Two common ways to stop the Internal Revenue Service (IRS) from collecting is by filing a Collection Due Process (CDP) hearing request or a Collection Appeal Program (CAP) request. Although these two mechanisms are similar, there are several important distinctions to note. With the Collection Appeal Program, a taxpayer can immediately dispute a current or proposed collection action — whether it be a lien, levy, or seizure. While a taxpayer can dispute the underlying penalty with the Collection Due Process hearing, this process can be lengthier since it is only available once the IRS issues a final notice.
What is a Collection Due Process (CDP) Request?
The CDP hearing can be requested by a taxpayer to discuss alternatives to enforced collection and dispute the amounts owed.. If a taxpayer can show reasonable cause for not paying or filing their taxes on time, the IRS may remove all or part of the penalties. However, the CDP hearing can be sought only at the end of enforcement — it’s typically a taxpayer’s last opportunity to resolve a controversy with the IRS before pursuing litigation. A taxpayer must ask for a CDP hearing within 30 days of receiving a final notice from the IRS or a Notice CP504, a notice of intent to levy.
A taxpayer who misses the deadline to file a Collection Due Process hearing may still be able to request one — but they would not be eligible for tax court. In such cases, an equivalent hearing would be available. But while having a lien or levy appear on their tax record can deter many taxpayers from waiting to file a CDP request, many may opt to take the Collection Appeal Program route instead.
What is a Collection Appeal Program (CAP) Request?
A taxpayer whose property is subject to a collection action may file a request for a CAP as an alternative to collection. Usually, before a CAP request is made, it is best to first attempt to resolve the dispute by meeting with an IRS Collections Manager. If a taxpayer does not agree with their decision, they can move forward with filing Form 9423 to request a CAP.
A CAP request can be used under the following circumstances:
- Before or after the IRS files a Notice of Federal Tax Lien
- Before or after a Notice of Levy is served
- Before or after the IRS seizes property
- After the IRS denies a request for property to be discharged from a lien
- After the the subordination of a lien is denied
- After the withdrawal of an Notice of Federal Tax Lien is denied
- After the issuance of a certificate of non-attachment is denied
- After an installment agreement is rejected
- After the termination or modification of an installment agreement
- After the disallowance of a taxpayer’s request for the return of levied property
Every type of CAP hearing is different, based on the reason for the appeal and the status of the taxes that are owed. The decision reached at a CAP hearing is final and cannot be appealed to the tax court. However, a taxpayer may obtain a judicial review of the determination, such as where a third party has the right to challenge a wrongful levy in court.
Contact an Experienced New York Tax Attorney
Facing an IRS collection action can be overwhelming — and it’s essential to understand your rights and options. It’s best to have the counsel of a skillful tax attorney who can advise you and ensure your interests are safeguarded. Brinen & Associates offers critical guidance for clients regarding a variety of tax matters at both the state and federal levels. Call (212) 330-8151 or send us a message to learn more about how we can assist you.