Tax Brake with Robert G. Nath, Esq.

This right is especially useful in collection proceedings involving spouses who are left without major assets following the filing of joint returns and a divorce. Often the “innocent” spouse signed the return but is not eligible for formal innocent spouse relief. So he/she is left to face the IRS Collection Division. This right to a hearing is an excellent way to prevent an unknowing collection disaster.

However, what you may not do is to use the collection due process hearing solely for delay. In a recent case, that's what happened, or at least the judge came close to saying so. The taxpayer racked up seven years of tax delinquencies, totaling $700,000, and then filed the hearing request when the IRS was about to levy on assets. Compucel Service Corporation v. Commissioner of Internal Revenue (USDC D-Md.)

The Judge (a former Tax Division, US Justice Department attorney) saw right through that ploy. The law itself, the judge said, “permits a taxpayer who does not deny that he owes a tax liability to block IRS collection by levy for so long as it may take to provide a Due Process Hearing and for the judicial process to be completed.” If you file for a hearing in good faith because the IRS is threatening unfair collection, that's OK. But here, the Court said, that appeared not to be the case.

The Court threw out the case, holding that the IRS was free to levy, that there was no requirement for a transcript at the due process hearing, that a record of the arguments for both sides was sufficient, that there was no requirement that the IRS make any compromise, and that the IRS' decision at the hearing was reversible only for “abuse of discretion.”

So when you consider filing for a collection due process hearing, remember that throughout the law, including IRS matters, there is a requirement of acting in good faith. Use the CDP hearing as a last resort; try to work things out with Collection at the earliest time and lowest level.

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