2. 2
Collection Procedure
Fresh Start Program
Offers in Compromise
Installment Agreements (Full/Partial Payment)
Appeals (to IRS; Tax Court; US District Court)
Writing off Penalties and Interest
Miscellaneous
Topics
3. 3
Statute of Limitation for Assessment:
Under Internal Revenue Code 6501, the IRS has 3 years from the
date a tax return is filed to assess the tax.
Collection Statute Expiration Date:
Under Internal Revenue Code 6502, the statute of limitations, or
Collection Statute Expiration Date (CSED), on the IRS’s ability to
collect on an assessment is 10 years from the assessment date.
However, the CSED can be extended under certain circumstances
(e.g., by written waiver executed in connection with a Partial Payment
Installment Agreement).
Collection Procedure –
Collection Statute Expiration Date
4. 4
Once a tax assessment has been made, the IRS will send
the taxpayer a notice regarding the balance due. However,
the IRS will not levy a taxpayer until it has issued a series of
notices to the taxpayer:
Balance Due Notice (CP-14) ;
Reminder Notice of Balance Due (CP-501);
Reminder Notice of Balance Due (CP-503);
Intent to Levy Notice (CP-504); and
Final Notice of Intent to Levy (LT-11; CP-90; or CP-1058).
Collection Procedure - Notices
5. 5
Balance Due Notice (CP-14):
The balance due notice, CP-14, includes the total tax due on the tax
return, the amount of any tax withholdings, estimated tax payments,
total payments and credits, penalty and interest. It provides
instructions on how to pay the balance due in full and a payment due
date. Taxpayers who pay the total amount (if IRS receives payment)
by the due date will not be charged additional interest. The notice
also instructs taxpayers who disagree with the notice to contact
customer service at the phone number provided in the notice.
Collection Procedure - Notices
6. 6
Reminder Notices of Balance Due (CP-501; CP-503):
In approximately 5 weeks from the CP-14 payment due date, the IRS
will issue a second notice, CP-501, which reminds the taxpayer of the
balance due, and provides instructions on how to pay the balance due
(in full or in monthly installments). The CP-501 notifies the taxpayer
that, if the amount is not paid in full, the IRS can issue a Notice of
Federal Tax Lien, interest will continue to increase, and penalties may
apply. Following the CP-501 notice, the IRS will issue the CP-503,
which is another notice reminding the taxpayer of the balance due and
that the taxpayer has not paid the tax or has not responded to the IRS.
Collection Procedure - Notices
7. 7
Intent to Levy Notice (CP-504):
If after the CP-503 the balance due remains unpaid or payment
arrangements have not been made, the IRS will issue a CP-504,
which informs the taxpayer of its power to issue a levy against the
taxpayer’s state tax refund and to file a Federal Tax Lien.
Collection Procedure - Notices
8. 8
Final Notice of Intent to Levy (LT-11; CP-90; or CP-1058):
If no response to the IRS, or no payment, the IRS will issue a LT-11
(or CP-1058, or CP-90), which indicates the IRS is ready to levy upon
the taxpayer’s wages and/or bank accounts and file a Federal Tax
Lien, if it has not done so already. The IRS must issue the LT-11 (or
CP-1058, or CP-90) before it can commence a levy action against the
taxpayer.
***Note that a CP-504 can be issued after the Final Notice of Intent to
Levy as a reminder of the taxpayer’s obligations.
Collection Procedure - Notices
9. 9
Right to Due Process Hearing Prior to Levy:
The taxpayer has a constitutional right to request a Collection Due
Process (CDP) Hearing within 30 days of the LT-11, CP-1058, or CP-
90 notice. If the taxpayer timely requests a hearing, the IRS will not
issue a levy on the specified tax periods while the hearing is
pending. If no hearing is requested, the IRS can issue a levy after 45
days of the date of the LT-11, CP-1058, or CP-90 notice.
The taxpayer may request an Equivalent Hearing up to one year after
LT-11, CP-1058, or CP-90 notice. However, only CDP hearing
determinations are appealable to the U.S. Tax Court.
Collection Procedure –
Collection Due Process Hearing
10. 10
In 2008, the IRS developed the Fresh Start program, which was
designed to make paying back taxes and avoiding tax liens (or
having them withdrawn) easier for taxpayers. In 2012, the
program was expanded to:
Provide a six-month grace period on Failure-to-Pay penalties for certain
unemployed or self-employed taxpayers;
Increase the number of taxpayers who can benefit from streamlined
installment agreements; and
Provide the IRS with more flexibility in determining the reasonable
collection potential for distressed taxpayers seeking Offers in
Compromise.
Fresh Start Program
11. 11
An Offer in Compromise (OIC) is an agreement between a
taxpayer and the IRS that settles the taxpayer’s tax liabilities for
less than the full amount owed. The IRS may accept an OIC
under one of the following circumstances:
1. Doubt as to liability: genuine dispute as to the existence or amount owed
under the law;
2. Doubt as to collectability: taxpayer’s assets and income are less than the
full amount of the tax liability; and
3. Effective tax administration: liability is certain and collectible but
exceptional circumstances make collection unfair or inequitable.
Offers in Compromise
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Application Components For OIC based on Doubt of
Collectability and Effective Tax Admin.:
Forms:
Form 656; and
Form 433-A (Collection Information Statement for Wage Earners and Self-Employed
Individuals) or Form 433-B (Collection Information Statement for Businesses).
Fee: $180.00
Initial Offer Payment: Portion of Offer Amount Due with Application
Offer Amount calculated by using Section 8 of Form 433-A or Section 5 of Form 433-B;
Amount due with application depends on selection of Payment Option.
Offers in Compromise - Process
13. 13
Exception to Application Fee and Initial Offer Payment:
No application fee or Initial Offer Payment required for INDIVIDUAL
taxpayers (does not apply to business entities) whose total monthly income
falls below 250 percent of the poverty guidelines as published by the
Department of Health and Human Services.
(Low-Income Certification found in Section 1 of Form 656 must be
completed for exception to apply.)
Offers in Compromise - Process
14. 14
Application Components For OIC based on Doubt as to
Liability:
Forms:
Form 656-L;
Written statement, and any supporting documentation, explaining why the tax debt, or
portion thereof, is incorrect.
Fee:
None.
Initial Offer Payment:
None.
Offers in Compromise - Process
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Payment Options:
Lump Sum Cash Offer: An offer payable in five or fewer installments
within five or fewer months of acceptance
Applications must include non-refundable initial offer payment of 20 percent of
proposed offer amount.
Periodic Payment Offer: An offer payable in six or more monthly
installments and within 24 months of acceptance
Applications must include non-refundable first proposed installment as Initial Offer
Payment.
Offers in Compromise - Process
17. 17
Suspension of Collection:
During Pendency of OIC Review: The CSED is generally tolled while
the OIC is under consideration.
Post OIC Determination: It is further tolled if, upon rejection of the
OIC, the taxpayer timely appeals.
Offers in Compromise - Process
18. 18
Terms of Acceptance: If the OIC is accepted:
The taxpayer is expected to have no further delinquencies and to
fully comply with the tax laws moving forward;
In the case of OICs for Doubt as to Collectability and Effective Tax
Admin., the taxpayer must timely file tax returns and timely pay all
taxes for the next five years;
Failure to do so may result in default:
Agreement is void;
IRS may collect original debt amount (less payments made), plus
interest and penalties.
Offers in Compromise - Process
19. 19
Right to Appeal: If the OIC is rejected, the taxpayer will be
mailed a notice stating the reasons for the rejection and
providing detailed instructions on how to appeal the decision
to the IRS Office of Appeals. Appeals must be filed within 30
days of the date of the rejection notice.
Offers in Compromise - Process
20. 20
Installment Agreement: An agreement entered into by the
taxpayer and the IRS whereby the full tax debt is payed over
an extended period of time. Unlike an OIC, an Installment
Agreement provides for payment of the tax debt over an
extended period time in affordable monthly installments.
There are two types:
Full Payment Installment Agreements; and
Partial Payment Installment Agreements.
Installment Agreements
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“Streamlined” Payment Installment Agreements:
No Collection Information Statement (Form 433) requirement;
Available to individuals owing less than $50,000; and
Paid in full within 72 months.
“Non-Streamlined” Payment Installment Agreements:
Requires a Form 433-F Collection Information Statement;
Not limited to individuals owing less than $50,000; and
Paid in full before the CSED.
Installment Agreements – Full Payment
22. 22
Partial Payment Installment Agreements (PPIA):
Utilized when, based on the taxpayer’s monthly payment, the tax
debt will not be paid in full prior to the CSED.
Called “partial” because the passing of the CSED cuts off the IRS’s
ability to collect full payment.
Requires Collection Information Statement (Form 433-A or Form
433-B) to determine taxpayer’s ability to pay.
Installment Agreements – Partial Payment
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Partial Payment Installment Agreements and CSED:
The 10-year CSED may be extended in connection with a PPIA, but
only under certain circumstances wherein the taxpayer’s financial
situation is expected to improve based on a foreseeable event likely
to occur after the CSED.
Such CSED extensions are limited to five years beyond the original
CSED.
Installment Agreements – Partial Payment
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Equity in Assets: Before a PPIA will be granted, equity in
the taxpayer’s assets must be considered and, if appropriate,
used to satisfy the tax debt. A PPIA may be granted in cases
where the taxpayer has no assets or no equity in his/her
assets.
Installment Agreements – Partial Payment
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Equity in Assets: In cases where the taxpayer has equity in
assets, a PPIA may still be granted if taxpayer does not sell or
cannot borrow against the assets for one of the following
reasons:
Loan in unobtainable because of insufficient equity in the asset or loan
payment would exceed taxpayer’s disposable income;
Taxpayer in unable to utilize the equity (e.g., held in tenancy by the
entirety);
Asset is unmarketable;
Asset is necessary to generate income used to make PPIA payments; or
It would impose an economic hardship on the taxpayer.
Installment Agreements – Partial Payment
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Approval by IRS: Generally, the IRS will approve an Installment
Agreement if, based on its analysis of the taxpayer’s ability to
pay, the agreement appears the best means of resolving the
case and receiving payment. Common reasons for rejection
include:
Claimed expenses are extravagant or not “necessary” (e.g., charitable
contributions);
Failure to provide Form 433-A Collection Information Statement;
Defaulted on prior installment agreements; or
Incorrect or missing information on application.
Installment Agreements – Approval
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IRC § 7122 (e) gives the taxpayer the right to appeal the Service’s
rejection of installment agreement requests. Under the Collection
Appeals Process (CAP), IRC § 6159(e), and Treasury Regulation
§301.6159-1, the taxpayer also has the right to appeal proposed and
actual terminations of installment agreements and proposed and
actual modifications of installment agreements.
Appeals may be made by calling the number provided on the rejection
notice or by submitting a Form 9423 within 30 days of the rejection
notice date.
Installment Agreements – Right to Appeal
28. 28
Allowed Expenses: Allowable living expenses include those
expenses that meet the necessary expense test. The
necessary expense test is defined as expenses that are
necessary to provide for a taxpayer’s (and his or her family's)
health and welfare and/or production of income. Taxpayers
are allowed the total National Standards amount monthly for
their family size, without questioning the amount actually
spent.
Form 433-A Expenses
29. 29
National Standards: National Standards have been
established for five necessary expenses:
Food;
Housekeeping supplies;
Apparel and services;
Personal care products and services; and
Miscellaneous.
Form 433-A Expenses
31. 31
Collection Appeals Program (CAP): Available for the
following:
Proposed or actual lien actions;
Proposed or actual levy actions; and
Proposed or actual installment agreement actions.
Initiated by submitting Form 9423. Appeals decision is final and
binding on both the taxpayer and the IRS.
Appeal to IRS Office of Appeals
32. 32
Collection Due Process: Available if you received one of
the following:
Balance Due Notice (CP-14);
Reminder Notice of Balance Due (CP-501);
Reminder Notice of Balance Due (CP-503);
Intent to Levy Notice (CP-504); or
Final Notice of Intent to Levy (LT-11; CP-90; or CP-1058).
Initiated by submitting Form 12153. Office of Appeals decision may
be appealed to Tax Court.
Appeal to IRS Office of Appeals
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Appeals Conference: Available for all other IRS determinations.
Initiated by submitting a written Protest. Written Protest must include:
Your name, address, and a daytime telephone number.
A statement that you want to appeal the IRS findings to the Office of Appeals.
A copy of the letter you received that shows the determination.
The tax period(s) or year(s) involved.
A list of each proposed item with which you disagree.
The reason(s) you disagree with each item.
The facts that support your position on each item.
The law or authority, if any, that supports your position on each item.
A penalties of perjury statement & signature of taxpayer and preparer.
Appeal to IRS Office of Appeals
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Appeals to Tax Court only available in certain cases:
Notices of Determination;
Notices of Deficiency; and
Claims with the IRS for relief from joint and several liability (innocent
spouse relief), if six months have passed, and the IRS has not issued you
a determination letter.
Generally, the Tax Court only has jurisdiction if the IRS has issued a Notice
of Deficiency or Determination. If no notice has been issued, the petition will
be dismissed as premature.
Appeal to U.S. Tax Court
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Petition requirements:
A copy of any Notice of Deficiency, Notice of Determination, or Final
Determination the IRS sent you;
Your Statement of Taxpayer Identification Number (Form 4);
Request for Place of Trial (Form 5); and
A $60 filing fee, payable by check, money order, or other draft, to the
"Clerk, United States Tax Court"; or, if applicable, a fee waiver form.
Tax debt need not be paid prior to filing.
For more information, see Tax Court Rules of Practice and Procedure.
Appeal to U.S. Tax Court
36. 36
The U.S. District Court has jurisdiction over these matters:
General Jurisdiction to Issue Judgments and Writs to Enforce Internal Revenue
Laws;
Suits Challenging the Validity of Tax Determinations/Counterclaims;
Suits Related To Wrongful Levy, Surplus Proceeds, Substituted Sales Proceeds,
and Substitution of Value, Generally Brought by Persons Other Than Taxpayers;
Suits by Taxpayers Alleging Improper Acts by the IRS;
Review of certain IRS Due Process Hearings and IRS Collection Actions before
Levy on Principal Residence; and
Interpleader/Quiet Title/Foreclosure or Other Actions Involving Property in Which
IRS may Claim an Interest.
Appeal to U.S. District Court
37. 37
Appealing Tax Determinations and Refund Disputes: In order
to invoke court’s jurisdiction, taxpayer must:
Pay the disputed tax; and
Have filed an administrative claim with the IRS for refund or credit, which
was denied or deemed denied under applicable regulations;
In certain instances, it may be necessary for the Service to assert a
counterclaim against the taxpayer for any unpaid tax liability that should be
made part of the lawsuit.
Appeal to U.S. District Court
38. 38
Penalties and Fees: Unpaid tax assessments accrue interest
and penalties each month they remain unpaid. The IRS may be
willing to waive or reduce the penalty charges upon showing of
good cause. Make request by submitting:
Letter stating the reasons you were unable to pay; and
Copies of any documentation that supports your reasons (e.g., medical
records showing hospitalization).
Penalty and Fee Waiver
39. 39
IRS Response: Will send response within 60 days and:
Accept your information and abate the fees and penalties (usually for
cases of death in the family, illness, imprisonment, a natural disaster or
the involuntary destruction of your records);
Accept your information in part and partially reduce the fees and penalties;
or
Deny your request (denial is appealable to the Office of Appeals).
Penalty and Fee Waiver
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Unlike fees and penalties for failure to pay, accrued interest
on the tax debt cannot be abated. If an unpaid balance
remains unpaid, interest will continue to accrue until the balance
is paid in full.
However, interest charged on a penalty will be reduced or
removed if and when the penalty itself is reduced or removed.
Waiver of Interest
41. 41
IRS Publication 3598 provides: “Audit reconsideration is an Internal
Revenue Service process used by the Internal Revenue Service to
help [the taxpayer] when [the taxpayer] disagree[s] with the results
of…an IRS audit of [taxpayer’s] tax return, or a return created for
[taxpayer] by the IRS because [taxpayer] did not file a return.” It may
be requested if the taxpayer:
Did not appear for his/her audit;
Moved and did not receive correspondence from the IRS;
Have additional information to present that he/she did not provide during his/her
original audit; or
Disagrees with the assessment from the audit.
Audit Reconsideration
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Submission requirements:
A letter explaining the reasons you disagree with the IRS determination.
A copy of your audit report (IRS Form 4549, Income Tax Examination
Changes), if available.
Copies of the new documentation that supports your position.
IRS Response: Will send notice once submission is reviewed:
Accept your information and abate the tax it previously assessed;
Accept your information in part and partially reduce the tax; or
Find that your information didn’t support your claim and the prior
assessment stands (in which case, submit Protest for an Appeals
Conference).
Audit Reconsideration
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Edward Cather
Main: 208.522.6700
Direct: 208.528.5224
email: ecather@parsonsbehle.com
Thank You