One of the important protections from the Internal Revenue Service (“IRS”) is a taxpayer’s right to obtain a hearing with the IRS Appeals Division before an IRS collection officer can issue a tax levy. This hearing is known as collection due process, or CDP hearing. CDP hearings are permitted by virtue of Internal Revenue Code Section (IRC) Section 6330. Congress thought that some taxpayers were abusing the CDP hearing process to delay the collection of payroll taxes. As a result Section 8243(a) of the “Small Business and Work Opportunity Tax Act of 2007” amended IRC 6330(f) to permit a tax levy without first giving a taxpayer owing payroll taxes a pre-levy CDP notice if the levy is a “disqualified employment tax levy.” A “disqualified employment tax levy” is defined in IRC section 6330(h) as a tax levy served to collect the payroll tax liability of a taxpayer if that taxpayer or a predecessor requested a CDP hearing under IRC section 6330 for unpaid employment taxes arising in the two-year period prior to the beginning of the taxable period to be collected by the tax levy.
Earlier this year the IRS issued an internal memorandum intended as a temporary guidance to IRS revenue officers until the Internal Revenue Manual can be updated to reflect these changes. The memo is helpful in that it contains a chart to help determine whether a tax period is subject to the disqualified employment tax levy rules.