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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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Collection Due Process - The Grand Illusion?

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What started out as the most significant advancement in taxpayer rights in the history of the IRS has, I am sorry to say, turned into a huge disappointment, maybe even a charade.

After the IRS was skewered in the now famous 1998 congressional hearings led by Delaware Senator William Roth, the agency was restructured, re-organized, and - so we were led to believe - re-invented into a "customer-friendly" institution, concerned more with educating taxpayers to their obligations than squeezing out every last dollar of tax from them. At the same time, Congress passed the third Taxpayer Bill of Rights (TBOR III) which, among many provisions that simply codified existing IRS policies, actually included some serious procedural changes designed to level the playing field. One of these was the creation of the Collection Due Process (CDP) system, whereby the IRS is required to provide an opportunity to taxpayers to administratively appeal a proposed levy action BEFORE it happens. If timely filed, a taxpayer has the ability to take his or her disagreement over the proposed taking to the Appeals Division, a part of the IRS independent of the collection function, to work out an alternative to having the taxpayer’s property forcibly seized to satisfy his or her tax debts. While this process plays out, all collection activities are "frozen".

Historically, the Appeals Division had devoted most of its resources to resolving liability (pre-assessment) disputes. In other words, Appeals’ primary mission had always been to settle Examination cases and avoid litigation before the Tax Court over how much taxpayers owed the IRS. But Collection Due Process changed all that, and now at least half - perhaps more - of the Appeals Division’s resources are devoted towards attempting to resolve collection (post-assessment) disputes with taxpayers.

At first, the program seemed like a godsend. No more surprise bank account seizures, intimidating, threatening Revenue Officers, or IRS repo men driving off vehicles in the middle of the night. And while it remains a benefit of the program that the IRS must provide ample notice of - and an opportunity to appeal - proposed levy actions, what we have been noticing over the last few years is a growing trend on the part of Appeals Officers to do nothing more than mindlessly sustain Collection division decisions. Unlike their role in liability disputes, it appears more and more as if Appeals Officers are simply an extension of the Collection function, rigorously investigating taxpayer assets and self-righteously scrutinizing their living expenses in an effort to get every possible dollar in the U.S. Treasury cash register, with little concern for the practical, financial exigencies of taxpayers. What has happened to the so-called "independent" review of Revenue Officer decisions? Our recent experiences in the Tax Clinic have found most Appeals Officers actually less flexible than the Collection function, often demanding more from our clients in terms of document production, financial disclosure, and - most significantly - rigid installment or offer payment terms.

What accounts for this disturbing trend? Its hard to say, though no doubt it is a management call. Perhaps the "emasculation" of Revenue Officers by severely limiting their most potent weapon - the power to seize property - has influenced a re- thinking of the CDP Appeals Officer’s role. The problem with this, however, is that the CDP program is a statutory creation - from Congress - intended to provide a measure of protection against arbitrary and oppressive agency decision-making. But current implementation has become the very antithesis to the legislative policy underlying the CDP rights.

What is the Tax Clinic doing about this state of affairs? Several things. First, my students and I do not hesitate to remind CDP Appeals Officers of their intended role and function - subtly and respectfully, but definitively. Second, we are bringing this matter to the attention of IRS management, the Taxpayer Advocate, our partner organizations and colleagues, and our legislative representatives. Third, we are exploring more creative ways of resolving disputes outside the CDP system - closely and cooperatively working with Revenue Officers, contacting the Taxpayer Advocate Office for intervention, more frequently petitioning CDP determinations to the Tax Court arguing individual Appeals Officer’s "abuse of discretion", and employing other strategies to avoid the waste of time or timid acceptance of more disastrous CDP officer determinations.

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