The Internal Revenue Service (IRS) has the power to levy on a tax debtor’s assets in the event that a tax debtor fails to remit to the IRS taxes previously assessed 30 days after receiving a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice). However, there are a number of grounds upon which a taxpayer may choose to contest the levy. Specifically, tax debtor’s may take advantage of either the Collection Due Process (CDP) or the Collection Appeals Program (CAP).
The CDP becomes available to a tax debtor that receives a levy notice as described above. Under section 6330 of the tax code, taxpayer’s have a right to one hearing in United States Tax Court within 30 days of receiving any kind of IRS levy notice for each tax assessment within a tax period. While tax debtors are usually entitled to a pre-deprivation hearing, i.e. a hearing before the levy or transfer of the debtor’s assets to satisfy the underlying debt, there are certain situations in which tax debtors may receive a levy notice only after the debtor’s assets have been levied or transferred. These are:
- When collection of the tax is in jeopardy
- When the IRS levies upon a state tax refund
- When the criteria for a Disqualified Employment Tax Levy is met
- When the IRS serves a federal contractor levy
Even if a tax debtor’s CDP request is not requested in a timely fashion, i.e. within 30 days of the levy notice, an equivalent hearing may be requested up to one year following receipt of the levy notice.
The CAP is different from the CDP process insofar as a tax debtor cannot challenge the existence or amount of the federal tax debt. Furthermore, no judicial remedies are available to those that participate in this process and disagree with the outcome on appeal. That said, a tax debtor may utilize this process to contest seizure of certain assets, as well as rejection, modification, or termination of an installment agreement or a wrongful levy.
With respect to installment agreements, tax debtors should note that the IRS cannot levy until 30 days post-rejection or post-termination of the installment agreement. As a result, an appeal of the decision within the 30-day period will effectively bar the IRS from levying until the appellate process is complete. That said, unlike the CDP process, the decision made through CAP is binding on both the IRS and the tax debtor, and not subject to appeal in federal court except under very limited circumstances.