IRS collection alternatives and appeals: EA Part 3

CDP and CAP are not interchangeable

For a qualifying CDP notice, the notice controls when and how to request a hearing. CDP can lead to Tax Court review of the determination. CAP covers specified collection actions and generally does not provide Tax Court review of the CAP decision. A late equivalent hearing does not carry the same judicial-review rights as a timely CDP hearing.

Start with the balance, compliance and ability to pay

Before choosing a collection alternative, determine which tax and periods are assessed, whether the balance is correct, what the notice proposes, and whether required returns have been filed. Next distinguish a temporary cash-flow problem from an inability to pay the full liability. Assets, available income and allowable expenses matter; a client’s preferred monthly payment is only a starting point for gathering facts.

A taxpayer who can pay over time may fit an installment agreement. A taxpayer who cannot meet necessary living expenses may need consideration of currently not collectible status. An offer in compromise requires its own eligibility and financial analysis. These are different requests with different consequences. For an exam case, explain why the facts point to evaluating a route, rather than claiming the IRS must approve it merely because the taxpayer asks.

What changes after choosing a payment alternative

An installment agreement addresses how an assessed balance is paid. It generally does not erase the liability or stop all interest and penalties. Continued compliance with current filing and payment obligations matters, because a plan for old debt does not excuse new noncompliance. Distinguish an affordable proposed payment from an accepted agreement and its actual terms.

Currently not collectible status generally delays active collection because of hardship; the balance can remain due and the IRS can review the taxpayer’s finances later. An offer in compromise can resolve an eligible liability for less than the full balance, but it requires acceptance and compliance with the offer terms. The IRS considers factors such as ability to pay, income, expenses and asset equity. An open bankruptcy generally prevents offer eligibility. Do not describe either hardship status or submitting an offer as automatic debt forgiveness.

Choose the appeal attached to the collection action

Collection Due Process (CDP) and the Collection Appeals Program (CAP) are procedural routes. A timely CDP request after a qualifying lien or levy notice can lead to an Appeals determination with Tax Court review. The notice controls the response date. For example, the lien-hearing request period is tied to the notice-of-lien filing and notification rules; do not calculate every deadline from when the client happened to open the envelope.

CAP is available for specified collection actions and is generally a faster administrative review, but a CAP decision does not carry the same Tax Court review right. A late CDP request may qualify for an equivalent hearing within the applicable period, which also differs in judicial-review consequences. Form 12153 is used to request a CDP or equivalent hearing; Form 9423 serves specified CAP requests. Read the action-specific instructions before treating either form as a universal appeal.

Build a response that preserves both procedure and facts

Use two parallel worklists. The procedural list records the notice, covered periods, response deadline, destination and proof of submission. The financial list records assets, income, expenses, filing compliance and the requested alternative. Gathering financial records must not cause an appeal deadline to disappear from the calendar. Equally, sending an appeal form is not a substitute for providing the facts that support the proposed resolution.

Do not assume a collection hearing always reopens the underlying tax liability. CDP rules restrict when the amount or existence of the liability may be challenged, including situations involving a prior opportunity to dispute it. Read whether the question concerns the assessed tax, the proposed collection method or ability to pay. A request for a smaller monthly payment answers a different question from a claim that the tax was never owed.