ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – AVOID BLOWING YOUR CDP RIGHTS – PART 1
By Robert S. Schriebman
This is Part 1 of a 3-Part series. The Collection Due Process (CDP) has afforded protection to taxpayers for over twenty years. I am proud to have been the father of this revolutionary legislation. Prior to the enactment of CDP, taxpayers who owed the IRS had no prepayment rights to challenge IRS assessments or to work out solutions to their IRS debt. Taxpayers were at the mercy of Revenue Officers who had total discretion to issue liens and levies and even closing a taxpayer’s business.
IRC §§ 6220 and 6230 prevent the IRS from engaging in enforced collection action without first affording taxpayers the ability to challenge the assessment, remove a lien, negotiate an installment payment arrangement or take advantage of the Offer in Compromise process. Millions of taxpayers have taken advantage of this revolutionary legislation, including the right to have a hearing before the US Tax Court or US District Court without first having to pay what was demanded by the IRS. I worked hand-in-hand with the late Senator William Roth (Roth IRA) to create this process and make it a permanent part of American tax law.
Having said the above, taking advantage of the CDP process requires affirmative action on the part of the taxpayer. Not only must one timely file the appropriate paperwork requesting a CDP hearing, but one must also take the steps not to blow his/her right to the advantages afforded by this process. For example, one must communicate and cooperate with the assigned Settlement Officer (SO). More importantly, one should know when and how to challenge the underlying tax assessment. This Part 1 will discuss the general rules relating to putting forth a challenge as to whether or not one owes the taxes in the first place. One does not have to pay what one does not owe! At the same time, one must observe the appropriate procedures for challenging the underlying tax deficiency.
Challenging What the IRS Says You Owe
The IRS is not always correct when it demands payment. This is especially true during this pandemic. The IRS is terribly backlogged. It is sending out demand letters even though the targeted taxpayer has fully paid. The pandemic has caused situations where the right hand does not know what its left hand is doing.
IRS bills and demands for payment can come about in several ways:
- Demands for payment arising from unfiled or unpaid income and payroll tax returns.
- Demands for payment as a result of late filing and late payment penalties. Some of these penalties may be abated if they are a first-time occurrence.
- Demands for payment as a result of a Notice of Deficiency (90-day letter)
- Demands for payment as a result of the assessment of the Trust Fund Recovery Penalty (TFRP).
All but one of the above situations allow the taxpayer to challenge the debt in a CDP hearing, without first having to pay what the IRS says is owed. Only the TFRP is different.
This series of articles will discuss why you cannot challenge a TFRP debt in a CDP hearing.
The recent case of Mohammad A. Kazmi v. Commissioner, (TC Memo 2022-13, March 1, 2022) can serve as an example of the disaster awaiting a taxpayer who fails to challenge the deficiency at the right time and the right place. Mr. Kazmi was not allowed to contest the TFRP assessment in the CDP hearing. The US Tax Court set forth a complete and accurate discussion of what Kazmi should have done but failed to do. I will review the Kazmi case in Part 2.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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