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Applying for a Frivolous Penalty CDP Hearing
A friend of mine, a man deeply involved with the Service, sent me an impressive package of research, law, authority, and facts to be considered in his frivolous tax return Collections Due Process hearing (CDP). He was planning to send it along with his request for a hearing. I was horrified at what a bad idea that was.
I would never submit a great hulking package of evidence in a request for a Frivolous Penalty CDP hearing. The IRS does not like granting CDP hearings. Particularly where they have already accused you of filing a frivolous return, they are primed to declare anything you submit “frivolous” as an excuse for denying you a hearing.
Sending a huge package of law, facts, and argument will almost certainly guarantee rejection as a frivolous request. Not because it necessarily contains anything frivolous, but because it is so complex that it can easily be rejected as containing something that they can call frivolous. In the many frivolous penalty notices I’ve seen, the Service has never identified any specific offending argument. Your hearing will be no more productive, but it is important to make a solid record.
The unique, key element in frivolous penalty cases is that THE IRS HAS THE BURDEN OF PROOF. It is extremely rare for the Service to have to prove anything; as a consequence, appeals officers are generally unaware of their burden and make no effort to meet it.
A proper request for a Frivolous Penalty CDP hearing will be very brief. All you need to do is deny you filed any return meeting the criteria under § 6702 for a penalty.
I would NOT INCLUDE ANY REFERENCE TO THE LAW IN MY REQUEST. I have it on good authority that many low level IRS employees have been trained to reject as frivolous correspondence that contains a reference to any section of the Code. I know this seems incredible, but I've learned a lot of incredible things about the Service since I began dealing with them years ago. I am no longer shocked by IRS lawlessness and duplicity. I've come to expect it.
If you say anything in your request, make sure you are stating only facts. State the facts under oath, on an accompanying affidavit if you like, or sign the request as one, i.e., verify the request under oath or affirmation. A notarized affidavit carries some weight in letters to the Service. A properly notarized affidavit possesses an air of official sanction that bureaucrats reflexively respect. At least that's the theory.
Nevertheless, yours will be the only properly verified documents in the file. To maintain plausible deniability Service employees never sign documents under penalty of perjury. This could become an important detail in the evidence arguments of any subsequent litigation where your sworn affidavits will be offered to counter the unsworn hearsay offered by the Service.
You may raise the liability issue in a Frivolous Penalty CDP hearing because § 6702 penalties are not subject to deficiency procedures. The Service does not issue (and is not required to issue) notices of deficiency for them. Therefore, this CDP hearing will probably be your first opportunity to dispute your liability for the penalty. This hearing will be held under an entirely different standard than is available in most CDP hearings where the liability may not be challenged. Although the hearing officer will expect you to, you don't have to prove anything. The Service has the burden!
Auntie has the “burden of proof” under § 6703(a). You don’t want to take a legal position or make a legal argument. They must provide the facts. You are looking to them to provide the facts they used to make their determination. Facts, not conclusions of law. You are making an “administrative record” for possible litigation later. You do not have to, nor is it a good idea to take any legal position. Facts are all that matter at this point. The litigation game is poker, not chess. Do not lay out your legal case in your CDP hearing request!
Also, settlement officers generally don’t know about their burden. Don’t tell them about it. They have to prove their case on the record. They never do, but don’t help them by telling them what they are supposed to be doing.
And, BTW, if you want to experience some genuine bureaucratic foot draggin’, buck passin’, shuckin' an jivein', put-you-off weaslespeak, or even a surprise decision with no hearing at all, insist on an audio recorded face-to-face meeting at an IRS office convenient to your home. The regulations are clear - you are entitled to a F2F hearing if you want one. But there is little the IRS fears more than recorded, in person hearings. Sometimes it takes a year or more for them to either relent and grant you one, or blow you off with a decision sans hearing.
If you are averse to using official forms, and there are strong arguments for avoiding them, the Form 12153, Request for Collections Due Process or Equivalent Hearing, is not mandatory. But you must include all the information that is requested on it. If you don't use the form be sure you boldly indicate that it is a REQUEST FOR A COLLECTIONS DUE PROCESS HEARING. Or something like that. Pay attention to your 30 day deadline. You will only be granted an “equivalent” hearing if you are late. The Tax Court will not have review jurisdiction of an “equivalent” hearing.
You have 30 days from the date on your Final Notice of Intent to Levy, or your Notice of Lien to apply for a hearing. Day one is the day following the date on the letter. Count 30 days from there. That's your deadline. If it falls on a weekend or holiday, the deadline is the next business day. They use the postmark date of your request in reckoning deadlines. Don't cut it close if you can avoid it. Remember the Service does not like granting hearings. They will use any excuse they can come up with to deny you one.
The only reasons I would state for requesting a CDP hearing for a § 6702 penalty are:
1. I deny filing any document that meets the statutory criteria for application of a frivolous return penalty. (or some variation that gives the same meaning; be precise, but not windy; you will flesh it out at the hearing; never forget: THEY HAVE THE BURDEN OF PROOF. All you have to do is deny what the allegations.)
2. I deny that I am among those subject to the penalty.
3. I deny submitting any document to the IRS with the intent to delay or impede the administration of internal revenue law.
Nothing else. No legal arguments. In fact, no mention of the law except to deny having violated it.
Once you get your hearing, your job is to find where in the record the facts and grounds are that were used to determine you are liable for a penalty. More on that in my next post.
Here's a TEMPLATE FOR A CDP REQEST LETTER that you might find interesting. By downloading the letter, you agree that your use of it or any part of it is entirely your own decision and responsibility. Consult a comptetent tax attorney if you are looking for tax or legal advice.
 IRC § 6330, Notice of Levy
“a) Requirement of notice before levy
(1) In general
No levy may be made on any property or right to property of any person unless the Secretary has notified such person in writing of their right to a hearing under this section before such levy is made. Such notice shall be required only once for the taxable period to which the unpaid tax specified in paragraph (3)(A) relates.”
 IRC § 6703, Rules applicable to penalties
(a) Burden of proof
 IRC § 6702 Frivolous Tax Submissions
(a) Civil penalty for frivolous tax returns
A person shall pay a penalty of $5,000 if—
(1) such person files what purports to be a return of a tax imposed by this title but which—
(A) does not contain information on which the substantial correctness of the self-assessment may be judged, or
(B) contains information that on its face indicates that the self-assessment is substantially incorrect, and
(2) the conduct referred to in paragraph (1)—
(A) is based on a position which the Secretary has identified as frivolous under subsection (c), or
(B) reflects a desire to delay or impede the administration of Federal tax laws.
 I.R.C. § 6703 (b) Deficiency procedures not to apply
 Marett v. CIR, Tax Court Docket 4048-16L, from Order denying R’s Motion for Summary Judgment: “Treasury regulations provide that respondent must offer the taxpayer an opportunity for a face-to-face administrative hearing at the Appeals Office closest to the taxpayer’s residence. Sec. 301.6330-1(d)(2), Q&A-D7, Preced. & Admin Regs.”