Tuesday, October 30, 2012

Review of CDP Appeals Procedures (10/30/12)

In Tucker v. Commissioner, 676 F.3d 1120 (D.C. Cir. 2012), here, the D.C. Circuit rejected the taxpayer's Appointments Clause arguments that IRS Appeals personnel who hear CDP appeals are "inferior Officers" within  the meaning of the Appointments Clause.  The Apppointments Clause issue is an important, but arcane area of constitutional law, at least in the context of tax cases.  So, I will not address that issue in this blog.  The taxpayer filed a petition for certiorari on the issue.  I have just reviewed the United States' Brief in Opposition, here, to the granting of certiorari and offer excerpts here to remind students of the background for CDP Appeals which is an important area of the tax practice.
1. After making an assessment of taxes, the Secretary of the Treasury, acting through the Internal Revenue Service (IRS), must notify the taxpayer of the assessment and demand payment. 26 U.S.C. 6303. If the taxpayer then neglects or refuses to pay such a tax, the (1) amount due becomes a "lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." 26 U.S.C. 6321. That lien, however, is not self-executing. The IRS may file a notice of lien under 26 U.S.C. 6323 or seek to collect the tax by levy under 26 U.S.C. 6331(a). 
In 1998, Congress enacted 26 U.S.C. 6320 and 6330, which generally give a taxpayer the right to a hearing that reviews the propriety of collection activity after a notice of federal tax lien is filed or a notice of intent to levy is issued. See Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3401, 112 Stat. 746. Such a hearing -- known as a "collection due process" or "CDP" hearing -- is "held by the Internal Revenue Service Office of Appeals" (Appeals Office), 26 U.S.C. 6320(b)(1), 6330(b)(1), and is "conducted by an officer or employee who has had no prior involvement with respect to the unpaid tax" at issue. 26 U.S.C. 6320(b)(3), 6330(b)(3). If the only issue raised relates to collection, the person conducting the hearing will generally be a "Settlement Officer"; if the underlying tax liability is also disputed, that person will be an "Appeals Officer." See Pet. App. 61a; Internal Revenue Manual (I.R.M.), (Mar. 29, 2012).
CDP hearings are informal and nonadversarial. They are often conducted by telephone or correspondence, and they need not be transcribed or recorded. See, e.g., Murphy v. Commissioner, 469 F.3d 27, 30 (1st Cir. 2006); Living Care Alternatives of Utica, Inc. v. United States, 411 F.3d 621, 624 (6th Cir. 2005). The officer or employee who conducts the hearing is expected to verify that the prerequisites to collection (such as assessment, notice, and demand) have been satisfied. 26 U.S.C. 6320(c), 6330(c)(1); see 26 U.S.C. 6203, 6303. The taxpayer may raise "any relevant issue relating to the unpaid tax or the proposed levy," including spousal defenses, challenges to the appropriateness of collection activities, and offers of collection alternatives (such as an installment agreement or an offer-in-compromise). 26 U.S.C. 6330(c)(2)(A). The determination whether the lien or levy is appropriate also depends on "balanc[ing] the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." 26 U.S.C. 6330(c)(3)(C). 
If an Appeals or Settlement Officer sustains a collection activity, his decision is reviewed (and may be overruled) by an Appeals Team Manager. Pet. App. 61; I.R.M. (Mar. 29, 2012). The taxpayer may seek review in the Tax Court of any adverse determination made by the Appeals Team Manager. 26 U.S.C. 6320(c), 6330(d)(1).

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