Part 2: One Tax Attorney’s Opinion on How the IRS Could Improve

In the prior blog post I provided a few suggestions for how the IRS could improve. This post was in response from a question posted to me by a fellow Denver tax attorney.

The prior post suggested that the Treasury Inspector General for Tax Administration take a more proactive approach to auditing the IRS, the IRS should provide more and better online tools for tax practitioners, the IRS should be more forthcoming with taxpayer records, and the Taxpayer Advocate Office should play a more active role were intra-agency failures leave taxpayers with no recourse.

Here are some additional suggestions (which are again in no particular order):

The collection due process hearing plays a vital role in our system of tax administration. The collection due process hearing is often the only way taxpayers can prevent the IRS from undertaking illegal collections activities. As important as it is, the collection due process (CDP) process is broken.The CDP process starts when a taxpayer submits a Form 12153 Collection Due Process Hearing Request. The Internal Revenue Code specifies that the IRS must suspend (most) of its tax collection efforts if the taxpayer submits a timely CDP hearing request.
The main problem with the CDP hearing process is that the IRS does not check the Form 12153 in to its computer system for several weeks or, in some cases, several months. The average time to check in a Form 12153 is about three to four weeks, with an additional one to two weeks for the CDP hearing request to be delivered by the postal system.

During this period of time the IRS collection function, not knowing that a CDP hearing request has been filed, often continues its collections efforts. These efforts are 100% illegal and in many cases the resulting damage cannot be undone after the fact (i.e., taxpayers cannot un-bake the cake).

Yet, the IRS will not permit taxpayers to have a CDP hearing (and its associated benefits) where the taxpayer missed the 30-day deadline for filing the request (for example, where a taxpayer mails in a CDP hearing request one day late). I can’t help but wonder why the IRS takes such a strict approach in these cases when the IRS takes so long to even check taxpayer CDP hearing requests in to its computer system. This is yet another instance where the IRS policy is “do as I say, not as I do.”

I would suggest that the IRS flag each and every taxpayer account on the very day that the IRS receives the CDP hearing request – regardless of whether the CDP hearing request was valid or timely (perhaps technology could provide a solution, such as allowing taxpayers to submit the forms electronically?). That way the IRS collection function would know that it should halt its collections efforts, pending the IRS determination of whether the CDP hearing request is appropriate.

As an alternative, the IRS should adequately staff the CDP hearing request review teams so that it can, in a timely manner, determine whether the CDP hearing request is timely and valid and update its computer accordingly.

I would go even further by setting up an administrative procedure whereby taxpayers can obtain relief and damages should the IRS undertake illegal collection activity after a CDP hearing request was filed (perhaps Congress should add this provision to Sections 6330 and 6320). This is going to become more and more important as the IRS ramps up its tax collections efforts.

As a side note (in support of another suggestion), the IRS takes the position that the 30-day period for taxpayers to submit CDP hearing requests starts to run from the date that the first (lien or levy) notice is sent by the IRS to the taxpayer. So if the IRS sends out a subsequent notice that tells the taxpayer that they have 30-days to request a CDP hearing, the IRS will not honor the second letter – assuming that the letter does not benefit the IRS.

Here is a common fact pattern: the IRS sends a first (lien or levy) notice letter to taxpayer in year one and the IRS sends a second notice letter to the taxpayer in year five. The taxpayer has a copy of the first notice letter, but he or she would not be able to successfully argue that the second letter (and any collection action based on the second letter) is invalid because the IRS had already sent a first notice letter – but why not, if the IRS refuse to honor their second letter when it is convenient for the IRS to do so?

I would suggest that the IRS implement a policy whereby it stands by what it says in its letters in these cases, so that taxpayers are entitled to CDP hearings as set out in second or later letters from the IRS – regardless of whether the IRS letter is not convenient for the IRS (maybe Congress should add something to this effect to the Code as well).

An even better approach would be for Congress to amend the law to specify that the IRS cannot undertake collection activity unless it sends the taxpayer a new notice letter (i.e., that a letter sent five or nine years prior will not do the trick), perhaps the law could provide that the letter has to go out 30-days prior to renewed collection activity….
The “equivalency hearing” provides taxpayers with the ability to get in front of the Appeals Office in cases where the taxpayer missed the 30-day period for filing a CDP hearing request.Taxpayers cannot appeal equivalency hearing results (as the IRS is always quick to point out) and IRS collection activity is not suspended by requesting such a hearing.
The IRS does not have to grant taxpayers equivalency hearings. In fact, the New Form 12153 specifies that the IRS will ONLY grant taxpayers equivalency hearings if the hearing is requested within one year of the first collection action (This is a new policy that I have found no reference to in anything other than the new Form 12153. Does anyone know how or who was responsible for this? Assuming that there is no authority for this, does this mean that a clerk who designs a IRS form has the power to set IRS policy? Maybe I don’t want to know the answer to the last question.).

IRS employees do not give taxpayers fair consideration in equivalency hearings. In fact, in many cases the IRS uses the equivalency hearing for the sole purpose of gathering additional ammunition to use against the taxpayer. This is unfortunate because all taxpayers who come forward to resolve their tax liabilities should be afforded due consideration.

I would suggest that the IRS implement a policy granting taxpayers CDP hearings, even though it is not required by Congress to do so (technically, such a hearing would not be appealable to court, but the IRS could at least suspend collections activities). I know that this is asking the IRS go to beyond the mere minimum that is required (which it basically never does), but it is the right thing to do.