Inside the IRS Collection Process: What Happens When Your Case Moves to Appeals?
If you disagree with an IRS collection decision, you may have the right to take your case to the IRS Independent Office of Appeals.
But what does that actually mean?
Will the IRS stop collection activity while your appeal is pending? Will you have to appear in court? Can Appeals require the Collection Division to accept your payment proposal?
The answers depend heavily on which appeal process applies to your case and whether you meet the required deadline.
How Does an IRS Collection Case Reach Appeals?
An IRS collection case does not automatically move to Appeals simply because you disagree with the Revenue Officer or collection employee.
You normally must request an appeal by following the instructions in the notice you received. Before forwarding the case, the Collection Division may review your request and attempt to resolve the disagreement.
If the matter is not resolved, the case may be transferred to the IRS Independent Office of Appeals for a separate review.
Two of the primary procedures for appealing an IRS collection action are:
- Collection Due Process, commonly called CDP
- The Collection Appeals Program, commonly called CAP
Although both procedures involve IRS Appeals, they do not provide the same rights or protections.
What Is a Collection Due Process Hearing?
The IRS generally offers a Collection Due Process hearing after it:
- Files its first Notice of Federal Tax Lien for a particular tax period
- Sends a Final Notice of Intent to Levy and Notice of Your Right to a Hearing
- Issues certain other notices specifically providing CDP rights
Examples include Letter 3172 involving a federal tax lien and LT11 or Letter 1058 involving a proposed levy.
You generally have 30 days from the date of the notice to make a timely CDP request. The exact deadline should appear on the notice.
A hearing is generally requested using Form 12153, Request for a Collection Due Process or Equivalent Hearing.
According to the IRS, a timely CDP request generally suspends levy action for the tax periods included in the appeal. It also preserves the taxpayer’s right to seek judicial review in the United States Tax Court if the taxpayer disagrees with Appeals’ final determination.
That combination makes the CDP deadline extremely important.
What Happens If You Miss the CDP Deadline?
Missing the 30-day deadline does not necessarily eliminate every opportunity for an Appeals hearing.
You may still qualify to request an Equivalent Hearing, generally within the applicable one-year period described in Form 12153.
An Equivalent Hearing may cover many of the same issues as a timely CDP hearing, but two major protections are different:
- IRS collection activity is not necessarily suspended
- You generally cannot petition the Tax Court if you disagree with the Appeals decision
An Equivalent Hearing can still be useful, but it is not a substitute for meeting the original CDP deadline.
What Is the Collection Appeals Program?
The Collection Appeals Program, or CAP, is another procedure used to challenge certain IRS collection actions.
CAP may be available for disputes involving:
- A proposed or filed federal tax lien
- A proposed or completed levy
- A seizure
- A rejected installment agreement
- A modified or terminated installment agreement
- A denied request to return levied property
CAP cases are generally handled more quickly than CDP hearings. This can be valuable when enforcement is imminent or when a taxpayer needs a prompt review of a Revenue Officer’s decision.
If you are working with a Revenue Officer, you will generally need to discuss the disagreement with the Revenue Officer and request a conference with the Collection manager. For many CAP cases, Form 9423 must then be submitted within a very short period—generally three business days after the managerial conference.
However, a CAP decision is generally final. Unlike a timely CDP determination, the decision cannot ordinarily be appealed to the United States Tax Court.
CDP Versus CAP: Why the Difference Matters
CDP and CAP should not be treated as interchangeable procedures.
A timely CDP hearing may offer:
- General suspension of levy action for the periods under appeal
- Consideration of appropriate collection alternatives
- Review of whether the IRS followed applicable procedures
- The right to petition the Tax Court after an unfavorable determination
CAP may offer:
- Faster review of a collection decision
- Access for a broader range of collection actions
- An opportunity to challenge certain installment agreement decisions
- No subsequent right to Tax Court review of the CAP decision
The appropriate procedure depends on the notice received, the action being challenged, the available deadlines and the result the taxpayer is trying to achieve.
Participation in one appeal process may also affect whether an issue can later be considered through another process. Choosing an appeal based only on speed—or simply filing a form without understanding the consequences—can be a serious mistake.
What Happens After the Case Reaches IRS Appeals?
Once the case reaches Appeals, it will normally be assigned to a Settlement Officer or another Appeals employee who is intended to provide an independent review.
An Appeals conference is usually informal. It may be conducted:
- By telephone
- Through correspondence
- By video conference
- In person in some situations
There is normally no courtroom, judge or formal testimony.
However, informal does not mean unimportant. The Settlement Officer will examine the case file, the collection action being challenged and the taxpayer’s reasons for disagreement.
In a CDP hearing, the officer will generally verify that the IRS satisfied applicable legal and administrative requirements. The officer may also consider whether the collection action appropriately balances the government’s need to collect the tax with the taxpayer’s concern that the action is more intrusive than necessary.
Can Appeals Approve a Collection Alternative?
Depending on the circumstances, Appeals may consider collection alternatives such as:
- An installment agreement
- A partial-payment installment agreement
- An offer in compromise
- Currently not collectible status
- Another appropriate resolution
Appeals will not automatically accept a proposal simply because the taxpayer cannot pay the entire balance immediately.
The taxpayer generally must be in filing compliance and must remain current with ongoing tax obligations. That may include making current estimated tax payments or federal tax deposits.
Appeals may also require a financial disclosure, such as:
- Form 433-A for individuals and self-employed taxpayers
- Form 433-B for businesses
- Form 433-F in appropriate cases
- Bank statements, income records and expense documentation
- Information concerning real estate, vehicles, investments and other assets
A taxpayer who submits an incomplete financial package, fails to file required returns or continues accumulating new tax debt may be denied consideration of a collection alternative.
What If You Submit New Information?
If you give Appeals significant financial records or other information that the Revenue Officer did not previously review, Appeals may send that information back to Collection for consideration and comment.
This does not necessarily mean that Appeals is surrendering its independence.
The IRS states that you should receive the Collection employee’s comments and have an opportunity to respond. Nevertheless, submitting a complete and well-organized package earlier in the process can reduce delays and prevent avoidable disputes.
Can You Challenge the Amount You Owe?
Sometimes—but only under limited circumstances.
During a CDP hearing, a taxpayer may generally dispute the existence or amount of the underlying tax liability if the taxpayer did not receive a statutory notice of deficiency and did not otherwise have a prior opportunity to dispute the liability.
CDP should not be viewed as a second opportunity to raise every tax argument that could have been presented earlier.
Even when the underlying liability cannot be challenged, the taxpayer may still be able to contest the proposed collection action or request an appropriate collection alternative.
What Happens at the End of a CDP Hearing?
At the conclusion of a CDP case, Appeals normally issues a Notice of Determination.
Appeals may:
- Sustain the proposed collection action
- Require Collection to modify its action
- Approve or facilitate a collection alternative
- Decide other properly raised issues
If the taxpayer disagrees with the result of a timely CDP hearing, the taxpayer generally has 30 days after the determination to petition the United States Tax Court.
That deadline is separate from the original deadline for requesting the CDP hearing.
How Should You Prepare for IRS Appeals?
A strong collection appeal normally requires more than stating that the IRS decision is unfair.
Before the conference, be prepared to:
- Identify the specific collection action being challenged.
- Explain exactly why you disagree.
- Confirm that all required tax returns have been filed.
- Become current with estimated payments or payroll tax deposits.
- Prepare complete financial statements and supporting documents.
- Present a realistic collection alternative.
- Respond promptly to requests from the Settlement Officer.
- Preserve proof that the appeal was submitted before the deadline.
The most successful appeals normally combine a legitimate procedural or factual disagreement with a workable resolution supported by complete documentation.
Do Not Treat an Appeal as a Delay Tactic
One of the biggest mistakes taxpayers make is assuming that an appeal automatically produces a favorable result—or that it simply gives them more time before paying the IRS.
An appeal filed without a clear position, current compliance or a realistic collection proposal may only delay an unfavorable outcome.
If you owe the IRS more than $50,000, have received a final levy notice, face a federal tax lien or disagree with a Revenue Officer’s decision, the appeal deadline may be one of the most important dates in your case.
Do not ignore the notice, and do not assume every appeal provides the same protection.
Bob Jablonsky is an Enrolled Agent and Certified Tax Resolution Specialist who assists individuals and businesses with serious IRS collection problems, including tax liens, levies, unfiled returns, installment agreements and offers in compromise. You can set up some time with Jablonsky Tax Relief at Tax Relief Consultation – Jablonsky Tax Relief
This article provides general educational information and is not legal or tax advice for any specific situation.
