Eighteen Years of CDP: Protecting Taxpayers’ Rights In Collection Due Process Hearings & Seizure Actions

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Download Original Article Full version_A&A Newsletter – 2016 June

By Frank Agostino, Esq. & Patrick Binakis, Esq.

The Internal Revenue Service Restructuring and Reform Act of 1998 (“RRA 98”)1 will celebrate its 18th anniversary this July. This seminal piece of legislation is significant for many reasons, perhaps the most notable of which is its grant to taxpayers of administrative and judicial collection due process (“CDP”) rights in connection with enforced collection action by the Internal Revenue Service (“IRS”).2 Since, as Chief Justice John Marshall famously observed, “the power to tax involves the power to destroy,”3 these procedural due process safeguards were an important addition to the Internal Revenue Code (“I.R.C.” or the “Code”). In its relatively short 18-year history, CDP has had (and continues to have) a lasting impact on tax litigation. The National Taxpayer Advocate cited CDP cases as among the top five most litigated issues in federal courts from 2010 through 2015. But the frequency with which CDP cases are litigated may be even more far-reaching — anecdotal evidence suggests that CDP cases account for more than one-third of all of the nation’s tax litigation.4 The prevalence of CDP cases in litigation is partially attributable to the United States’ efforts to close the $458 billion tax gap, which can be defined as the difference between the amount of taxes owed and the amount of taxes that is not paid voluntarily and on time.5 But, as this article explains, the prevalence of CDP litigation is also attributable to fundamental misunderstandings about how CDP hearings work. This article explores common misconceptions about administrative and judicial CDP rights, and it provides strategies to more effectively represent clients in these cases. This article first provides an overview of the IRS’s authority to collect taxes and the taxpayers’ rights in response to those collection actions. Second, this article explains how officers in the IRS Office of Appeals (“Appeals”) are failing to property balance the IRS’s proposed collection action against taxpayers’ legitimate concerns that the collection action be no more intrusive than necessary. Third, this article discusses strategies practitioners can use to have CDP cases remanded from the Tax Court to Appeals to avoid the costs associated with litigation. Then, this article discusses how seizures and sales of taxpayers’ assets can sometimes inadvertently deny taxpayers their rights under CDP procedures. In this regard, this article also discusses strategies taxpayers can use to challenge the propriety of such seizures and sales.

I. Overview of the IRS’s Available Collection Devices and Taxpayers’ CDP Rights

A. Overview of Collection Devices Available Under the Code

I.R.C. § 6301 authorizes the IRS to collect taxes imposed by the internal revenue laws. To further that objective, Congress provided that the IRS may effect the collection of taxes by liens, levies, and seizures, in addition to other methods. As to liens, I.R.C. § 6321 creates a lien in favor of the United States on all property and property rights of a taxpayer liable for federal tax who neglects or refuses to pay the tax after the IRS’s notice and demand for payment. The lien arises at the time an assessment is made and generally continues until the assessed amount is satisfied or unenforceable by lapse of time.6 As to levies, I.R.C. § 6331(a) authorizes the IRS to levy upon all property or rights to property of any taxpayer liable for any tax who neglects or refuses to pay that liability within ten days after notice and demand for payment was made. As to seizures, in any case in which the IRS may levy upon property or rights to property, I.R.C. § 6331(b) authorizes the IRS to seize and sell such property or rights to property (whether real, personal, tangible, or intangible). As detailed immediately below, there are numerous limitations to the IRS’s power to collect taxes by lien or levy, many of which were added by the CDP provisions of the RRA 98. The IRS’s ability to seize property is also limited by a number of Code and Internal Revenue Manual (“I.R.M.”) provisions, but is generally outside CDP, because the IRS has not proposed a specific collection action. In view of this bifurcated approach, we discuss the IRS’s limitations when it comes to seizures more fully infra Section IV.

B. Overview of Taxpayers’ CDP Rights

Before the IRS can pursue collection by lien or levy, the IRS must first notify the affected taxpayer in writing of his or her right to a hearing under I.R.C. § 6330 with an impartial settlement officer in Appeals.7 As applied to liens and levies, these notices have historically taken the form of a Notice of Federal Tax Lien and Your Right to a Hearing Under I.R.C. 6320, or a Notice of Intent to Levy and Notice of Your Right to a Hearing.8 However, the Service has more recently begun to issue automated final notices (i.e., a Notice LT11, Notice of Intent to Levy) which, according to its terms, confer upon taxpayers CDP rights under I.R.C. § 6330.9 Taxpayers who receive Notice LT11 should file Form 12153 in response to the notice so as to preserve their CDP rights. As to the procedure, a taxpayer requests a CDP hearing under I.R.C. § 6330 by filing with the assigned revenue officer (or if no revenue officer is assigned to the Internal Revenue Service Center issuing the final notice) a Form 12153, Request for a Collection Due Process or Equivalent Hearing. The filing of the Form 12153 is the mechanism by which a CDP case can be transferred from the IRS Collection Division to Appeals, and in turn, the only means by which a taxpayer can obtain judicial review of Appeals’ determination. Where a hearing is requested in response to the filing of a final CDP notice, the revenue officer or Service Center will forward the Form 12153 and all supporting documents to Appeals, which will then assign the CDP hearing request to an settlement officer. Importantly, a taxpayer is allowed only one hearing under I.R.C. § 6330 with respect to the taxable period to which the unpaid tax specified in the final notice relates, so it is important that all defenses and arguments are raised in the Form 12153 or a properly filed supplement thereto.10 After a CDP hearing request is assigned to Appeals, the Appeals officer determines whether the proposed collection action may proceed. The Appeals officer’s determination in this regard is governed by the standards set forth in I.R.C. § 6330.11 These standards require the assigned Appeals officer to consider appropriate spousal defenses, challenges to the appropriateness of the collection action, and potential collection alternatives, such as the posting of a bond, the substitution of other assets, an installment agreement, and offer in compromise, among others.12 Following the hearing, Appeals issues a notice of determination setting forth the Appeals officer’s findings and decisions whether the proposed collection action may proceed.13 Importantly, this determination must (A) verify that the requirements of applicable law and administrative procedure have been met, (B) consider relevant issues raised by the taxpayer concerning the collection actions, and (C) consider whether the proposed collection action balances the need for efficient collection of tax with the taxpayer’s legitimate concern that the collection action be no more intrusive than necessary.14 The taxpayer, in turn, may petition the Tax Court for judicial review of the notice of determination.15 Importantly, pursuant to I.R.C. § 6330(d)(2), Appeals retains jurisdiction over CDP cases even though a petition was filed with the Tax Court. This concurrent jurisdiction is the means by which the Tax Court, upon the taxpayer’s motion or sua sponte (on the Court’s own motion), may remand a case to Appeals to conduct a supplemental or new hearing under I.R.C. § 6330.

C. Common Misapplications of Collection Rules and Trend Toward Seizures

As seemingly straightforward as these rules might be, as noted, CDP litigation continues to account for more than one-third of all federal tax litigation. The prevalence of CDP litigation is attributable, at least in part, to misapplication of the above-noted rules by Appeals officers. The most pervasive errors we see in practice, which has also drawn the ire of the National Taxpayer Advocate, is a failure to properly consider whether the proposed collection action balances the need for efficient collection of tax with the taxpayer’s legitimate concern that the collection action be no more intrusive than necessary (colloquially referred to as “the balancing test”). Also in practice, we have seen revenue officers increasingly pursue seizures of taxpayers’ assets ostensibly to deny CDP rights to the taxpayers whose property is being seized. We discuss in turn how to resolve each of these issues, in Parts II and IV of this article.

II. “The Balancing Test”

A. Overview

Appeals’ erroneous application of the balancing test under I.R.C. § 6330(c)(3)(C) results in unnecessary litigation and has been criticized by the National Taxpayer Advocate in recent years.16 As noted above, I.R.C. § 6330(c)(3)(C) requires the Appeals officer to consider whether the proposed collection action balances the need for the efficient collection of taxes with the taxpayer’s legitimate concern that any collection action be no more intrusive than necessary.17 The National Taxpayer Advocate eloquently describes the balancing test:

This balancing test is central to a CDP hearing because it instills a genuine notion of fairness into the process from the perspective of the taxpayer. The balancing test also validates the taxpayer’s right to privacy by taking into account the invasiveness of enforcement actions and the due process rights of the taxpayer.18

In practice, however, settlement officers routinely fail to perform the balancing test, and instead recite in the notice of determination that they considered the test and concluded that the proposed collection action outweighs the taxpayers’ concerns about intrusiveness.

B. Criticisms of How the Balancing Test Is Being Administered

By way of background, the Code requires the National Taxpayer Advocate to prepare an annual report to Congress that contains a summary of at least 20 of the most serious problems encountered by taxpayers.19 One of the most serious problems the National Taxpayer Advocate identifies in her 2014 Annual Report to Congress is entitled, “The IRS Needs Specific Procedures for Performing the Collection Due Process Balancing Test to Enhance Taxpayer Protections.”20 The National Taxpayer Advocate reported that a review by the Taxpayer Advocate Service (“TAS”) of CDP procedures and case law reveals that “the IRS Office of Appeals is not giving proper attention to the balancing test, especially to legitimate concerns of taxpayers regarding the intrusiveness of the proposed collection action.”21 Specifically, TAS found that Appeals often uses pro forma or boilerplate statements that the balancing test has been performed, yet does not cite any specific factors balanced.22 The National Taxpayer Advocate reported that “[t]hese issues contribute to the appearance that Appeals is simply ‘rubber stamping’ prior determinations by the Collection function.”23 Hence, the National Taxpayer Advocate concludes that “the IRS is missing opportunities to improve compliance, enhance taxpayer trust and confidence, [and] relieve undue burden on taxpayers,” by not consistently applying the test as intended by Congress in the RRA 98.24 These remarks are fully consistent with the authors’ experiences in CDP hearings, the effect of which is to cause taxpayers to seek judicial review by the Tax Court.

C. National Taxpayer Advocate Recommendations

The National Taxpayer Advocate proposed the following solution to Congress in order to address errors with the balancing test:

To provide the protections that Congress intended, the National Taxpayer Advocate recommends that the Office of Appeals, in collaboration with TAS, formulate a policy statement on the CDP balancing test that reflects congressional intent; develop specific factors for the application of the CDP balancing test based on an analysis of case law and legislative history for use by both Appeals and Collection; revise the I.R.M. to specifically prohibit pro forma statements that the balancing test has been performed and instead require a description of which factors were considered and how they apply in the particular taxpayer’s case; integrate any newly developed factors for the application of the CDP balancing test into the Appeals I.R.M. and train all Appeals Officers, Settlement Officers, and Appeals Account Resolution Specialists on applying the balancing test consistently; incorporate the balancing test analysis into the Collection I.R.M.; and provide necessary training to Collection employees (because if the balancing test were applied at the point of first contact, there would be less rework for TAS and Appeals).25

D. IRS Response to Recommendations and Criticisms

The Commissioner of the IRS took no corrective action to address any problem identified by TAS other than to “update ‘new hire’ training for Field Collection and Campus Collection to ensure it reflects the latest Collection I.R.M. guidance on the balancing test analysis.”26 Instead, the IRS cited numerous statistics which the IRS claims supports the conclusion that the IRS is meeting its requirements to balance collection alternatives. In response to the IRS, predictably, TAS was not thrilled, and stated that the “IRS’s refusal to adopt a policy statement underlying congressional intent and reiterating the focus of the balancing test on whether the collection action is more intrusive than necessary demonstrates a lack of commitment to taxpayer rights.”27

E. Case Law

Recent case law confirms that Appeals is often not properly applying the balancing test under I.R.C. § 6330(c)(3)(C).28 For example, in Budish v. Commissioner, 29 a sculptor had self-reported his income, but did not pay the tax. He received a notice of intent to levy and ultimately negotiated an installment agreement with the settlement officer during his CDP hearing. The Appeals officer insisted on filing a Notice of Federal Tax Lien as a condition to the installment agreement.30 The taxpayer explained that filing the Notice of Federal Tax Lien would destroy his business because suppliers would then insist on payment upfront rather than extending credit to him (as selling supplies to him on credit was typical in his business).31 The taxpayer could not agree to the filing of a Notice of Federal Tax Lien, so the settlement officer denied the installment agreement and sustained the proposed levy.32 The Tax Court remanded the case to Appeals, finding that the settlement officer had failed to properly perform the balancing test, and her assertion that she had performed the balancing test was “surplusage or boilerplate, included merely for the sake of completeness.”33

Similarly, in Lofgren Trucking Serv., Inc. v. United States, 34 the Appeals erroneously determined that 2006 first quarter employment taxes were “new” tax debts incurred while an installment agreement request was pending. In fact, the taxpayer had submitted its payment plan during the second quarter of 2006 and had paid its 2006 second quarter employment taxes. Moreover, the settlement officer in Lofgren summarily denied the taxpayer’s requested installment agreement solely based on his mistaken belief that accepting the plan was impossible under the Code and the regulations because of the debt incurred for the first quarter of 2006.35 The federal district Court for the District of Minnesota noted that the settlement officer did not cite any balancing factors and did not provide the basis for the summary rejection of the installment agreement that had been proposed.36 As a result, the Court held that the taxpayer had been deprived of its right to a fair hearing under I.R.C. § 6330(b) and remanded the case to the Office of Appeals.37

The above cases demonstrate that courts are willing to remand cases to Appeals, especially when there is no analysis provided by the settlement officer as to the balancing test, though it does not happen often. Certainly, these cases support the observations of the National Taxpayer Advocate and call into doubt the IRS’s claims that the IRS is meeting its obligations under I.R.C. § 6330(c)(3)(C)

III. Remand of CDP Cases to Appeals and Post-CDP Hearing Review

Another issue with which the IRS and the courts appear to struggle is when a CDP case can (or should be) remanded to Appeals. Tax Court jurisdiction in CDP cases is generally limited to a review of a CDP “determinations” as memorialized in a notice of determination that is based upon the administrative CDP hearing.38 The Tax Court has observed that, “[a]bsent limiting statutes, courts generally have the authority to issue such orders as they deem necessary and prudent to achieve the orderly and expeditious disposition of cases.”39 The Tax Court has also recognized its authority to remand a case to Appeals when doing so is “necessary or productive.”40 Most typically, changed circumstances warranting a remand to Appeals constitute a change in financial circumstances that affects the outcome of the pending litigation. For example, in Tucker v. Commissioner, 41 when the unemployed taxpayer’s accounts were put into currently not collectible (“CNC”) status as a result of a CDP determination, and the taxpayer later obtained a job, the Tax Court concluded that this change in circumstances warranted a remand of the case to Appeals. The Tax Court concluded that the taxpayer’s receipt of wages or salary as a collection source would be a change in the taxpayer’s circumstances that could trigger Appeals’ retained jurisdiction under I.R.C. § 6330(d)(2).42

The Tax Court has also remanded CDP cases to Appeals when the record is incomplete or there has been some other failing in the process that essentially amounts to a determination that Appeals abused its discretion. For example, in Dickes v. Commissioner, 43 the Tax Court remanded the case to Appeals when the settlement officer left the taxpayer with the impression that he would have an opportunity to submit an offer in compromise if his request for penalty abatement was denied during the hearing. The settlement officer in Dickes subsequently never responded to the taxpayer’s penalty abatement request, and the Court held that remand was appropriate to allow the taxpayer to submit the requested offer in compromise.44

It is sometimes advisable to file a petition with the Tax Court in response to a determination that is favorable to the taxpayer so as to invoke the Tax Court’s jurisdiction. Pursuant to I.R.C. § 6330(e) and Rule 55 of the Tax Court’s Rules of Practice and Procedure, the Tax Court retains jurisdiction over a timely filed CDP petition. Thus, if Appeals determines that it is not appropriate to pursue collection at the current time (e.g., by reporting the taxpayer’s account as CNC), that determination may change over time if, for example, Collections subsequently determines that the taxpayer’s account is collectible. If the taxpayer does not challenge the original determination of CNC, then he or she may be precluded from doing so in the future because, as noted above, the taxpayer only receives one hearing with respect to a particular tax for a particular year.

If the taxpayer wants to ensure his or her right to judicial review of subsequent collection action with respect to that period, then he or she may want to file a petition with the Tax Court to invoke the Tax Court’s jurisdiction. Then, the Tax Court retains jurisdiction over that period and the taxpayer preserves his or her right to judicial review. Otherwise, upon completion of a retained jurisdiction hearing, Appeals’ subsequent determination as to the period is not subject to judicial review by the Tax Court.45

IV. Approvals Needed to Take Seizure Actions

A. Overview

Despite the broad protections guaranteed to taxpayers by the CDP procedures, the final notice sent by the revenue officer to the taxpayer does not disclose the actual collection action to be taken if the lien or levy action subject to the hearing under section 6320 or 6330 is sustained. Absent an explanation of which of the many options available to the IRS to collect, Appeals or any settlement officer within Appeals cannot genuinely employ any balancing test.

To further elaborate: as previously mentioned, the IRS must notify a taxpayer in writing of his or her right to a hearing before a levy is made. Unfortunately, the Notice LT11, labeled “Intent to seize your property or rights to property,” does not refer to the collection action that the IRS intends to take. Instead, it says, “We haven’t received any payment from you for your overdue taxes. This letter is to advise you of our intent to seize your property or rights to property. You must contact us immediately.” The IRS explanation of this notice in its “Answers to Common Questions” is just as cryptic:

What happens if I don’t respond to this letter or don’t pay?

We can attach a levy to your wages or bank accounts up to the amount owed to the Service. We may also take enforced collection action to collect the amount including the filing of a Notice of Federal Tax Lien. A lien is a public notice to your creditors that the government has a right to your interests in your current assets and any assets you acquire after we file the lien. It can affect your ability to get credit.46

In practice, revenue officers do not determine which collection actions they will take until after Appeals or the Tax Court makes its determination. Without further information given at a CDP hearing as to how a potential collection action would adversely affect the taxpayer, a settlement officer cannot “balance the need for efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.”47 As a practice point, consequently, the tax professional preparing for a CDP hearing must evaluate all of the potential collection actions and specifically address the hardships that could occur if they were taken, and then explain “balancing” in the context of a collection alternative, to ensure the settlement officer can conduct the proper tests. Such explanations would guard against a seizure or sale of property, the effect of which is to deny taxpayers CDP rights because, as noted above, CDP rights do not apply to such seizures and sales.48

Some background on seizures is appropriate. As previously mentioned, pursuant to I.R.C. § 6331 (b), in any case in which the IRS may levy upon property or rights to property, the IRS may also seize and sell such property or rights to property (whether real, personal, tangible, or intangible).49 I.R.C. § 6334(a) sets forth the types of property that is generally exempt from levy, including seizures of principal residences and tangible personal property or real property used in a trade or business of an individual taxpayer. But, pursuant to I.R.C. § 6334(e), the IRS may levy or seize a principal residence and the above-described business assets if a judge or magistrate of a federal district court approves in writing the levy or seizure or such asset.50 For purposes of seizures, a “principal residence” broadly includes any real property used by the taxpayer, the taxpayer’s spouse or former spouse, and taxpayer’s minor children as a principal residence.51

Not surprisingly, if a revenue officer determines that the IRS should take the extraordinary step of seizing a taxpayer’s principal residence or business assets, the IRS has a detailed set of approvals that must be satisfied before the case will be referred to Tax Division of the Department of Justice (“Tax Division”) to introduce the suit. These approvals vary by the type of asset to be seized, and this article summarizes below the steps that are taken before a seizure of a taxpayer’s principal residence, certain business assets, or perishable goods may occur. In general, however, once a revenue officer secures the necessary approvals, he or she must have the IRS Area Counsel prepares a letter to the Assistant Attorney General for the Tax Division authorizing and requesting the institution of suit.52

When the Tax Division receives the authorization from the IRS Area Counsel, then the case becomes the responsibility of the Tax Division, which makes the final decision of whether or not to institute the suit.53

B. Judicial Approval for Principal Residence Seizure

If the revenue officer determines that it is appropriate to have a taxpayer’s personal residence seized and sold, then the first step to have the case referred to the Tax Division is for the revenue officer to complete the required narrative report and application for seizure and sale.54 The narrative report details the result of the investigation and contains the recommendation to seize the principal residence.55 In addition to the narrative report, the revenue officer will also prepare and submit to his or her manager a suit package that contains the following items:

• Form 4477, Civil Suit Recommendation;
• The narrative report
• Form 2434–B, Notice of Encumbrances Against or Interests in Property Offered for Sale;
• Form 2433, Notice of Seizure;
• Estimated minimum net sale proceeds calculation, including supporting worksheets, memorandums, or excerpts from the IRS’s Integrated Collection System (ICS) history;
• Copies of Notices of Federal Tax Lien;
• Form 13719, Pre-Seizure Checklist and Approval Request;
• A copy of deed to the property to be seized;
• A commercial title report with an explanation of the title search results; and
• Any other relevant documents, such as appraisals, L–1058 (Final Notice of Intent to Levy), L–3174 (New Warning of Enforcement), Form 14071 (Request for Information from Lien Holder), or Form 668-A (Notice of Levy), among others.56

The completed suit package is then forward to the revenue officer’s group manager, through the IRS Advisory Division and through appropriate levels of management, including the Area Director.57 After approval of the suit recommendation, then the IRS Advisory Division will submit the case to Area Counsel for referral to the Tax Division.58 If the Tax Division agrees to institute the case, then the assigned attorney initiates the proceeding for judicial approval of the seizure on the principal residence by filing with the appropriate federal district court a petition demonstrating that the underlying tax liability has not been satisfied, that no reasonable alternative for collection of the taxpayer’s debt exists, and that the requirements of any applicable law or administrative procedure relevant to the seizure and sale have been met.59 The taxpayer will receive a hearing to rebut the government’s prima facie case if the taxpayer files an objection within the time period required by the court. The objection must raise a genuine issue of material fact demonstrating that the underlying tax liability has been satisfied, that the taxpayer has other assets from which the liability can be satisfied, or that the IRS did not follow the applicable laws or procedures pertaining to the levy.60 The taxpayer is not permitted to challenge the merits underlying the tax liability in the proceeding.61

C. Seizures Requiring Area Director Approval

Area Director approval is required for certain seizures unless the collection of the tax is in jeopardy.62 One of these types of seizures include personal residences, a term which encompasses property owned by the taxpayer and used by others as a principal residence.63 It is important to distinguish this type of seizure from situations involving the seizure of a property used as a principal residence by the taxpayer, taxpayer’s spouse or former spouse, or taxpayer’s minor children, which requires the judicial approval described.64

D. Judicial Approval for the Sale of Tangible Personal Property or Real Property Used in the Trade or Business of an Individual Taxpayer

Area Director approval is also required for the seizure of tangible personal property or real property used in the trade or business of an individual taxpayer unless the collection of the tax is in jeopardy.65 The decision of whether or not to approve the seizure of this type of asset is based on the use of the asset, not the type of liability for which the seizure is being conducted.66 The I.R.M. provides examples of tangible personal property that may be subject to seizure and sale, including the contents of register, a liquor license, and a vehicle used as transportation by a self-employed real estate agent.67

E. Perishable Goods

If the IRS determines that any property seized is liable to perish or become greatly reduced in value, or if the property cannot be kept without great expense, then the IRS shall appraise the value of the property and return it to the owner. In exchange, the owner will pay the IRS an amount equal the appraised value, or give bond according to specifications that the IRS deems appropriate.68 If the owner of the property does not pay such amount or furnish such bond, then the IRS may make public sale of the property in accordance with applicable regulations.69 Upon identification of a potential perishable goods sale, the revenue officer’s group manager will schedule a pre-seizure, four-way conference with the revenue officer, Property and Liquidation Specialist (“PALS”), and PALS group manager to begin development of a perishable goods sale plan.70 The I.R.M. states:

Responsibility for all perishable goods sale plans, final criteria determination, and sale responsibilities rests with the PALS function. The PALS will prepare and secure PALS group manager concurrence for a Perishable Goods Criteria and Sale Plan memorandum for every perishable goods case. … The memorandum will include:

• Identification of the appropriate criteria and an analysis that demonstrates the need to conduct the sale under IRC section 6336
• Asset valuation to include appraisal and inventory list
• Analysis of estimated expenses for both moving the assets to another location and storing on site for an IRC section 6335 sale
• Analysis of estimated expenses and proceeds under an IRC section 6336 sale
• A marketing plan including of both pre- and post- seizure marketing
• Information regarding the need for a Consent or Writ of Entry
• An estimate of the time frame from the point of seizure to sale
• Resources required to conduct the sale (e.g., personnel, supplies, security)
• Group manager concurrence signature line.71

The below chart is a Seizure Approval Reference Table from the I.R.M. which provides a good summary of the type of asset and the approval authority needed for its seizure:72

V. Conclusion

The procedural due process protections guaranteed by CDP and the RRA 98 are alive and well, but the courts, the IRS, and Appeals must do more. The IRS should update relevant I.R.M. provisions to provide guidance to settlement officers and revenue officers as to the appropriate factors to consider under the balancing test of I.R.C. § 6330(c)(3)(C). The courts, to the extent the IRS is unwilling to do so on its own, should develop factors to consider in determining whether a settlement officer abused his or her discretion in allowing a proposed collection action to proceed. Practitioners must vigilantly protect their clients’ interests administratively, judicially, and especially when the seizure and sale of a taxpayer’s assets would create hardship that can be ameliorated by proper application of the balancing test, by addressing the effects of potential collection actions at the earliest possible opportunity to do so.

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This post was written by Patrick Binakis