ASK THE EDD ATTORNEY – IRS COLLECTION DUE PROCESS HEARINGS – HOW TO LOSE YOUR RIGHTS
» ASK THE EDD ATTORNEY – IRS COLLECTION DUE PROCESS HEARINGS – HOW TO LOSE YOUR RIGHTS
A "right" is sacred under the law. It is far more important than a privilege or license. A right is a terrible thing to waste. Once a right is squandered it is rarely, if ever, restored. The case of Dwayne Smith is a sad example of what not to do in a Collection Due Process (CDP) hearing. Dwayne Smith v. Commissioner (U.S. Tax Court, Dkt. No. 22326-14L, 712(M), T.C. Memo. 2016-186, Oct. 4, 2016).
The Case of Dwayne Smith
Background: Dwayne was an executive of Cass Corridor Food Coop (Cass). Cass failed to pay federal payroll taxes for the years 2001 through 2004. The IRS initially assessed Dwayne the Trust Fund Recovery Penalty (TFRP) for the years 2001 through 2004 as the person responsible for federal payroll tax compliance. Later the IRS abated the years 2001 and 2002 leaving only assessments for the years 2003 and 2004.
When one is assessed the TFRP one is given notice and a right to file a Protest challenging the proposed assessment with the IRS Office of Appeals. Dwayne failed to take advantage of this process so the proposed TFRP became a final assessment and subject to IRS collection. Dwayne received a series of collection notices including notices of his right to hearings for both CDP Levy and CDP Lien proceedings.
Dwayne Drops The Ball
A taxpayer who fails to timely respond to a TFRP notice or who fails to timely file a Petition in the U.S. Tax Court in response to Notice of Deficiency is given a second "bite at the apple" and allowed to challenge the assessment in a CDP proceeding. IRC§6330(c) (2)(B). There are two types of CDP proceedings. The first type is a Notice of Levy proceeding. This is followed by a Notice of Lien proceeding. I am being a bit redundant here, but I have found that in tax matters redundancy is important.
IRS CDP Regulations state that while a taxpayer is entitled to challenge the existence or amount of a tax liability, the taxpayer must be diligent in asserting his or her rights. If a taxpayer fails to assert all available rights in a CDP levy proceeding, those rights are lost and cannot be asserted in a second CDP lien proceeding. Section 301.6330-1(e)(3), Q&A-E7, Proceed. & Admin. Regs.
Dwayne received the first CDP Notice of Levy hearing invitation. While he timely filed a Petition he failed to challenge the amount or merits of the TFRP assessment. He had a hearing with an IRS Settlement Officer and an IRS Team Manager. Dwayne refused the opportunity to set up an installment payment agreement because he believed he did not owe the IRS anything but did not go into details. He basically walked away empty-handed.
In the subsequent CDP Notice of Lien hearing, Dwayne wanted to discuss and challenge the TFRP assessment. Apparently Dwayne woke up to the fact that he was in trouble with the IRS. However, the IRS Hearing Officer told him that he was now precluded from challenging the TFRP assessment because he waived his rights during the Notice of Levy hearing.
Dwayne Goes To The U.S. Tax Court
If you timely file a Petition for a CDP hearing, you have a right to challenge the Hearing Officer's position by filing a Petition with the U.S. Tax Court. This allows a judge to intervene in your matter. Most Tax Court CDP challenges are lost in court as the Tax Court tends to back up the IRS Hearing Officer, assuming there was not an abuse of discretion.
US Tax Court Judge Chiechi essentially threw Dwayne out of court citing the facts that pointed to Dwayne's apathy and compliancy in challenging the TFRP assessment in the first CDP Levy hearing. The position of the IRS Hearing Officer was justified and was within the conduct of the regulations stated above.
Dwayne will now have the unpleasant experience of directly dealing with an IRS Revenue Officer who has complete power to collect the tax and establish a take-it or leave-it installment agreement. If Dwayne balks at the installment payment agreement, the Revenue Officer is free to engage in enforced collection action including bank account levies, wage garnishments, and asset seizures. The best place to negotiate a mutually agreeable installment payment arrangement is with the CDP Hearing Officer. Good luck Dwayne.