CDP Hearing Procedures • Splitting Refunds among Accounts • Nonresident Partners’ Retirement Income • Days Spent Laboring to Pay Taxes (Chart) • Installment Agreement Fees
 

Lesli S. Laffie, J.D., LL.M.

.From the IRS

CDP Hearing Procedures

The IRS’s Office of Chief Counsel released a significant notice, CC-2006-019 (8/28/06), updating and replacing CC-2003-016, the Collection Due Process (CDP) Handbook. The handbook provides guidance on the handling of CDP cases arising under Secs. 6320 and 6330.

The notice, posted on the Service’s website at www.irs.gov/pub/irs-ccdm/cc-2006-019.pdf, outlines IRS practices regarding the CDP process, including the coordination of CDP cases with the IRS national office, CDP notice requirements, CDP hearing requirements and procedures taxpayers and the Service must follow during an appeal of a CDP hearing decision.

The 110-page notice incorporates and supersedes several Office of Chief Counsel notices issued between 2003 and 2006. The notice contains many court citations as support for its procedures.

Requirements: The notice lists requirements the IRS must meet when issuing levy and lien notices to taxpayers, including notices of a Federal tax lien, and Service actions necessary before the issuance of a levy. It also addresses jeopardy levies, state income tax refunds and the treatment of nominees and third parties. In addition, it provides administrative process procedures involved with CDP hearings, including:

• When taxpayers have opportunities for such hearings;

• The role of face-to-face conferences;

• Conditions under which a CDP hearing may be recorded;

• Prohibitions on ex parte communications;

• Matters that may be considered at a hearing;

• Reconsideration of previously re-jected offers-in-compromise during CDP hearings;

• The role of IRS appeals officers; and

• Justice Department jurisdiction in CDP hearings.

Judicial review: The notice also restates the IRS’s authority to make determinations under Secs. 6320 and 6330; appeals team managers must approve those determinations. It lists the information appeals officers must consider when making such determinations. The notice also includes CDP litigation practices in Tax Court, including pretrial motions, trial preparation and appealing a decision.

The notice states that taxpayers have 30 days from the date of the notice of determination to appeal the decision to the Tax Court or, if the Tax Court does not have jurisdiction over the underlying tax liability, to a Federal district court.

It is possible a CDP hearing appeal will be subject to bifurcated judicial review, with segregated issues being considered by both the Tax Court and a district court.

The notice also states that IRS division counsel and its Appeals division should work to identify recurring legal issues in CDP hearings, to reduce CDP inventory.

Splitting Refunds among Accounts

Taxpayers who opt to split their refunds among multiple accounts soon will have a new form to make such requests. The IRS unveiled a draft version of Form 8888, Direct Deposit of Refund; see IR-2006-134.

The form is intended to help taxpayers implement new choices and gain flexibility for direct deposits of their 2006 Federal income tax refunds.

Starting in January 2007, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions, by using Form 8888. This option will be available for returns filed either on paper or electronically.

Variety permitted: In addition to traditional checking and savings accounts, refunds also can be directed to an IRA, health savings account or Coverdell education savings account; refunds cannot be deposited into more than one account for taxpayers who file Form 8379, Injured Spouse Allocation.

Taxpayers can continue to use the direct-deposit line on Form 1040 to send their refunds to one checking or savings account electronically.

The new draft Form 8888 is available on at www.irs.gov/pub/irs-dft/f8888--dft.pdf.

Legislation

Nonresident Partners’ Retirement Income

On Aug. 3, 2006, President Bush signed a bill extending to nonresident retired partners the exemption nonresident retired employees have from state taxation of retirement income.

P.L. 109-284 clarifies the original intent of a 1996 law (P.L. 104-95) that prohibits states from taxing nonresident employees’ retirement income. The 1996 law eliminated state taxation of nonresident retirement income received from qualified retirement plans, simplified employee pensions, annuity contracts, individual retirement plans, eligible deferred-compensation plans, governmental plans or other retirement plans or trusts that provided benefits as a series of “substantially equal periodic payments.”

The bill was introduced in 2005 to deflect action that New York had taken to tax nonresident partners’ retirement income. The state had said partners were not included in the tax exemption created by P.L. 104-95.

The bill also clarifies that adjustments in the retirement amounts that are set in advance in a predetermined formula or adjustments to reflect the cost of living would not cause the plan to fail. It is retroactive to 1996.

AICPA approval: The AICPA issued a statement supporting the new law, which it said is important to many CPAs who are, or were, partners of accounting and consulting firms. According to Tom Ochsenschlager, AICPA Vice President—Taxation, the new law “ensures that states’ tax rules for retirees are uniform, whether the retiree was an employee or a partner. It guarantees equity.”

Regulations

Installment Agreement Fees

Proposed regulations (REG-148576-05, 8/29/06) would increase the user fee charged for installment agreements from $43 to $105. The fee would be $52 for taxpayers agreeing to direct debits from their bank accounts. The Service is trying to encourage taxpayers to use direct bank debits on their installment agreements, because the default rate is much lower than for other agreements.

These fees would apply only to new installment agreements—those in effect 30 days after publication of final rules in the Federal Register. Sec. 6159 allows taxpayers to enter into an agreement with the IRS to pay their tax debts in installments over time.

Reinstatements: The charge for restructuring or reinstating an installment agreement in default would be $45, up from the current $24, regardless of the payment method.

The proposed regulations increase the fees to bring them in line with actual costs. The fees have not been raised since they were first implemented in 1995.