Taxpayers have critically important legal rights about which the IRS is required to give clear notice to the taxpayer. In some instances, the IRS has started to place the key language required in these notices in less than prominent locations in taxpayer letters, and, in some instances, this important language is in what appears to be mundane routine print such that taxpayers and tax professionals may not see the real significance of the Notice.
The IRS is generally required by law to send Statutory Notices of Deficiency to individuals and businesses before it can assess additional tax, penalties and interest. Statutory Notices must be sent by certified mail and tell taxpayers they have a right, within 90 days of the notice, to petition the U.S. Tax Court for review and redetermination of the IRS’s proposed adjustments to their tax return. Taxpayers, and in some instances tax professionals, who do not recognize the importance of a Statutory Notice (because the operative Notice language is less than clear and conspicuous) may fail to petition the Tax Court, lose important rights and owe the full amount of tax and penalties set forth on the Notice.
Similar to the legal requirements regarding assessment of additional tax and penalties, once a taxpayer has a tax debt, the IRS is statutorily required to satisfy certain legal requirements before utilizing its powers to levy bank accounts. Taxpayers who owe the IRS for back taxes know the power of an IRS levy – there is nothing like waking up to find your bank account has been drained. Before the IRS can levy, the IRS must provide a taxpayer with written Notice of their right to a Collection Due Process Hearing (“CDP”). A CDP Notice provides taxpayers with 30 days to request a CDP Hearing. If requested, the CDP will generally stop collection actions while the CDP appeal is pending. Failure to request a CDP hearing—because the taxpayer or tax professional fails recognize the inconspicuously placed CDP Notice language—generally results in an IRS levy and the loss of taxpayer rights.
The IRS issues hundreds of different notices – understanding and responding appropriately can be a challenge for even the well-versed consumer. In 1998, the U.S. Congress responded to taxpayer concerns by providing that the IRS must provide clear and obvious legal notice in the letters it sends to taxpayers. Since then, the IRS has informed taxpayers of their legal rights in Clear and Bold Language set forth in the title or conspicuously on the first page. Predictable and obvious notices enable taxpayers to understand their rights and provide for the fair and just process of law in our tax system.
Unfortunately, the IRS has started to now provide legal notice in the finer print of letters it sends to Taxpayers. Notice LT11 – a letter that, but for the finer print, looks like any other routine automated collection notice—provides CDP rights in the finer print of its second page. Notice CP3219A also looks like a routine collection notice, but it is actually a Statutory Notice of Deficiency that provides 90 days for taxpayers to petition the U.S. Tax Court before the IRS can make an additional assessment of tax or penalties.
IRS Notice LT11 and CP3219A now appear in the same form and format as routine balance due notices issued by an IRS automated collection process known as “ACS.” Taxpayers and tax professionals who miss the finer print in these Notices could potentially lose important rights and thereby allow the IRS to assess additional tax and collect without challenge.
One should not assume that the IRS is intentionally structuring its notices to hide taxpayer rights and ease its ability to assess and collect taxes. The IRS has made many changes to ease its administrative burden and costs in recent years. Still, the legal right to be heard before assessment and collection are important congressionally mandated rights. Failure to exercise them, perhaps because of vague or confusing IRS Notices, can be devastating. Seeking competent legal counsel is strongly recommended.