Procedure & Administration
Collection due process (CDP) hearings, unlike many other administrative hearings, are not required to be, and often are not, recorded. Because the basis on which a taxpayer may seek review of a final determination relating to a CDP hearing is limited to the issues raised at the hearing, the lack of a full record of a CDP hearing can result in cases where a taxpayer effectively is unable to appeal resolution of issues properly raised at the hearing. In Keene, 121 T.C. 8 (2003), the Tax Court acknowledged that having a recording of a hearing was helpful to the court in determining which issues had been properly raised and held that a taxpayer was entitled to record a CDP hearing.
Procedural Requirements
In 1998, Congress added provisions to the Code relating to due process for liens and collections to allow taxpayers certain rights and privileges when interacting with the IRS. Under these provisions, the IRS must comply with certain requirements after filing a notice of lien in favor of the United States on all property of a delinquent taxpayer and before proceeding with a levy on the taxpayer’s property.
After receiving a notice of the filing of a tax lien or a notice of intent to levy, a delinquent taxpayer may request an administrative hearing before the IRS Office of Appeals. The IRS conducts these hearings, commonly referred to as CDP hearings, in accordance with rules set forth in Secs. 6330(b) and (c), and the hearings are informal. As provided in Regs. Secs. 301.6320-1(d)(2), Q&A-D6, and 301.6330-1(d)(2), Q&A-D6, a CDP hearing “may, but is not required to, consist of a face-to-face meeting, one or more written or oral communications between an Appeals officer or employee and the taxpayer or the taxpayer’s representative, or some combination thereof.”
CDP Hearing Content
At the CDP hearing, the taxpayer may raise “any relevant issue relating to the unpaid tax or the proposed levy,” according to Sec. 6330(c)(2)(A). This includes spousal defenses, challenges to the appropriateness of the collection action, and possible collection alternatives. In certain circumstances, the taxpayer also may raise challenges to the existence or amount of the underlying tax liability.
At the conclusion of the CDP hearing, the Appeals officer, taking into account certain criteria, must make a final determination as to whether and how to proceed with collection. If the taxpayer subsequently disagrees with the Appeals officer’s final determination, the taxpayer may seek review of the determination by appealing it to the Tax Court pursuant to Sec. 6330(d).
Tax Court Review and the Need for Transcripts
Since the inception of these rules, petitions to Tax Court for review of final determinations relating to CDP hearings (CDP cases) have become common. The focus of many CDP cases has been on issues raised by the taxpayer and conversations between the parties at the CDP hearing because the taxpayer cannot dispute issues, including challenges to the underlying liability, in Tax Court that the taxpayer did not properly raise in the CDP hearing. (See Giamelli, 129 T.C. 107 (2007); and Magana, 118 T.C. 488 (2002).) Therefore, it is important for the court to know what issues the parties raised and discussed at the CDP hearing.
The sources of information provided to the Tax Court—typically, the final determination, the administrative record, and possibly subsequent witness testimony—may not adequately evince all the matters discussed at the CDP hearing, resulting in disputes as to what issues the taxpayer properly raised. Judge Juan F. Vasquez highlighted this point in his concurring opinion in Keene , stating that
in order to determine what issues taxpayers raised at the section 6330 hearing, the Court was faced with “he said-she said” situations—needless “credibility contests” between the taxpayer and the Appeals officer. In many cases this contest was not fully developed because the only evidence submitted to determine what issues were raised at the hearing was the notice of determination. [ Keene , 121 T.C. at 23 (Vasquez, J., concurring)]
He went on to explain that even Appeals officers, at times, may not know what issues had been raised.
Having a transcript would eliminate a possible dispute between the parties concerning the scope of the issues that were raised by the taxpayer in the administrative hearing. Moreover, not having a transcript may contravene the intent of Congress in providing for a fair and impartial administrative hearing and may have a negative impact on [the Tax] Court’s review of the [IRS] Appeals Office determination. [Id. at 40 (Vasquez, J., concurring), quoting the majority opinion, 121 T.C. at 18]
Observations
Although Sec. 7521 allows taxpayers to record in-person interviews, Regs.Secs. 301.6320-1(d)(2), Q&A-D6, and 301.6330-1(d)(2), Q&A-D6, provide that “[a] transcript or recording of any face-to-face meeting or conversation between an Appeals officer or employee and the taxpayer or the taxpayer’s representative is not required.” As a matter of course, the IRS does not record CDP hearings, leaving the taxpayer with the burden of recording the communication. This may be particularly troublesome for pro se taxpayers, who may not appreciate the importance of these communications.
Mandatory recordings of CDP hearings that are made part of the administrative record could benefit taxpayers in many cases. The recording and subsequent transcript would assist the taxpayer in receiving a fair review, as “[h]aving a transcript of the section 6330 hearing will allow [the Tax Court] to perform better the review provided to [the taxpayer] by section 6330(d)” by providing the court with more than just the “notice of determination [and] the testimony of witnesses as evidence of what issues the taxpayer raised at the hearing.” Keene , 121 T.C. at 23, 24 (2003) (Vasquez, J., concurring). Examples of cases showing how recordings of CDP hearings can help the Tax Court in making its decision include Bourbeau , T.C. Memo. 2003-117, where the Tax Court reviewed transcripts of recordings from the CDP hearing, and Struhar , T.C. Memo. 2003-147, where the Tax Court listened to the actual recordings of the hearing.
EditorNotes
Annette Smith is a partner with PwC, Washington National Tax Services, in Washington, D.C.
For additional information about these items, contact Ms. Smith at 202-414-1048 or annette.smith@us.pwc.com.
Unless otherwise noted, contributors are members of or associated with PwC.
