This is not the first post on the way the IRS collection letters mislead taxpayers. This is also not the first post on the notice stream of letters sent in collection cases after assessment of tax. This may be the first post in which I feel like I am writing about a deliberate attempt by the IRS to mislead taxpayers with a form. I find the statements the IRS has deliberately chosen to make in Notice CP504 false and can only conclude that it has made these statements after giving thought to what it says in the letter because I know these letters receive much scrutiny before the IRS uses them.
Letters in the collection notice stream satisfy statutory requirements and collection goals. Section 6303 requires the IRS send a notice and demand letter after it makes assessment when insufficient funds exist on the account to satisfy the liability. The IRS should send this letter within 60 days of assessment; however, its failure to do so impacts the creation of the federal tax lien and not the validity of the assessment.
The notice stream fulfills two other statutory requirements – those found in IRC 6331(d) and 6330. The interplay of these two sections creates the basis for the discussion in this post. Because the IRS has chosen to misrepresent its authority to levy in Notice CP504, examining the role of these sections must precede the discussion of the misrepresentation itself.
Dating back at least the 1860s, Congress gave the IRS, and its predecessors, authority to levy on the assets of taxpayers who failed to pay their federal taxes. Levy provides the IRS with a powerful administrative tool which, prior to 1998, involved no judicial check on the IRS before the levy occurred. Before 1998, however, Congress did require that the IRS send taxpayers a notice of intent to levy 30 days before it could begin administratively taking their property. The code section requiring this notice is IRS 6331(d). This section provides:
1. In general. Levy may be made under subsection (a) upon the salary or wages or other property of any person with respect to any unpaid tax only after the Secretary has notified such person in writing of his intention to make such levy.
2. 30-day requirement. The notice required under paragraph (1) shall be –
- Given in person
- Left at the dwelling or usual place of business of such person, or
- Sent by certified or registered mail to such person’s last known address,
No less than 30 days before the day of the levy.
In 1998 Congress decided that IRC 6331(d) provided inadequate protection to taxpayers before the IRS could levy on their property. To remedy this failing, Congress did not remove section 6331(d) but added section 6330. Now, the IRS had two notices it must provide to taxpayers before it could levy. The new notice created in section 6330 not only gives the taxpayer notice of the IRS intent to levy but also gives the taxpayer the right to contest the levy by filing a Collection Due Process (CDP) request before the levy may occur. Today, it is easy to forget that the section 6331(d) requirement still exists because it receives almost no attention but the statute still requires the IRS to provide this notice as well and the IRS does so.
In 1998, the IRS decided to make the last letter of its notice stream of collection notices, normally the 4th letter, a letter that combined the taxpayer’s notice rights under both 6331(d) and 6330 into the same letter. It continued this practice for many years though no legal requirement exists that the same letter provide the notice required by both statutes. Conversely, no statutory requirement causes the IRS to put the notices into separate letters.
At some point in the recent past, the IRS decided that it would split the notice required by 6331(d) and 6330 into two separate letters. One of the reasons, a major reason, for combining the two notice requirements into one letter was cost. Each statutorily required notice came with a requirement that the IRS send the notice by certified mail. The CDP notice requires not only that the IRS mail it certified, but also that the IRS request return receipt. Combining the two notices allowed the IRS to meet the costly statutory requirement of certified mail with one rather than two mailings. Because of the number of notices of intent to levy sent each year and the extra cost of sending two letters by certified mail, the IRS could save several million dollars each year simply by combining the two notices.
The IRS has now decided that it will send the taxpayer, as the third notice in the notice stream, a section 6331(d) notice.Here is the notice sent to one of the clients of the Harvard clinic. The IRS titles the notice “Notice of Intent to Levy.” In the body of the notice, the IRS says that if the taxpayer does not pay the tax by the date specified in the letter, the IRS may levy on the taxpayer’s property and rights to property including: 1) wages, real estate commissions, and other income; 2) bank accounts; 3) personal assets (e.g., your car and home) and 4) Social Security benefits. The problem with this notice and with these statements (some might say threats) arises because, at the time the IRS sends this notice, it has not yet provided the taxpayer with the CDP notice. Without the CDP notice, the IRS cannot levy upon a taxpayer after 1998 and yet, it says to taxpayers in Notice CP504 that it can. At best, the letter misleads taxpayers about their rights and viewed at worst, the letter contains false statements known by the IRS employees designing this letter as such.
To test the letter and the statements that the IRS could levy as a result of it, the Harvard clinic sent a Form 12153 to the IRS requesting a CDP hearing for a client who had received Notice CP504. Even though the letter does not mention section 6330, it describes a procedure the IRS can only take after sending a CDP notice. So, we thought that by sending a CDP request we would see what would happen. We expected that the IRS would not provide our client with a CDP hearing, but it seemed better to try and find out. First, we obtained the permission of our client to file the CDP request after explaining to him our reasons for wanting to do so. In the first case in which we requested a CDP hearing, we eventually received a letter from the IRS saying that the client could not have a CDP hearing because the IRS had not sent a CDP notice. Before we could petition the Tax Court from that letter, which might be characterized as a notice of decision from which the Tax Court has in certain circumstances granted jurisdiction, the IRS sent another notice of intent to levy citing to section 6330, and we did not want to impair the taxpayer’s ability to use the CDP process, so we filed another CDP request based on the notice which cited to section 6330 and have our case under consideration for an offer in compromise.
Another client received this notice and we sent another CDP request to the IRS. In the second case, the IRS has neither responded to our request nor sent a notice citing to section 6330. We will continue, with client permission, to send in requests for CDP hearings whenever our clients receive a notice of intent to levy stating that the IRS can levy upon their property. We hope one day to uncover the mystery of how the IRS thinks that it can levy in 2016 based on a 6331(d) notice without sending a 6330 notice. If anyone out there can help us to solve this mystery, we would appreciate your assistance. For the moment, I remain of the opinion that Form CP504 seeks to purposely mislead taxpayers. I find the letter offensive. I believe it violates taxpayer rights. I think the IRS should immediately stop sending a letter entitled Notice of Intent to Levy containing instructions in the body of the letter about the taking of a taxpayer’s property when the IRS has no authority to do so.