The ability to file a collection due process appeal is probably the most powerful right you have in defending against IRS enforcement by levy or seizure.
Due process, in the context of IRS collections, means the right to reach resolution of your case before the IRS can take your property, and the right to have an outside party – the U.S. Tax Court – review the collection decisions of the IRS before they can take place.
Due process in collection cases begins with the IRS sending you a Final Notice of Intent to Levy. Within 30 days of this notice, the rights of due process allow an administrative appeal to be filed with the IRS, disputing the intent to levy. While the appeal is pending and solutions are negotiated, the IRS cannot levy or seize your property by law.
Resolution is made with an IRS settlement officer, whose job is to, well, settle collection cases. Collection due process can level the playing field, so to speak.
Sometimes it can be better to actually file the collection due process appeal late, more than 30 days after the Final Notice of Intent to Levy was mailed.
Late filed collection due process appeals are called “Equivalent Hearings.” Although equivalent hearings are not absolute and are provided on a case by case basis, the Internal Revenue Manual guides the IRS to process the late appeals and provide full appeal rights to the taxpayer’s benefit, including a hold on seizure and levy. Late filed appeals are accepted up to one year after the Final Notice of Intent to Levy was sent. Internal Revenue Manual 18.104.22.168.6 and Treas. Reg 301.6330-1.
The primary difference between timely and late filed collection due process appeals is the right to go to Tax Court. It is lost in late filed appeals.
However, collection due process appeals can offer situations where late-filing with the Internal Revenue Service can actually be advantageous. Counterintuitive, but true.
There are real benefits to filing an collection due process appeal late and requesting an equivalent hearing with the IRS. Here are two good reasons to file it late:
1. No tolling of the statute of limitations on collection.
The IRS has 10 years to collect a tax liability. During the hold on enforcement caused by timely filed collection due process appeals, the 10 year IRS statute of limitations on collection is tolled. Time stops running when the tax code prevents the IRS from levying or seizing property.
In most cases, a collection due process appeal hearing can last six months to a year. If agreement cannot be made with appeals, further appeal to Tax Court can take a year for trial, plus the time it takes the Court to issue a decision. While a case is pending in Tax Court, the hold on IRS levy action continues, and the collection statute, in turn, is tolled. These rights are powerful, but what you get (no collection, Tax Court rights), you give back (time stops).
The solution to the tolling of time? A late filed collection due process appeal, which does not extend the collection statute, but does provide rights to be heard by an IRS settlement officer while no levy takes place.
2. Bankruptcy timing rules for a tax discharge.
A timely filed collection due process appeal will toll important timing rules that permit taxes to be discharged in bankruptcy. Those rules are (1) the bankruptcy must be filed more than three years after a tax return was due to be filed and (2) the bankruptcy must be filed more than 240 days after the IRS put a balance due on its books. These rules are tolled during the time a timely collection due process appeal is pending (plus 90 days). See Bankruptcy Code Section 507(a)(8)(g).
Equivalent hearings (late filed appeals) do not extend these timing rules that make taxes eligible for a bankruptcy discharge.
If bankruptcy is being considered, a timely filed collection due process appeal will ultimately prolong the time it takes to get there, while an equivalent hearing provides a right to a hearing, a hold on collection, and no tolling of the bankruptcy timing rules.
It is important to consider the downside of equivalent hearings. By filing an appeal late and requesting an equivalent hearing, you lose the right to go to Tax Court to litigate the IRS appeals officer’s’ decision. Bear in mind that prevailing in Tax Court in a collection case is often quite difficult as the Court treads lightly on upsetting the judgment of the IRS in collecting taxes. This is due, in part, to the difficult standard to prevail in Tax Court in collection cases – whether the IRS appeals officer committed an abuse of discretion.
In difficult or complex cases, careful consideration should also be given to weighing the benefits of filing late (i.e., no tolling of time) against the ultimate need for Tax Court intervention. Filing timely also gives stronger assurances as to a hold on collection (it is required by law) vs. those that come with filing late (it is an IRS administrative decision, although the IRS exercises this discretion quite liberally in the taxpayer’s favor).
There are benefits to late filed collection due process appeals that should not be ignored. Even if you can file on time, consideration of the situation at hand should be given to the benefits of filing late.