Have you received IRS Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6320? That means the IRS has determined you owe a tax debt, which you have neglected or failed to pay. Now they put a lien on your property so you can’t sell or refinance any of it until you pay up or make a deal.
You can appeal this action by using the Collection Due Process (CDP) or the Collection Appeals Program (CAP).
What is a federal tax lien, you say? Read on to learn what a lien is and how it can affect your financial welfare. Then we’ll go into how CDPs and CAPs work.
WHAT IS A FEDERAL TAX LIEN?
If you refuse or neglect to pay your taxes in full and on time, the IRS will file a public document called the Notice of Federal Tax Lien (NFTL). Your creditors now know the government has just stepped in line ahead of them. It’s also a sign to potential creditors that your creditworthiness is in question.
A federal tax lien is the government’s legal claim against any property you own. The lien isn’t placed against any specific property; it can be real estate, personal property, or financial or business assets.
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OVERVIEW OF THE FEDERAL TAX LIEN PROCESS
The IRS files for a lien regarding a specific type of tax and period.
The IRS then has five (5) business days to send that Notice of Federal Tax Lien.
The letter gives you the option to request a CDP or a CAP by a specific date listed in the letter.
If you decide to go for a CDP:
File IRS Form 12153. Request for Collection Due Process or Equivalent Hearing.
Make the request within 30 days after the five business day timeframe for the lien filing.
If you win your appeal, the IRS decides whether to keep the tax lien in place, or release, withdraw, discharge, or subordinate it. (We’ll get back to these terms.)
An alternative to filing Form 12153 is to send a written request a hearing, including all the information required on the form, as well as a copy of the tax lien notice.
Otherwise, you can go for a CAP.
When to Consider Appealing
When filing for bankruptcy and the taxes are subject to an automatic stay.
In cases of withdrawal, subordination, or discharge of the lien.
If the IRS made an error in the lien filing process or made a processing error and filed the tax lien in your name by mistake.
You paid your taxes in full before the IRS filed their lien.
The statute of limitations (10 years) has expired on the debt before the IRS filed a lien.
The IRS never let you dispute the amount owed.
Your spouse is solely responsible for the tax debt, and you can claim Innocent Spouse Relief.
You want an installment agreement or Offer in Compromise.
REQUESTING A COLLECTION DUE PROCESS (CDP)
First, you fill out Form 12153 or make a written request, as explained above. Include all contact and tax debt information and a copy of the lien notice.
Specify if you want lien subordination, discharge, or withdrawal and explain why the IRS should comply with your request.
Subordination doesn’t remove a lien but allows other creditors to move ahead of the IRS. It’s easier to get a loan or mortgage this way.
The discharge removes the lien from a specific piece of property. Now you can sell it to pay your tax debt. Withdrawal removes the public Notice for Federal Tax Lien and assures creditors the IRS is not competing with other creditors for your property. You still need to pay the tax debt. Next, specify the arrangements for paying the tax debt.
You can enter into an installment agreement or Offer in Compromise.
You can let the IRS know you can’t possibly pay the balance.
Or you can offer another reason why the lien should be released.
Once you file, an IRS office schedules a meeting. You might get other letters or have meetings with the IRS Office of Appeals. Then the Office of Appeals either grants your request or decides the lien should remain filed.
If your request is denied, you can request a judicial review from the U.S. Tax Court. Your petition must come within 30 days of the date the Appeals Office issues a determination letter. If you don’t make it on time, you can’t go to court even if you don’t agree with the decision.
What if you miss the 30-day deadline for requesting a CDP? You can request an equivalent hearing using the same form. Or you can write a letter.
For an equivalent hearing, you have one year plus five business days after the Notice of Federal Tax Lien to ask for one.
Requesting a Collections Appeal Program (CAP)
A CAP is faster than a CDP, but you can't request a judicial review if you disagree with the final determination. Also, you can't challenge the existence or total of the tax debt.
A CAP can be requested before or after the IRS files for a lien. At the same time, you can get a hearing on a denial, withdrawal, subordination, or discharge.
If you have no contact with a revenue officer:
Call the number on your letter to explain why you don’t agree with the lien.
Offer a solution for clearing your tax debt.
If you can’t reach an agreement with the representative, state that you want to appeal. A manager should call within 24 hours.
If you still disagree, the manager forwards the case to the Office of Appeals.
If you have contact with a revenue officer:
Speak with the officer. If you differ with that person, request a conference with the Collection Manager.*
If you disagree with the Collection Manager’s decision, submit Form 9423 Collection Appeal within three (3) business days after conferencing with him or her.
If you don’t hear from the Collection Manager within two business days of your request to speak, reach out again or submit Form 9423, noting the time of the conference call request. Indicate the Collection Manager or subordinate did not call along with the date of the request.
* Let the revenue officer know you want a CAP appeal within two (2) business days after meeting with the Collection Manager.
Who should represent you during this time? You can represent yourself if you feel confident you know what you’re doing.
Better yet, ask a tax professional to represent you. The IRS prefers working with qualified tax professionals anyway. They tend to be more familiar with the appeals process.
COVID-19 Tax Relief
The IRS People First Initiative, which was announced in March of this year, offers relief for taxpayers with filed Notices of Federal Tax Lien or who need assistance with a lien program request.
If that relief request is related to a COVID-19 hardship, you can fax the IRS at 844-201-8382 to request this special relief.
You can appeal a Federal Tax Lien. Be sure to file all appropriate forms on time.
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