Collection Appeals Program and Due Process Hearings: What to Do If You Disagree With a Federal Tax Lien
If you owe $10,000 or more, the IRS will file a federal tax lien against you. The lien is a public record that secures the IRS’s interest in your tax debt, and it makes it very difficult to sell or borrow against your assets. However, if you act quickly, you can appeal the lien.
Keep reading for an overview of how to appeal a federal tax lien. Or to get help now, contact us at the W Tax Group today. We can help you get relief from IRS or state tax liens.
What to Expect If the IRS Issues a Tax Lien
The IRS doesn’t have to notify you before filing a tax lien, but the agency must notify you of your right to appeal within five days of filing the lien. In most cases, you will receive Letter 3172 (Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRS 6320). The IRS must give you this letter in person, hand-deliver it to your residence or place of business, or send it to your last known address by certified mail.
This notice will outline your right to appeal. You can appeal through the Collection Appeals Program (CAP) or by requesting a Collection Due Process (CDP) hearing. The process varies for both of these options — keep reading for instructions.
Note that if the lien has been proposed but not filed, you can only appeal under CAP. You can’t request a CDP hearing. For instance, this may happen if you’re working with an IRS employee, and they let you know that a lien has been proposed on your account.
How to Appeal a Lien Through a CDP Hearing
To appeal with a CDP hearing, send a written request to the IRS or file Form 12153 (Request for Collection Due Process or Equivalent Hearing). Explain why you want to appeal the lien. Then, offer an alternative for paying your tax debt.
For instance, you may say that you want to appeal the lien because it will make it hard for you to borrow against your assets. Then, you may explain that you want to use those assets as collateral to get a loan to pay off your tax liability. Or you may say that the lien prevents you from carrying out normal borrowing activities and suggest that you’d like to make monthly payments on your tax debt.
You generally have 30 days from the date on the notice to request a CDP hearing. If you miss the deadline, you have a year to request an Equivalent Hearing (EH).
Once the IRS receives your request, it will schedule a CDP hearing. Typically, this happens over the phone, but it can be in person. If Appeals denies your request, you can seek a judicial review from the US Tax Court. Note that you cannot appeal the results of the equivalent hearing. If you want to preserve your appeal rights, you should make sure to respond within the 30-day window.
How to Appeal a Tax Lien Under CAP
If you’re working with an IRS employee, you should request a meeting with their manager. If you’ve already received the notice, keep in mind that you only have 30 days. Talking with the employee or their manager does not extend the amount of time that you have.
If you disagree with the manager’s decision, you have three business days to request a hearing through the Collection Appeals Program. To do so, file Form 9423 (Collection Appeal Request). If you request a managerial meeting and no one responds to you within two days, you should file this form — make sure it’s postmarked four business days after you make your request.
After you file the form, the IRS will contact you to set up a CAP hearing. This is a relatively informal process, and it generally happens over the phone. You cannot appeal the decision that you get from the CAP hearing.
CAP Versus CDP Hearing
The basic premise of both of these options is the same. You get a chance to talk about your issue in front of someone who is new to your case. You get to explain why you want to appeal the lien and talk about alternatives for resolving your account.
CAP is usually a faster process. Typically, the IRS appeals division tries to resolve CAP cases within five days of receiving the request. It can take up to 15 days for complicated situations. Then, once you get the decision, it is final. In contrast, a CDP hearing takes longer, but you can appeal the result.
If you’re unsure of which option is the best for your situation, reach out to a tax professional. You need to choose carefully, because if you select the wrong option, you may lose your chance to present your side of the story. A tax professional can help you weigh the pros and cons of each option.
What Happens When You Appeal a Tax Lien
Whether you go through CAP or CDP, appeals hearings usually happen over the phone, but in some cases, they may be in person. You can represent yourself during collection appeals, or you can work with a CPA, an enrolled agent, or a tax attorney.
Appeals will review the situation to ensure that the lien was filed correctly and that the IRS gave you the proper notification. If not, the appeal should be approved immediately.
You will also get to present your side of the issue. Ex-parte communication is prohibited during the appeals process. That happens in the appeals employees only speak with the IRS employees so they get a one-sided version of the story. If you think this is happening, reach out to a tax lawyer immediately.
When you appeal a tax lien, the IRS tolls (pauses) the collection statute of limitations. The clock stops running when you register the appeal, and then, it starts again after the appeal’s decision becomes final. Usually, this is 30 days after the decision.
Note that if you’re appealing a levy, the IRS can still move forward with filing a federal tax lien.
Reasons to Appeal a Tax Lien
There are several different reasons to appeal a federal tax lien. Here are the main reasons that people appeal:
- Filing error — Filing errors include liens filed against assets you don’t owe or for a tax liability that isn’t yours. It can also include cases where the IRS didn’t notify you properly.
- Already paid — If you already paid the tax or already have a payment plan set up, contact the IRS to appeal the lien and make sure there is a record of your payment.
- Release — This removes the lien from your assets. Usually, you must pay the tax debt in full, but in some cases, the IRS may agree to release the lien if you set up a payment plan.
- Withdrawal — This removes all public records of the lien’s existence. In some cases, you have to request a withdrawal after the lien has been released.
- Discharge — A discharge detaches the lien from specific assets. For instance, you may want it removed from an asset so that you can sell or borrow against that asset.
- Subordination — The IRS agrees to subordinate its lien to another lender. Typically, this happens when a taxpayer is trying to get a loan, but the lender won’t approve it unless the IRS reduces its priority on the asset.
You may also appeal if the IRS filed the lien while you’re in the midst of declaring bankruptcy. You may not be able to discharge all of your tax debt in bankruptcy — there are very particular rules on this. However, even if your taxes aren’t discharged, the courts issue a stay when you initially file bankruptcy, and the IRS cannot move forward with any collection actions while the stay is in place.
What If You Disagree With the Amount Due on Letter 3172?
When you appeal the lien, you will not always be able to talk with the appeals officer about the tax liability. The appeals hearing is to appeal the lien, and you may have to take a different route to appeal the tax due.
If you don’t qualify to appeal the tax debt at the same time as you appeal the lien, you may need to do one of the following:
- Pay the tax due under protest and request a refund.
- Request an audit reconsideration if the assessment is due to an audit.
- Apply for an offer in compromise based on doubt as to liability.
- Request innocent spouse relief on tax liabilities due solely to your spouse.
A tax attorney can help you figure out your options, but the longer you wait, the harder it becomes to appeal a tax liability. For best results, reach out to a tax professional as soon as possible.
Get Help Appealing a Tax Lien
Has the IRS proposed a lien? Has the agency already filed a tax lien? Then, it’s time to take action before the lien hurts your finances. To get help, contact us at the W Tax Group today. We’ll talk with you about your situation and help you find the best way to resolve your tax issues.
