When initial contacts by the Internal Revenue Service (IRS) do not result in the successful collection of unpaid tax, the IRS has the authority to attach a claim to a taxpayer’s assets with a Letter 3172, Notice of Federal Tax Lien Filing and Your Rights to a Hearing Under IRC 6320 (lien).
This is usually filed in the local records. So if the taxpayer lives in Houston, the lien would be filed in Harris County. This would require the taxpayer to engage a tax attorney in Houston, Texas to help get the lien removed.
The IRS also has the authority to seize or levy a taxpayer’s property, such as wages or bank accounts, to satisfy a taxpayer’s debt. However, before a levy can be placed on a taxpayer’s account, the IRS must issue the taxpayer a Letter 11 or Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing (levy). Continuing the example, if the taxpayer lived in Houston, the IRS would initially focus its asset search in Houston, Texas.
In January 1996, Congress modified collection activity provisions that allowed taxpayers to appeal the filing of a lien and proposed or actual levies. Further, Congress enacted legislation to protect taxpayers’ rights in the IRS Restructuring and Reform Act of 1998, which gave taxpayers the right to a hearing with the Office of Appeals (Appeals) under the Collection Due Process (CDP) provisions. The Office of Appeals is independent of other IRS offices, and its mission is to resolve tax controversies, without litigation, on a basis that is fair and impartial to both the Federal Government and the taxpayer. These hearings are usually local as well. So the taxpayer in Houston would likely have their CDP hearing in Houston, Texas.
When a taxpayer timely requests an Appeals hearing regarding the filing of a lien or the issuance of a Notice of Intent to Levy, the taxpayer is granted a CDP hearing. However, if the taxpayer’s request for a CDP hearing is not received within the allotted time, usually within 30 calendar days, the taxpayer, at the discretion of Appeals, may be granted an Equivalent Hearing (EH). The taxpayer must request an EH within one year of the issuance of the Notice of Intent to Levy or the filing of a lien. Taxpayers have the right to petition the U.S. Tax Court if they disagree with Appeals’ decision on a CDP hearing, which is not afforded to those taxpayers who are granted an EH.
When Appeals makes a final decision on a taxpayer’s case, the hearing officer will generally issue one of the following:
- Determination Letter 3193 – Notice of Determination Concerning Collection Actions Under Sections 6320 and 6330.
- Decision Letter 3210 – Decision Letter Concerning Equivalent Hearing Under Section 6320 and/or 6330.
- Waiver Letter 4382 – Waiver of Appeals Notice of Determination in a Collection Due Process Hearing.
- Withdrawal Letter 4383 – Withdrawal of Request for Collection Due Process or Equivalent Hearing.
Waiver Letter 4382 is used when the taxpayer and the IRS agree on a viable collection alternative.
Withdrawal Letter 4383 is used when the taxpayer has reached a resolution with the IRS regarding the tax and tax periods and he or she is otherwise satisfied that a hearing with Appeals is no longer needed. This is result is more certain when, as in the example, the taxpayer hires a tax attorney in Houston, Texas.