The IRS gives clients a lot of ways to deal with large tax debt. Some avenues are better than others.

“Taxpayers typically don’t know much about the IRS appeals process, and for good reason,” said Johnny Mesko, a tax manager in the Philadelphia office of Armanino LLP. “The process is complex, IRS notices can be scary and the amounts due can be suffocating.”

The IRS Independent Office of Appeals is independent from the IRS examination and collection functions that make tax assessments and initiate collections, said Michelle E. Espey, partner for corporate tax at Farrell Fritz P.C. in Uniondale, N.Y.

“Taxpayers with large federal debt, unfortunately, seem to know very little [about how] most tax liability/collection disputes can be settled without the need to go to court,” Espey said. “We frequently recommend that our client-taxpayers take advantage of the appeals process, which is less formal and typically less costly."

In most collection scenarios there are three ways to access the IRS Independent Office of Appeals, said Jim Gadwood, member of the tax department at Miller & Chevalier Chartered in Washington, D.C.: collection due process (CDP); equivalent hearing; and the collection appeals program (CAP). Each comes with different procedures—and advantages.

“CDP is the most powerful and offers a taxpayer the most options,” Gadwood said. “At a CDP hearing, a taxpayer can raise spousal defenses, challenge the appropriateness of the collection action and propose collection alternatives such as an installment agreement or an offer in compromise.

“A taxpayer can also challenge the existence or amount of the underlying tax liability if the taxpayer didn’t previously have an opportunity to do so,” Gadwood added. “If the taxpayer disagrees with the appeals determination at the end of the CDP hearing, [he or she] can petition the U.S. Tax Court.”

A taxpayer who fails to request a CDP hearing by the deadline may still request an equivalent hearing, raising “the same issues as in a CDP, subject to the same limitations,” Gadwood said. “But a taxpayer that requests an equivalent hearing may not challenge the appeals determination.”

CAP is available earlier in the collection process than CDP or an equivalent hearing; a taxpayer can use CAP to challenge collection but “cannot use CAP to challenge the underlying tax liability, and there is no right to challenge the appeals determination,” Gadwood said.

An installment agreement allows a taxpayer to pay rather than dispute a tax debt over time. An offer in compromise, or OIC, allows a taxpayer to settle tax debt for less than the full amount due based on doubt as to liability, doubt as to collectability, or both, Gadwood said.

First « 1 2 » Next