Collection Due Process After a TFRP Assessment: What You Can Still Argue

The Trust Fund Recovery Penalty has been assessed. Now the IRS wants to levy your personal bank account, or it has filed a Notice of Federal Tax Lien in your name. Along with that comes a notice offering you a Collection Due Process hearing.

Good. Take it. A CDP hearing is one of the most useful tools in collection defense. But walk in knowing which arguments Appeals will hear, and which ones it will politely decline.

Where CDP Rights Come From

Two Code sections create Collection Due Process. IRC 6320 gives you a hearing after the IRS files a Notice of Federal Tax Lien. IRC 6330 gives you a hearing before the IRS levies.

Under section 6330(a), no levy may be made unless the IRS has notified you in writing of your right to a hearing, at least 30 days before the first levy for the period. The notice has to be given in person, left at your home or usual place of business, or sent by certified or registered mail, return receipt requested, to your last known address. You get one hearing per tax period under section 6330(b)(2).

If you request the hearing within the 30-day window, section 6330(e)(1) generally suspends the levy actions that are the subject of the hearing, and the collection statute, while the hearing and any appeal are pending.

The hearing is held by the IRS Independent Office of Appeals, before an officer who had no prior involvement with the unpaid tax, unless you waive that requirement.

What You Can Always Raise

Section 6330(c)(2)(A) lets you raise any relevant issue relating to the unpaid tax or the proposed levy, including:

• challenges to the appropriateness of the collection action; and
• offers of collection alternatives, which the statute says may include posting a bond, substituting other assets, an installment agreement, or an offer in compromise.

Appeals must also verify that the IRS met the requirements of applicable law and administrative procedure, and it must weigh whether the proposed collection action balances the need for efficient collection against your legitimate concern that collection be no more intrusive than necessary. That is section 6330(c)(1) and (c)(3).

These issues are always on the table, whether or not you fought the penalty before it was assessed. For a responsible person facing a large TFRP, the collection alternative piece is often where the real work happens. See our guides to offers in compromise on a TFRP and to the IRC 6672(c) bond.

The Liability Question: Did You Have a Prior Opportunity?

The harder issue is whether you can argue that you never owed the penalty at all. Section 6330(c)(2)(B) allows a challenge to the existence or amount of the underlying liability only if you did not receive a statutory notice of deficiency or did not otherwise have an opportunity to dispute the liability.

The Trust Fund Recovery Penalty is not subject to deficiency procedures, so the question is always the second one: did you have another opportunity?

Treasury Regulation 301.6330-1(e)(3), Q&A-E2, answers it in a way that matters for TFRP cases. It says an opportunity to dispute the underlying liability includes a prior opportunity for a conference with Appeals that was offered either before or after assessment. The one carve-out, for Appeals conferences before assessment of a tax subject to deficiency procedures, does not apply here.

Letter 1153 offers exactly that kind of pre-assessment Appeals conference. That is why the Appeals manual treats it as a prior opportunity.

How Appeals Decides Whether You Are Precluded

IRM 8.22.8 is the part of the Appeals manual that governs liability issues in CDP. For the TFRP, it lists examples of a prior opportunity, including:

• receiving Letter 1153;
• filing Form 843 and receiving an Appeals determination;
• receiving a claim disallowance letter offering a chance to dispute the disallowance in Appeals;
• having an Appeals hearing on the TFRP in which you meaningfully participated;
• a court decision on the TFRP liability;
• a prior CDP lien or levy notice for the same tax and period; and
• challenging the TFRP liability in bankruptcy.

The key word for most people is receiving. IRM 8.22.8 states that the preclusive event is your receipt of Letter 1153, not your signature on Form 2751. A signed Form 2751, alone, does not stop you from raising liability in CDP, because Form 2751 is not a closing agreement under IRC 7121.

To decide whether you received Letter 1153, the manual tells Appeals to ask you, review the business case history for documentation of personal delivery, and, if receipt still is not confirmed, request a copy of the letter and proof of receipt from the IRS unit that holds the TFRP file.

That is a factual question, and it is worth fighting about when the facts support you. If the letter went to an old address, or the certified mail record does not show delivery, or the Revenue Officer's history notes are thin, you may have a path to argue the merits in CDP.

The Timely Protest That Nobody Heard

Here is a scenario that comes up more than it should. You did file a protest after Letter 1153. Then the penalty was assessed anyway, and nobody from Appeals ever called.

IRM 8.22.8 addresses it directly. If you say you requested a hearing in response to Letter 1153, Appeals researches its records. If there is no record of a prior TFRP hearing, Appeals asks for proof of your timely request. If you provide evidence of a timely protest that Appeals never considered, you must be allowed to raise TFRP liability in CDP. The manual adds that the IRS must abate an assessed TFRP when the taxpayer timely protested but the IRS mistakenly failed to provide the pre-assessment Appeals hearing.

Your certified mail receipt from day 58 can be the most valuable piece of paper in the file.

Liability Is Precluded. Now What?

If Appeals finds you had a prior opportunity, you cannot relitigate responsibility or willfulness in CDP. That does not mean the hearing is useless. You can still:

• Propose an installment agreement on the TFRP.
• Submit an offer in compromise based on doubt as to collectibility.
• Ask that the account be placed in currently not collectible status based on your financial condition.
• Challenge whether the IRS followed required procedures, including whether Letter 1153 was issued before the assessment period expired. IRM 8.22.8 notes that whether Letter 1153 was properly issued within the assessment statute is the kind of issue that becomes precluded once decided in a prior hearing, which tells you it can be raised the first time.
• Argue that a levy is more intrusive than necessary given your circumstances.

The liability fight may also live on outside CDP. A refund claim on Form 843 followed by a refund suit is generally still available if you pay the required divisible portion. The Appeals manual specifically addresses a CDP hearing filed while a Form 843 claim is pending with the IRS's advisory unit. Our guide to TFRP refund claims and refund suits explains the payment and timing rules.

Lien Hearings Versus Levy Hearings

Many responsible persons first hear from the IRS through a lien notice. A Notice of Federal Tax Lien filed in your name triggers a separate hearing right under IRC 6320. The IRS manual for Revenue Officers, IRM 5.7.6.2.1, tells them to advise responsible persons of their right to request a CDP hearing under section 6320 once the lien is filed, and of their right to appeal under the Collection Appeals Program before filing.

The same rule on prior opportunities applies to lien hearings. Under section 6330(c)(4), an issue that was raised and considered at a previous hearing, in which you meaningfully participated, generally cannot be raised again.

Going to Tax Court

If Appeals issues a determination you disagree with, section 6330(d)(1) gives you 30 days from the determination to petition the United States Tax Court for review.

Thirty days is short. Calendar it the day the determination arrives.

Strategy Notes

1. Always request the hearing on time. The levy suspension in section 6330(e) and the Tax Court review in section 6330(d) are tied to a hearing requested within the statutory window.
2. Bring your financials. Appeals cannot evaluate an installment agreement or offer without a current collection information statement.
3. Investigate the Letter 1153 delivery. Ask for the certified mail proof. Compare addresses.
4. Look at the assessment date. Confirm Letter 1153 was issued while the assessment period was open. Our assessment deadline guide walks through the math.
5. Coordinate with any refund claim. Do not let one process waive rights in the other.

The firm's main site has more on how a Revenue Officer case progresses and how IRS installment agreements work once a penalty is assessed.

A CDP notice is the IRS asking whether you want to be heard before it takes your money. Say yes. Then make the hearing count. Call (813) 229-7100 and let's talk.