CDP (12153) vs CAP (9423): Collection Form Comparison

CDP (12153) vs CAP (9423): Collection Form Comparison

CDP (12153) vs CAP (9423) Form Comparison

CDP (12153) vs CAP (9423): When it comes to IRS collection enforcement, the first important thing to do for most taxpayers is to stop the collection action from proceeding. In a now-common situation, the IRS issues an international reporting penalty against a U.S. person for noncompliance, for not filing Form 3520, Form 3520-A, or Form 5471.  The taxpayer may have submitted a post-assessment Reasonable Cause package and/or 843 Abatement Request and waits for a response.

Earlier in the enforcement action timeline, a taxpayer may be able to halt IRS collection by contacting the service via telephone.

Later in the collection process, once the taxpayer has received a more formalized notice, such as a 504 Notice, the stakes are higher.

An IRS agent may agree to continue a stay on enforcement pending the outcome of the other legal maneuvers the taxpayer may be making but not always, so more immediate action must be taken —

What is a CDP vs a CAP?

Two common forms used to halt collection is by filing either a Collection Due Process Hearing Request (CDP 12153) or Collection Appeal Program Request (CAP 9423). While these forms are somewhat similar, there are some key distinctions between the forms that may result in certain estoppel and waiver ramifications for the taxpayer if they are unaware of the timing of the forms.

The main distinction between the Collection Due Process hearing and a Collection Appeal Process is that with the Collection Appeal Process, you are disputing the actual collection action — such as a lien, levy, or seizure. It generally* does not apply to fighting the actual underlying  penalty that served as the catalyst for the enforcement action.

*The term “generally” is used because sometimes depending on who you get at the appeals level and their level of cooperation, you may be able to get the penalty waived or reduced using other formalities.

Meanwhile, for the Collection Due Process hearing, the taxpayer can actually dispute the underlying penalty and have the opportunity to show reasonable cause. This is very important for taxpayers who have been hit with certain types of international penalties — with fines that can be pretty significant.

Collection Appeals Program (Form 9423)

The CAP is the Collection Appeal Program Request.

In a very common situation, a taxpayer will received a notice of penalty such as a CP15 Notice. The taxpayer may seek to avoid the penalty and file an appeal, but the enforcement continues and the taxpayer then receives a CP504 for collection enforcement.

The CP504 will provide various avenues to manage collections and one option is the CAP. The CAP deals with the collection action taking place, and allows the taxpayer to seek to appeal the enforcement procedure and allow the taxpayer an opportunity to provide an alternative route for collection.

The CAP has pros and cons to it.

One of the pros for a CAP is that it is immediately available — the Collection Due Process hearing request (CDP) is not yet available, since the taxpayer has not been issued a “final” notice (see below). There are many taxpayers who do not want to deal with waiting out the clock, while watching the IRS to get more aggressive in their tone and actions. 

The problem with the CAP is that once a person pursues a CAP, then they cannot do a subsequent Collection Due Process hearing on the same issue. And, the CDP leaves open the opportunity for Tax Court on the same issue (with some restrictions and limitations).

In addition, a CAP does not usually allow the taxpayer to dispute penalties — whereas the collection due process hearing allows the taxpayer to dispute the penalty by proving reasonable cause.

For the CAP, if taxpayer has various facts in their favor and wins the CAP, then one benefit about the collection is that it is binding on both parties. Therefore, if it comes out in favor of the taxpayer — it’s time for celebration.

Collection Due Process Request (12153)

The Collection Due Process hearing is typically only available at the end-game stage of a tax enforcement matter such as notice of federal lien or intent to levy.  The Collection Due Process hearing and requests must be made timely within 30 days of the final notice. As long as it is made timely then the taxpayer has the option of Tax Court available. 

In addition, the taxpayer can dispute the underlying collection enforcement by showing reasonable cause. This is generally not available when using a CAP.

As provided on Form 12153:

    • “I do not believe I should be responsible for penalties.” The IRS Independent Office of Appeals may remove all or part of the penalties if you have a reasonable cause for not paying or not filing on time.

    • See Notice 746, Information About Your Notice, Penalty and Interest for what is reasonable cause for removing penalties.”

The main concern with the Collection Due Process hearing for most taxpayers is they have to wait until the very end of enforcement before they can seek to use this process. Especially with the delay in the mail system due to COVID-19 — and many agents working from home and only intermittently checking their mail– there is the concern that the delay in the IRS receiving and processing the collection due process request may result in an unintentional levy or lien being placed on their accounts or property.

While the taxpayer should presumably be able to get it removed, just having it ever show up on their record can be a very big deterrent for many taxpayers to wait until the CDP is allowed — versus taking the Collection Appeal Process route.

If a person misses the time to file a Collection Due Process hearing, they may still be able to request it — but they do not get the opportunity to go to Tax Court if it doesn’t go their way — this is referred to as an equivalent hearing.

So, What Should You Do?

Deciding whether to pursue a Collection Appeal Process or Collection Due Process hearing requires a very detailed and complicated analysis of the specific facts and circumstances and overall strategy. It is not a one-size-fits-all scenario. The decision will depend on many different factors, including the taxpayer’s specific end-game, whether they want to pursue court litigation or not, whether they prefer Tax Court or Federal Court, whether they are concerned about liens and levies and having anything on their record, whether they have the funds to pay the penalty.

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and compliance.

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