Was Your Form 3520 Collection Due Process Claim Denied?

Was Your Form 3520 CDP Claim Denied?

The Collection Due Process Hearing (aka CDP Hearing) is an opportunity in which some Taxpayers may have the chance to challenge certain outcomes and penalties issued by the IRS. Over the past few years, using CDP to challenge Form 3520 penalties has become much more common. That is because when it comes to international information reporting on Form 3520, the IRS will oftentimes issue ‘automatically assessed penalties.’ This means that Taxpayers do not have many prepayment opportunities to challenge the outcome of the penalty — short of filing a Collection Due Process Hearing— unless the taxpayer wants to appeal at the IRS Independent Office of Appeals and/or pay the amount due and file a federal lawsuit. It is very important to note that not all Collection Due Process Hearings are successful. It is based on each taxpayer’s specific facts and circumstances, along with the specific agent or Settlement Officer assigned to the case and their own analysis of the facts. The question then becomes what happens when a Taxpayer’s 3520 Collection Due Process Hearing was unsuccessful?

Did Your Tax Lawyer Guarantee a Result?

In the past few years, Form 3520 has become a mainstay of IRS penalty enforcement. IRS Form 3520 is used to report certain foreign person gifts and trust distributions to U.S. Persons. We have found that in speaking with taxpayers, some lawyers are guaranteeing that the Form 3520 Collection Due Process Hearing will be successful. It is very important for Taxpayers to be aware that there are no guarantees when pursuing a Form 3520 Collection Due Process Hearing.

If your attorney guaranteed you an outcome and they were unsuccessful, there are potential actions the taxpayer can take against the firm for that type of misrepresentation.

30-Day Tax Court Petition.

If a Taxpayer pursues a Collection Due Process Hearing and they are ultimately unsuccessful, they generally have 30 days to petition the tax court. This is the time in which the Taxpayer can Petition the tax court to review what happened at the Collection Due Process Hearing (although there are limitations). One benefit of going to the Tax Court is that Taxpayers do not have to pay the outstanding liability before petitioning the Tax Court, although interest continues to accrue.

As provided by the IRS:

• • • At the conclusion of the CDP hearing, Appeals will issue a determination letter unless you have withdrawn your hearing request. If you don’t agree with Appeals’ determination, you may request judicial review of the determination by petitioning the United States Tax Court within the time period provided for in the Appeals’ determination letter.

    • You may not be able to raise issues in the Tax Court if you do not raise them during the Appeals hearing, and the Tax Court may limit the evidence you can present to the evidence you submitted to Appeals during the hearing.

    • You should, therefore, raise all issues and present all evidence during the Appeals hearing, in order to preserve your rights to raise issues and have evidence considered in subsequent court proceedings. Appeals will retain jurisdiction over its determination.

    • You may return to Appeals if you believe that the Collection function did not carry out Appeals’ determination as it was stated or if there is a change in your circumstances that affects Appeals’ determination.

    • However, you must first try to work with Collection to resolve the problem. If your request for a CDP hearing is not timely and you request an equivalent hearing, the law does not prohibit levy and the collection statute is not suspended. Furthermore, you cannot go to court if you disagree with Appeals’ decision.

Missed 30-day CDP Petition Deadline?

While the deadline for petitioning the Tax Court is only 30 days and is a very tight deadline and the IRS is very strict about making that deadline — in a recent court case, the Supreme Court ruled that that 30-day deadline is not necessarily set in stone. The name of the case is Boechler and a summary of the supreme court’s ruling can be found here.

Golding & Golding: About Our International Tax Law Firm

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

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