Collection Actions and Appeals - See Special Enrollment Exam

1. Which statement is correct regarding a Taxpayer Assistance Order under IRC § 7811?
   Answer: A TAO may direct the IRS to release levied property or to stop a collection action, and the limitations period is suspended from the application until the decision on it. Governing authority: IRC § 7811. A Taxpayer Assistance Order may require the IRS to release property that has been levied upon or to cease, or refrain from, a collection action when the taxpayer is suffering, or is about to suffer, a significant hardship. Under § 7811(d), the running of the period of limitations for the affected action is suspended from the date of the taxpayer's application until the National Taxpayer Advocate's decision on it, and for any period specified in an order issued on the application. Choice C is correct. Choice A imposes conditions not found in the statute and wrongly states that a TAO cannot affect an existing installment agreement. Choice B is wrong because the National Taxpayer Advocate may delegate TAO authority, and there is no 250% of poverty threshold for a TAO. Choice D is wrong because a TAO is binding on the IRS, not an informal request.
2. Which statement correctly describes the taxpayer's appeal rights?
   Answer: The taxpayer may obtain only an equivalent hearing; the IRS need not suspend collection, and the Appeals decision is not reviewable in Tax Court. Choice B is correct. IRC § 6330(a)-(b) and Treas. Reg. § 301.6330-1(i) provide that a taxpayer who fails to request a collection due process hearing within the 30-day period may, if the request is made within one year of the notice, receive an equivalent hearing. An equivalent hearing does not suspend collection, and the resulting decision is not appealable to the Tax Court. Choice A is wrong because the 30-day deadline is not revived merely because no levy has occurred. Choice C is wrong because the equivalent hearing procedure remains available. Choice D is wrong because an equivalent hearing decision, unlike a CDP determination, is not reviewable in Tax Court.
3. For 2025, an unmarried individual taxpayer owes $44,000 in assessed income tax, penalties, and interest. She has filed all required returns, has no other unpaid liabilities, and proposes to pay the balance in 60 monthly installments by direct debit. Which statement is correct concerning this installment agreement?
   Answer: She is eligible for a streamlined installment agreement, without a financial statement, because the balance is under $50,000 and she will pay by direct debit within 72 months. Under IRC § 6159 and streamlined installment agreement procedures, an individual who owes $50,000 or less in assessed tax, penalties, and interest, has filed required returns, and can full-pay within 72 months is generally eligible for a streamlined installment agreement. Where the balance exceeds $25,000, direct debit or payroll deduction is the method used to qualify without a financial statement. Choice B is correct. Choice A misstates the guaranteed installment agreement threshold of $10,000 and the IRS's acceptance requirements. Choice C incorrectly limits direct debit to balances of $25,000 or less and treats payroll deduction as the only method above that amount. Choice D ignores the direct-debit streamlined path.
4. The IRS proposes to assess the trust fund recovery penalty under IRC § 6672 against a responsible person. Which statement is correct about the pre-assessment procedure?
   Answer: The IRS must send written notice of its intent to assess, and the person has 60 days to appeal to the IRS Office of Appeals; if the person appeals, no assessment or collection may be made until the Appeals determination is final. Under IRC § 6672(b), before assessing the trust fund recovery penalty, the IRS must notify the responsible person in writing of the proposed assessment. The person has 60 days to appeal to the IRS Office of Appeals. If a timely appeal is made, the IRS may not assess or collect the penalty until the Appeals determination is final. Choice A is correct. Choice B uses the 30-day CDP-style period and immediate collection, which is incorrect for a TFRP pre-assessment notice. Choice C incorrectly requires a Tax Court judgment; the TFRP is assessed administratively. Choice D wrongly invokes the deficiency notice and Tax Court petition procedures of IRC §§ 6212 and 6213, which do not govern the TFRP.
5. Which of the following best describes the client's rights with respect to that request?
   Answer: The request is late for a collection due process hearing, but it will be treated as a request for an equivalent hearing because it was made within the one-year period for requesting one. IRC § 6320(a)(2)-(3) and Treas. Reg. § 301.6320-1(i). The IRS must give notice of a lien filing within 5 business days after the filing, and the taxpayer may request a CDP hearing during the 30-day period that begins the day after that 5-business-day period ends. The lien was filed Monday, May 12, 2025, so the 5-business-day period ended May 19 and the CDP request period ran through June 18, 2025. A taxpayer who misses that period may still request an equivalent hearing within the one-year period that begins the day after the 5-business-day period ends; the decision issued after an equivalent hearing cannot be reviewed by the Tax Court. The July 14 request was after June 18 but well within the year. Choice D is correct. Choice A is wrong because it misapplies the 150-day period of IRC § 6213(a), which governs a Tax Court petition after a notice of deficiency addressed to a person outside the United States and does not extend the CDP request period. Choice B is wrong because it overlooks the equivalent hearing available within one year. Choice C is wrong because it confuses the one-year equivalent-hearing window with the 30-day CDP request period.
6. Which statement is correct about the proposed levy?
   Answer: A principal residence is exempt from levy unless a judge or magistrate judge of a United States district court approves the levy in writing. IRC § 6334(a)(13)(B) and (e)(1)(A). A taxpayer's principal residence is exempt from levy unless a judge or magistrate judge of a U.S. district court approves the levy in writing. The jeopardy exception in § 6334(e)(1)(B) applies to certain business assets, not to a principal residence, and because the liability far exceeds the $5,000 limit of § 6334(a)(13)(A), the court-approval rule governs. Choice A is correct. Choice B is wrong because a CDP hearing does not replace the statutory requirement of written judicial approval. Choice C is wrong because a principal residence may be levied once a district court judge or magistrate judge approves the levy in writing. Choice D is wrong because the notice and CDP process alone do not satisfy the court-approval requirement.
7. The IRS mailed a taxpayer a rejection letter for his offer in compromise. Within 30 days, the taxpayer timely appealed the rejection to the IRS Office of Appeals. Which statement is correct regarding the effect of the appeal?
   Answer: The IRS may not levy while the appeal is pending, and if the appeal is denied, the taxpayer has no further administrative appeal of that denial. Under IRC § 6331(k), the IRS may not levy while an offer in compromise is pending. An offer remains pending during the 30-day period after rejection and, if the taxpayer timely appeals, during the pendency of that appeal. Therefore, the IRS may not levy during the appeal. Once Appeals sustains the rejection, the rejection becomes final administratively. Choice D is correct. Choice A is wrong because the appeal continues the prohibition on levy. Choice B is wrong because an OIC appeal is not converted into a CDP hearing, and the CDP 30-day period does not begin from the rejection letter. Choice C is wrong because paying the offered amount is not a prerequisite to appealing the rejection.
8. Which statement is correct about extending the collection period?
   Answer: The collection period may be extended by a written agreement made when the installment agreement is entered into, but the IRS cannot extend it unilaterally. IRC § 6502(a)(2). Since 1998, the 10-year collection period may be extended by agreement only (A) in writing at the time an installment agreement is entered into, in which case the IRS may collect until 90 days after the agreed period ends, or (B) in writing before a levy made within the 10-year period is released after that period. The decisive fact is that the requested extension is part of an installment agreement made before the CSED. The IRS cannot extend the period by its own act. Choice D is correct. Choice B is wrong because filing a notice of federal tax lien does not extend the collection period. Choice C is wrong because the law gives no automatic one-year extension for each installment agreement; an extension tied to an agreement must be agreed in writing. Choice A is wrong because § 6502(a)(2)(A) allows an agreed extension with an installment agreement, and the lien release rule applies when the liability is satisfied or becomes unenforceable.
9. On February 3, 2025, the IRS mailed a taxpayer a final notice of intent to levy and notice of the right to a Collection Due Process hearing. The taxpayer did not request a hearing until March 14, 2025. Which statement best describes the taxpayer's procedural rights?
   Answer: Because the request was made after the 30-day CDP period but within one year of the notice, the taxpayer is entitled to an equivalent hearing; the levy is not suspended and the decision is not reviewable by the Tax Court. Under IRC §§ 6330(a)–(b) and Treas. Reg. § 301.6330-1(i), a taxpayer has 30 days from the date of a notice of intent to levy to request a CDP hearing. A request filed after that period but within one year of the notice is treated as a request for an equivalent hearing. Because the March 14 request was after the 30-day period but within one year, the taxpayer is entitled to an equivalent hearing. In an equivalent hearing, Appeals may consider collection issues, but the automatic suspension of levy under IRC § 6330(e) does not apply, and the determination is not subject to Tax Court review. Choice C is correct. Choice A is wrong because an Appeals hearing is still available as an equivalent hearing. Choice B is wrong because the controlling date is the notice date, not the date the levy is served; a late request does not restore full CDP protections. Choice D is wrong because an equivalent hearing is available and Appeals will consider the case.
10. Which of the following is correct regarding the collection due process hearing?
    Answer: The taxpayer cannot challenge the deficiency because she had a prior opportunity to dispute it, but the proposed installment agreement will be considered as a collection alternative. IRC § 6330(c)(2)(B) provides that a taxpayer may challenge the existence or amount of the underlying tax liability in a collection due process hearing only if the taxpayer did not receive a statutory notice of deficiency or did not otherwise have an opportunity to dispute it. Because the taxpayer received the deficiency notice in March 2024 and did not petition the Tax Court, the disallowed deduction cannot be relitigated at the CDP hearing. However, IRC § 6330(c)(2)(A) requires the Appeals officer to consider collection alternatives such as an installment agreement, so the proposed agreement is properly before the officer. Choice B is correct. Choice A misapplies the rule: a timely request makes the hearing available, but it does not open the underlying liability to de novo review. Choice C misstates the prior-opportunity test, which turns on the opportunity to contest the liability, not on whether the taxpayer actually petitioned the Tax Court. Choice D wrongly concludes that the taxpayer's only remaining remedy is a pay-and-sue refund action; the taxpayer may still use the CDP hearing to pursue collection alternatives.
11. What is the taxpayer's CSED after these events?
    Answer: July 1, 2029 — the CSED is extended by the 36 months the offer was pending plus the 30 days after the rejection. IRC § 6502(a)(1) gives the IRS ten years from the date of assessment to collect an assessed tax. Under IRC § 6331(k), the running of the collection period is suspended while an offer in compromise is pending and for 30 days after the offer is rejected. The offer was pending for exactly 36 months, from June 1, 2020, through June 1, 2023, and the taxpayer did not appeal, so the CSED is extended by 36 months plus the 30 days following the rejection. The original CSED was June 1, 2026 (June 1, 2016, plus 10 years); adding 36 months and 30 days produces July 1, 2029. Choice C is correct. Choice A ignores the suspension entirely, treating the rejected offer as having no effect on the CSED. Choice B adds only the 36-month pending period and omits the 30 days after the rejection. Choice D treats the post-rejection period as a full year rather than the statutory 30 days.
12. Which statement is correct?
    Answer: The taxpayer may file a petition in the United States Tax Court within 30 days after the determination. Choice A is correct. IRC § 6320(c) incorporates the review provisions of IRC § 6330(d)(1), which allow a taxpayer to petition the Tax Court within 30 days after a CDP determination. Choice B is wrong because a taxpayer does not receive a new CDP hearing on the same liability from a different Appeals officer. Choice C is wrong because a CDP determination following a lien filing is a final, reviewable determination. Choice D is wrong because the Tax Court has jurisdiction to review lien CDP determinations without requiring the taxpayer first to pay the assessed liability.
13. Which statement is correct regarding the difference between a release of a federal tax lien and a withdrawal of a notice of federal tax lien?
    Answer: A withdrawal of a notice of federal tax lien removes the notice from the public record but does not extinguish the underlying lien; a certificate of release, issued after the liability is satisfied or becomes unenforceable, is conclusive that the lien is extinguished. Under IRC § 6323(j), the IRS may withdraw a notice of federal tax lien, which removes the notice from the public record but does not discharge the underlying lien. Under IRC § 6325, once the underlying liability is satisfied or becomes unenforceable, the IRS must issue a certificate of release, and the certificate is conclusive that the lien is extinguished. Choice A is correct. Choice B misstates withdrawal as extinguishing the lien and incorrectly limits release to full payment. Choice C confuses release with withdrawal: a release extinguishes the lien, and the lien does not continue against after-acquired property. Choice D misstates release as discretionary and conditioned on an installment agreement.
14. At the CDP hearing, which statement is correct regarding this challenge to the underlying liability?
    Answer: Appeals may not consider the challenge because the taxpayer received a deficiency notice and had a prior opportunity to dispute the liability. Choice C is correct. IRC § 6330(c)(2)(B) provides that the existence or amount of the underlying tax liability may not be raised at a CDP hearing if the taxpayer had a prior opportunity to dispute it. Receiving a statutory notice of deficiency and failing to petition the Tax Court supplies that prior opportunity. Choice A is wrong because the CDP hearing is not a second merits forum when the taxpayer already had a deficiency opportunity. Choice B is wrong because reasonable cause for not petitioning the Tax Court is not the statutory test. Choice D is wrong because a later CDP notice does not reset the prohibition on relitigating the same underlying liability.
15. During a Collection Due Process hearing on a proposed levy, when may a taxpayer challenge the existence or amount of the underlying tax liability?
    Answer: A taxpayer may contest the existence or amount of the underlying liability at a CDP hearing only if he did not receive a statutory notice of deficiency and did not otherwise have an earlier opportunity to dispute it. Under IRC § 6330(c)(2)(B), a taxpayer may challenge the existence or amount of the underlying tax liability at a CDP hearing only if the taxpayer did not receive a statutory notice of deficiency for that liability and did not otherwise have an opportunity to dispute it. Choice D is correct. Choice A ignores the prior-opportunity bar: receipt of a deficiency notice without a Tax Court petition normally forecloses a later liability challenge. Choice B invents a notice-of-determination and refund-claim prerequisite. Choice C is wrong because the underlying-liability issue is available in both lien and levy CDP hearings under the same standard.

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