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Tax appeals, part 1: collection due process within the IRS

With the days dwindling, we've got only a few posts left this year. We'll save end-of-year tax planning for our final post of 2014. Before that, however, we will take on an important tax concept called Collection Due Process (CDP).

In today's post, we will explain the basic framework of CDP. In part 2, we will apply this framework to a specific case involving the relative of a notorious criminal who pursued her case in the U.S. Tax Court.

Regarding the framework of collection due process, let's first be clear on some key terminology. In particular, the word "appeal" can mean different things in different contexts.

A taxpayer who disagrees with attempted collection action by the IRS can challenge that action internally within the IRS. This is done by filing a formal written protest that requests an Appeals conference. The conference or hearing takes place within the Appeals division of the IRS - which is a different division from the Collections division.

But this is not the only meaning of the word "appeals" in the context of a tax controversy. Taxpayers who disagree with IRS actions also have certain rights of appeal in U.S. Tax Court and in federal district court. In other words, when someone says "tax appeal," it is important to be clear which type they are referring to.

In part two of this post, we will continue this discussion by looking at a specific case involving a taxpayer who requested a CDP hearing to contest the IRS's attempt to levy on her property. This taxpayer was the sister-in-law of Bernard Madoff, the high-profile investment adviser who was sentenced to 150 years in prison for conducting a massive Ponzi scheme.

Source: IRS.gov, "Preparing a Request for Appeals"

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