.
DG:Okay. That's not an issue that would be dealt with at the CDP level. You have to go back to ACS and just deal with their letters, try to reconcile it to your tax returns, and deal with that. If you don't get any satisfaction there, at some point during the process, you're going to be able to go to appeals, all right, and just deal with it. Not so much as a Collection Due Processing Hearing, but an appeals would be one of the avenues that you can go with to get your case heard. Or if worse comes to worse, you always have the ability to go to the taxpayer advocate's office, and they can help you out with that as well.
DG:Anything else? That's it? Okay.
AI:We hope you enjoyed today's webinar. Please look out for a follow-up email with a link to the survey and presentation. If you have additional questions about today's topics that you would like to be addressed, please feel free to email our speaker directly. For those who meet the criteria, you will receive a CPE Certificate from EisnerAmperU@eisneramper.com within 14 business days of confirmed course attendance. Thank you for joining our webinar today.