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Procedural Considerations on Collection (Levies and Distraints) – Part Two: Notice and Hearing Before Levy

In the first article in this series of posts regarding the IRS’s enforced collection through levies, we discussed the IRS’s authority and limits thereto regarding levies and distraints. In this second article of this series on levies, we discuss the procedure requiring notice and hearing before a levy attaches.  In the third article in this series, we will discuss the IRS’s enforcement of levies and distraints.

Notice and Opportunity for Hearing Before Levy

The IRS may not levy any property or right to property of a person unless the IRS has notified that person in writing of his or her right to a hearing[1] before such levy is made.[2] The notice must be given not less than 30 days before the day of the first levy of property to recover the unpaid tax.[3]

The notice must be given in person; left that the dwelling or usual place of business of such person; or sent by certified or registered mail, return receipt requested, to such person’s last known address.[4] No hearing is necessary in the event that the IRS has made a finding[5] that the collection of tax is in jeopardy (though the taxpayer will have the opportunity for a hearing after the levy).[6]

Certain information must be included with the notice.[7] The notice must include[8]

  1. the amount of unpaid tax;
  2. the right of the person to request a CDP or equivalent hearing during the 30 day period before the first levy;
  3. the proposed action by the IRS and the rights of the person with respect to such levy action; and
  4. a statement that sets forth basic information about levies, administrative appeals, alternatives available to the taxpayers which could prevent levy on the property, and provisions related to redemption of the property.

The hearing must be held if requested by the person, and the grounds of the hearing must be stated.[9] This hearing will be held by an impartial officer in the IRS’s Office of Appeals.[10] A person may only request one hearing with respect to the tax period to which the unpaid tax relates.[11] Finally, to the extent practicable the hearing on the notice of filing a tax lien will be held in conjunction with the hearing under IRC § 6320 (regarding liens on property).[12]

Certain matters are considered at an IRC § 6330 hearing.[13] The appeals officer must obtain verification from the IRS that the requirements of any applicable law or administrative procedure have been met.[14]

The person whose property is subject to levy may raise any relevant issue relating to the unpaid tax or the proposed levy including spousal defenses, appropriateness of the collection actions, and offers of collection alternatives (posting of a bond, substitution of assets, installment agreement, or offer in compromise).[15]

Critically, the person may also raise challenges to the existence or amount of the underlying tax liability for any tax period if the person did not receive a statutory notice of deficiency for the tax liability or did not otherwise have an opportunity to previously dispute such tax liability.[16]

The appeals officer will take into account the verification, the issues raised, and most importantly “whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.”[17]

An issue may not be raised at the hearing pursuant to IRC § 6330 if the issue was raised in considered at a previous hearing under IRC § 6320 or and any other previous administrative or judicial proceeding (and the person seeking to raise the issue participated in such hearing or proceeding).[18] Frivolous tax arguments[19] and issues where a final determination has been made may also not be argued in an IRC § 6330 hearing (unless specifically set forth above, like spousal defenses).[20]

Tax Court Petition

If the taxpayer does not prevail at the hearing, the taxpayer may petition the Tax Court for review of such determination within 30 days of such determination under IRC § 6330.[21] If a taxpayer may not petition the Tax Court because the taxpayer is involved with the bankruptcy proceeding, the limitations period for filing such a petition will be suspended until 30 days after the taxpayer is permitted to bring such a petition.[22]

The IRS office of appeals retains jurisdiction with respect to any determination made under IRC §6330, including subsequent hearings requested by the person on issues regarding collection actions taken or proposed with respect to such determination; and after the person has exhausted all administrative remedies, a change in circumstances with respect to that person which may affect such determination.[23]

Suspension of Collections and Statute of Limitations

If a CDP or equivalent hearing is requested under IRC § 6330, the levy actions which are the subject of the requested hearing and the running of any period of limitations under IRC § 6502,[24] IRC § 6531,[25] or IRC § 6532[26] are suspended for the period during which such hearing and appeals are pending.[27] This suspension period does not expire before the 90th day after the day on which there is a final determination and such hearing.[28]

Importantly, this suspension does not apply to a levy action while and appeal is pending if the underlying tax liability is not at issue in the appeal, and the Tax Court determines that the IRS has shown good cause not to suspend the levy.[29]

Frivolous Requests for Hearing

If the IRS determines that any portion of the request for hearing is frivolous,[30] then the IRS may treat such portion as if it were never submitted and such portion shall not be subject to any further administrative or judicial review. Such positions have previously been identified by the IRS as frivolous by its very nature or reflects a desire of the taxpayer to delay or impede the administration of federal tax laws.[31]

Surrender of Property Subject to Levy

Any person in possession or control of property subject to levy (and upon which a levy has actually been made) must surrender such property to the IRS upon demand unless the property at the time of such demand is subject to an attachment or execution under any other judicial process.[32] If the IRS levies a life insurance or endowment contract, such levy shall be satisfied if the organization which issued the contract pays out the cash surrender value to the IRS.[33] If the IRS levies a bank, the bank must surrender any deposits and interest thereon in the taxpayer’s bank accounts only after 21 days subsequent to the service of the levy on the bank.[34]


Footnotes:

[1] Under IRC § 6330.

[2] IRC § 6330(a)(1).

[3] IRC § 6330(a)(2).

[4] IRC § 6330(a)(2)(A)-(C).

[5] Under IRC § 6331(a).

[6] IRC § 6330(f).

[7] IRC § 6330(a)(3).

[8] IRC § 6330(a)(3)(A)-(C).

[9] IRC § 6330(b)(1).

[10] IRC § 6330(b)(3).

[11] IRC § 6330(b)(2).

[12] Id.

[13] IRC § 6330(c).

[14] IRC § 6330(c)(1).

[15] IRC § 6330(c)(2)(A).

[16] IRC § 6330(c)(2)(B).

[17] IRC § 6330(c)(3).

[18] IRC § 6330(c)(4).

[19] Pursuant to IRC § 6702.

[20] IRC § 6330(c)(4)(B)-(C).

[21] IRC § 6330(d)(1).

[22] IRC § 6330(d)(2).

[23] IRC § 6330(d)(3).

[24] Relating to collection after assessment.

[25] Relating to criminal prosecutions.

[26] Relating to other suits.

[27] IRC § 6330(e)(1).

[28] Id.

[29] IRC § 6330(e)(2).

[30] Under IRC § 6702(b)(2)(A)(i) or (ii).

[31] IRC § 6702(b)(2)(A).

[32] IRC § 6332(a).

[33] IRC § 6632(b).

[34] IRC § 6632(c).

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