Federal Tax Liens and Collection Due Process Hearings

Generally speaking, The IRS will collect unpaid taxes in one of two ways — through either tax levies or a federal tax liens. The tax levy and tax lien are often confused. The IRS “takes” your property by a tax levy, i.e. wage garnishment, seizure, foreclosure, bank levy, etc. The IRS “secures its ‘rights’” to your personal property and real estate by filing a tax lien. The notice of federal tax lien is public notice that you owe the IRS money for back taxes. The IRS files the notice of federal tax lien in the local county courthouse where you or your property resides. The IRS is required to notify you in writing of the filing of a tax lien. The notification must inform you or your business of the right to a hearing called a Collection Due Process Hearing.

The Collection Due Process Hearing

 An IRS lien will damage your credit, inhibit you or your businesses ability to obtain financing, and in some cases, cause employment issues. The Collection Due Process Hearing, also known as a CDP hearing, provides you or your business an opportunity to challenge the federal tax lien. During the hearing, you can:

  1. Challenge the tax liability secured by the lien if you did not have a prior opportunity to dispute the back taxes owed;
  2. Confirm that the IRS followed the proper requirements and law when filing the tax lien.
  3. Raise spousal defenses such as Innocent Spouse Relief;
  4. Request an IRS payment plan, negotiate an offer in compromise, or place the account in currently not collectible;
  5. Challenge the appropriateness of IRS collection activity; or
  6. Raise any other issue that you believe is relevant to resolving your tax case.

At the conclusion of a CDP hearing, the appeals officer, known as a settlement officer, will issue a decision. If the CDP request was filed more than 30 days but within a year of the Notice of Federal Tax Lien, the settlement officer’s decision is final. This type of hearing would be called an Equivalent Hearing. If you responded to the Notice of Federal Tax Lien within 30 days, then you preserve your right to go to the United States Tax Court.

Click here to learn more about Federal Tax Liens from the IRS itself.

United States Tax Court

If you are unhappy with the settlement officer’s decisions, you have the right to challenge the determination in US Tax Court. This is as long you requested the hearing within 30 days from the notification of the lien filing. In Tax Court, the judge will review the notice of determination to ascertain whether or not the settlement officer’s decision was sound, reasonable and legal (abuse of discretion standard).

If you did not have a prior opportunity to challenge the liability, then the Tax Court may review the underlying tax liability secured by the lien. Generally speaking, a prior opportunity means that after a tax audit, you received a right to challenge the liability (Statutory Notice of Deficiency) in US Tax Court. If you did not have a prior opportunity, the US Tax Court takes a fresh look at the case (De Novo Review). The fact is that anyone who owes back taxes and finds out that the IRS is intending to place a tax lien on property must act fast.

The best defense is to stop the IRS before it files a tax lien. Therefore, the sooner you respond to a tax problem, the more you can do about it — and the fewer complications arise. The Law Offices of Todd S. Unger, Esq. LLC is your resource for responding to IRS liens. We’ll help you plan the proper course of action and work toward a tax resolution. Contact our office today to discuss your situation.

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