United States Government Accountability Office

GAO Report to the Committee on Finance, 

U.S. Senate 

TAX 

ADMINISTRATION 

Little Evidence of 

Procedural Errors in 

Collection Due 

Process Appeal Cases, 

but Opportunities 

Exist to Improve the 

Program 

October 2006 

 

GAO-07-112 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2006

TAX ADMINISTRATION

Little Evidence of Procedural Errors in 

Collection Due Process Appeal Cases, 

but Opportunities Exist to Improve the 

Program 

Highlights of GAO-07-112, a report to the 

Committee on Finance, U.S. Senate 

As a result of the Internal Revenue 

Service (IRS) Restructuring and

Reform Act of 1998, taxpayers 

facing liens or levies can request a

Collection Due Process (CDP) 

appeal hearing with IRS’s Office of 

Appeals (Appeals). By 2005, CDP

cases represented about onequarter of Appeals’ workload. 

GAO was asked to provide

information on (1) whether the IRS

Collection function (Collection) 

erred in processing liens and levies 

and how often CDP case results 

changed after the appeal, (2) the 

arguments raised and the 

communication between IRS and 

taxpayers, (3) the characteristics of 

CDP taxpayers, and (4) potential 

improvements to the CDP program. 

To develop this information, GAO 

analyzed a random sample of 208 

CDP cases closed by Appeals 

during fiscal year 2004. 

What GAO Recommends

GAO makes recommendations to 

improve the efficiency of the CDP 

program. GAO also suggests that

Congress consider amending the 

statute to remove CDP eligibility

for selected categories of taxpayers 

if those taxpayers’ inclusion is not 

consistent with the goal of ensuring 

due process. IRS generally agreed

with two recommendations but 

disagreed that it could require 

taxpayers seeking a collection 

alternative to submit additional 

information with their hearing 

requests. GAO then revised those 

recommendations to be a matter

for congressional consideration. 

GAO estimates that Appeals found Collection did not follow proper 

procedures in 2 percent of CDP cases closed during fiscal year 2004. About 

27 percent of taxpayers received a different outcome than the lien filing or 

levy after appealing, including those that negotiated collection alternatives

or ended up with no balance due to IRS. For about 60 percent of taxpayers, 

Appeals upheld the collection action often because taxpayers did not file all 

the required tax returns necessary to qualify for a collection alternative.

 

GAO’s estimates show that nearly 90 percent of CDP taxpayers raised 

arguments permitted by statute with both Collection and Appeals, such as 

requesting a collection alternative. An estimated 5 percent of taxpayers

raised frivolous arguments—arguments without legal basis per IRS 

guidance—with either Collection or Appeals. When taxpayers raised the 

same argument with Collection and Appeals, Appeals reached the same 

conclusion as Collection in more than 80 percent of cases. In general, the 

median number of IRS-initiated contacts with taxpayers was twice as high as

the median number of taxpayer-initiated contacts with IRS. 

CDP taxpayer characteristics varied among individual and business filers. 

Both did not pay taxes for multiple return filing periods. Total tax liability 

varied considerably, with trust fund recovery penalty and employment tax 

cases having the highest liabilities. 

Allowing certain taxpayers like those that offer arguments without a legal 

basis to use the CDP program may not be consistent with the program’s goal 

of ensuring due process. Also, Appeals resources are not used efficiently 

when taxpayers request collection alternatives yet have not (1) submitted 

financial documentation with their CDP requests, (2) worked with 

specialized Collection units, or (3) filed all required tax returns needed to 

qualify for a collection alternative. IRS has taken steps to revise the CDP 

regulations and hearing request form, but has not established responsibility 

for analyzing program outcome data to determine if these changes will be 

effective. 

Estimated Percentage of CDP Cases in Which Appeals Found an Improper or Proper 

Collection Action, by Type of Appeal Outcome

www.gao.gov/cgi-bin/getrpt?GAO-07-112.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Michael 

Brostek at (202) 512-9110 or 

brostekm@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 8

CDP Appeals Identified Few Errors by Collection, but Some 

Taxpayers Received a Different Outcome 12 

The Majority of Taxpayers Raised the Same Arguments with Both 

Collection and Appeals, Received the Same Determination, and 

Had Multiple Contacts with IRS 16 

Both Individuals and Businesses Used CDP, but Case 

Characteristics Varied 22 

Appeals Devoted Many Staff Hours to Resolving CDP Cases That 

May Not Be Consistent with Goals of the Program or an Efficient 

Use of Resources 26 

Conclusions 33

Recommendations for Executive Action 34 

Matters for Congressional Consideration 34 

Agency Comments and Our Evaluation 35 

Appendix I Objectives, Scope, and Methodology 37 

Appendix II Comments from the Internal Revenue Service 43 

Appendix III GAO Contact and Staff Acknowledgments 49 

Tables 

Table 1: Reasons Why Appeals Upheld the Lien Filing or Levy for 

Cases Closed in Fiscal Year 2004 15 

Table 2: Estimated Percentage and Number of Taxpayers Raising 

Restructuring Act Arguments in Both Collection and 

Appeals and Cases Where Appeals Agreed with Collection 

for Cases Closed in Fiscal Year 2004 18 

Table 3: Estimated Median Number of Total and IRS- and 

Taxpayer-Initiated Contacts after Lien/Levy Notice

Issuance for Cases Closed in Fiscal Year 2004 20 

Table 4: Type of Taxpayer Requesting CDP Appeal for Cases 

Closed in Fiscal Year 2004 22 

Page i GAO-07-112 Tax Administration
Table 5: Average and Range of Number of Delinquent Tax Periods 

by Type of Tax Liability 24 

Table 6: Estimated Median of Total Liability by Type of Tax 

Liability in CDP for Cases Closed in Fiscal Year 2004 24 

Table 7: Estimated Adjusted Gross Income Level versus Median 

Tax Liability for Individual Taxpayers Requesting CDP 

Appeal for Cases Closed in Fiscal Year 2004 25 

Table 8: Estimated Data on Selected Characteristics of All CDP 

Cases by Direct Hours Worked and Percentage of

Caseload for Cases Closed in Fiscal Year 2004 32 

Table 9: Confidence Intervals for Table 8—Average Number of 

Additional Characteristics 41 

Table 10: Confidence Intervals for Table 8—Direct Hours Worked 

by Appeals 41 

Table 11: Confidence Intervals for Table 8—Salary Costs 42 

Figures 

Figure 1: Estimated Percentage of CDP Cases in Which Appeals 

Found an Improper or Proper Collection Action, by Type 

of Appeal Outcome for Cases Closed in Fiscal Year 2004 4 

Figure 2: CDP Cases Closed by Appeals, Fiscal Years 1999 through 

2005 12

Page ii GAO-07-112 Tax Administration
Abbreviations 

ABA American Bar Association 

ACDS Appeals Centralized Database System 

ACS Automated Collection System 

AGI adjusted gross income 

CAP Collection Appeals Program 

CDP Collection Due Process 

CISO Centralized Innocent Spouse Operation 

CPA certified public accountant 

DCI data collection instrument 

EH equivalent hearing 

FPLP Federal Payment Levy Program 

IA installment agreement 

ICS Integrated Collection System 

IRS Internal Revenue Service 

OIC offer-in-compromise 

PFD Permanent Fund Dividend 

SITLP State Income Tax Levy Program 

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Page iii GAO-07-112 Tax Administration
United States Government Accountability Office

Washington, DC 20548 

October 6, 2006 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

In fiscal year 2005, the Internal Revenue Service (IRS) issued more than 3

million notices of federal tax liens and levies representing more than 

$10 million in delinquent taxes owed to IRS. The Internal Revenue Service 

Restructuring and Reform Act of 1998 (Restructuring Act)1

 expanded the 

appeal rights available to taxpayers facing the filing of notices of federal 

tax liens or levies for the collection of delinquent taxes. With the passage 

of the Restructuring Act, Congress authorized the right to Collection Due 

Process (CDP) appeals, which provides taxpayers with an independent 

review of filed liens and levies by IRS’s Office of Appeals (Appeals) and by

the U.S. Tax Court or U.S. District Court. By 2005, taxpayers requesting 

CDP hearings accounted for more than one-quarter of the workload within 

Appeals, about 28,000 cases annually. IRS reported that in fiscal year 2004, 

Appeals devoted about $8.2 million in salary costs to resolve CDP cases. 

Liens and levies arise when taxpayers fail to pay their taxes and IRS takes 

action to collect those outstanding tax liabilities. A lien is a legal claim 

against a taxpayer’s property as security for the payment of the delinquent

tax. A levy is a legal seizure of a taxpayer’s property to satisfy the tax 

liability. Liens and levies identify the amount of tax owed by tax period, 

and the period varies by the type of tax. Individuals, for example, file 

individual income tax returns on an annual basis, so the period would 

equal 1 year. Businesses file certain tax returns, such as employment 

taxes, on a quarterly basis, so the period would equal 3 months. When IRS 

issues a Notice of Federal Tax Lien, Notice of Intent to Levy, or other 

 1

Pub. L. No. 105-206, 112 Stat. 685 (July 22, 1998). 

Page 1 GAO-07-112 Tax Administration
notice related to automated levy programs,2

 taxpayers are also informed of 

their due process rights, including the right to request a CDP hearing. IRS

may include multiple delinquent tax periods in one notice. In their CDP 

appeals, taxpayers may raise issues related to the existence or amount of 

the liability; seek a collection alternative to the lien filing or levy, such as 

an installment agreement (IA)3

 or offer-in-compromise (OIC);4 or both. 

Based on your request, this report’s objectives are to provide information 

on (1) the extent to which Appeals found the IRS Collection function 

(Collection)5

 had made errors in processing liens and levies and how often 

CDP case results changed after a taxpayer requested a CDP appeal 

hearing; (2) the nature of the arguments presented by taxpayers seeking 

relief from liens or levies and the amount of communication between IRS 

and taxpayers; (3) the characteristics of the taxpayers that availed 

themselves of the CDP appeal process, such as the amount of their total 

liabilities; and (4) whether opportunities exist to improve the operations of 

the CDP program while protecting taxpayer rights. 

To develop the information for these objectives, we analyzed a random 

sample of 208 CDP appeal cases, drawn from a population of 32,241 cases 

closed by Appeals during fiscal year 2004. For each of the cases in our 

sample, we requested the Appeals closed office file and reviewed the 

documentation in the files to determine case characteristics, such as the 

ultimate outcome of the CDP appeal process. We also requested the 

Collection administrative file associated with each of our sample CDP 

cases to assess what transpired between the taxpayer and IRS after 

 2

The State Income Tax Levy Program (SITLP) matches a master file database of delinquent

taxpayers eligible to be levied against a database of state tax refunds for each state 

participating in SITLP. The Federal Payment Levy Program interfaces with the Treasury

Offset Program as a means for IRS to collect delinquent taxes by levying federal payments 

disbursed or administered through Treasury’s Financial Management Service. 

3

When taxpayers are unable to pay their tax liabilities in a single payment, IRS and 

taxpayers can enter into IAs that allow the taxpayers to pay their outstanding liabilities 

over time, generally through equal monthly payments. 

4

When taxpayers are unable to fully pay their tax liabilities, they can request OICs from IRS 

to pay what they can afford. IRS writes off the rest of the liability. In 2005, IRS wrote off

about $1 billion associated with OICs. See GAO, IRS Offers in Compromise: Performance 

Has Been Mixed; Better Management Information and Simplification Could Improve the

Program, GAO-06-525 (Washington, D.C.: Apr. 20, 2006). 

5

Collection is responsible for collecting unpaid tax liabilities from taxpayers that have 

balances due to IRS.

Page 2 GAO-07-112 Tax Administration
Collection issued the notice of a lien filing or levy. We supplemented the 

information obtained through documentary case file review with 

information from IRS databases. We used the results of our case file 

review to make estimates for the entire population of taxpayers whose 

CDP appeal cases were closed by Appeals during fiscal year 2004. Since 

our estimates are based on a sample, we express our confidence in our 

estimates as a 95 percent confidence interval, plus or minus a margin of 

error, which is the interval that would contain the actual population value

for 95 percent of the samples we could have selected. Unless otherwise 

stated, we express our particular sample’s results as a 95 percent 

confidence interval, less than plus or minus 8 percentage points. In some 

instances, we report our sample estimates as medians. All medians based 

upon the results of our sample have a relative standard error of less than 

30 percent unless otherwise stated.6

 In addition, we reviewed IRS program 

guidance on the CDP process and interviewed knowledgeable agency 

officials. We also interviewed representatives from other external 

stakeholder organizations knowledgeable about the CDP appeal process. 

We conducted our review from January 2005 through September 2006 in

accordance with generally accepted government auditing standards. (See

app. I for a more detailed description of our scope and methodology.) 

Our review of CDP cases closed in fiscal year 2004 indicates that Appeals

found evidence in a small percentage of cases that Collection erred in 

handling taxpayer cases. As shown in figure 1, we estimate that in about 2 

percent of CDP cases Appeals concluded that Collection had not followed 

proper procedures. Although Appeals did not identify any instances in our 

sample where the applicable legal and administrative procedural 

requirements were not met, our case file review did identify instances 

where Appeals detected other types of procedural errors during the 

collection phase of the cases, which we included as evidence of detection

of improper procedures. Nevertheless, even if some taxpayers received a 

different outcome after appealing to IRS, Appeals did not necessarily 

disagree with the lien filing or levy. In an estimated 27 percent of CDP 

cases, taxpayers received a different outcome after they appealed the lien

filing or levy, including those that (1) negotiated collection alternatives, 

such as IAs (16 percent), and (2) fully paid their liabilities or no longer had 

balances due to IRS (11 percent). In addition, in approximately 11 percent 

Results in Brief 

 6

To measure the relative standard error associated with median values, we divided the

standard error of the median by the median and multiplied by 100 to get a percentage. 

Page 3 GAO-07-112 Tax Administration
of CDP cases, taxpayers formally withdrew their CDP appeal requests. 

Finally, in an estimated 60 percent of CDP cases, Appeals upheld the lien

filing or levy and did not reach a different result for taxpayers often 

because those who sought collection alternatives were not eligible for an 

alternative. They were not eligible because they had not filed required 

returns, had not paid certain taxes, or both. Other major reasons for no 

change upon appeal were that Appeals determined the amount of the 

liability to be correct, the taxpayer had not responded to Appeals’ request 

for information, or both. An estimated 2 percent of all taxpayers that 

requested CDP appeals hearings disputed the Appeals determination and 

petitioned the U.S. Tax Court or U.S. District Court. 

Figure 1: Estimated Percentage of CDP Cases in Which Appeals Found an Improper or Proper Collection Action, by Type of

Appeal Outcome for Cases Closed in Fiscal Year 2004 

Source: GAO analysis of IRS data.

Appeal withdrawn by taxpayer

Appeals negotiated a collection 

alternative, or taxpayer fully paid 

or had no balance due to IRS

Lien/levy unchanged

of all taxpayers

appealed to the

U.S. Tax Court

or U.S. District

Court

2% 98%

27%

11%

60%

2%

U.S. Tax Court or 

U.S. District Court

IRS Appeals Office

Appeals

found Collection

did not follow 

proper proceduresa

Appeals found 

collection action

proper

a

We are 95 percent confident that the true value would be between 1 percent and 6 percent. 

Taxpayers seeking relief from liens or levies generally raised allowable 

arguments to claim they did not owe some or all of the tax or to seek 

collection alternatives. More than 90 percent of these taxpayers had raised 

one or more legally allowed arguments permitted by the Restructuring Act 

for CDP hearings with both Collection and Appeals. When challenging the 

lien filing or levy, about 37 percent of taxpayers questioned the existence 

Page 4 GAO-07-112 Tax Administration
of the tax liability. Almost one-third of taxpayers requested collection 

alternatives, such as OICs. In addition, more than one-quarter of taxpayers 

questioned the appropriateness of the collection action, for example, 

raising personal hardships arguments such as illness or bankruptcy. An 

estimated 5 percent of taxpayers raised frivolous arguments—arguments 

without legal basis per IRS guidance—with either Collection or Appeals. 

When taxpayers raised the same arguments with Collection and Appeals, 

Appeals reached the same conclusions as Collection that the taxpayers’ 

argument lacked merit in an estimated 81 percent of the cases. When 

Appeals reached a different conclusion it was for reasons such as the 

taxpayer not providing requested information or providing different 

information to Appeals than to Collection. After IRS issued the lien filing 

or levy notice, IRS (Collection and Appeals) had various types of contacts 

with the taxpayer in the effort to resolve the liability. IRS sent a median of

3.6 letters and made a median of 3.2 phone calls. IRS had face-to-face 

contact with about 28 percent of taxpayers. In general, the median number 

of IRS-initiated contacts with taxpayers was twice as high as the median 

number of taxpayer-initiated contacts with IRS. 

Both individuals and businesses that receive lien or levy notices can 

exercise their due process rights to CDP appeals. Most taxpayers that 

requested CDP appeals–-about 87 percent–-were individuals, the 

remaining 13 percent of taxpayers were businesses. Both business and 

individual taxpayers were delinquent (did not pay taxes) on multiple 

periods. Businesses with employment tax liabilities were delinquent on 

more than twice as many periods—nearly six quarterly periods on 

average–-while individuals with income tax liabilities were delinquent for 

approximately three annual periods on average. In calendar terms, this 

means that on average businesses that requested a CDP appeal for 

delinquent employment taxes had not paid for nearly 1-1⁄2 years, while 

individuals were delinquent on paying their income taxes for 3 years. Total 

tax liability also varied considerably, with trust fund recovery penalty 

cases having the highest median liability amount followed by employment 

tax cases. For example, individuals’ median total trust fund recovery 

penalty tax liability appealed was nearly $45,000, while the median for 

total employment tax liability was about $30,000. The total median liability 

for individuals with income tax cases was nearly $13,000. Over half of all

individual taxpayers who requested CDP appeals had most recently

reported an adjusted gross income of less than or equal to $50,000 prior to 

their appeals. Overall, taxpayers chose to represent themselves before 

Appeals about 56 percent of the time, although individuals represented 

themselves more often, about 61 percent of the time. 

Page 5 GAO-07-112 Tax Administration
The results of our case file review and interviews with IRS officials have

raised concerns about whether certain types of taxpayers have used the 

CDP program in a manner that may be inconsistent with the goal of 

ensuring due process. Our case file review enabled us to provide 

quantitative estimates on the extent to which these certain situations were 

present among CDP cases closed by Appeals during fiscal year 2004.

Neither the law nor the legislative history makes any distinctions with 

respect to the type of taxpayer, type of tax liability, or method of liability 

determination that was intended to be included in due process appeal 

cases. Rather, the Restructuring Act permits any taxpayer who receives a 

lien or levy notice to request a CDP hearing. However, since

implementation of the program, some concerns have been expressed 

regarding potential abuse. Cases of concern include those where 

taxpayers may not have been serious about working with Appeals because 

they offered frivolous arguments in their appeals (about 4 percent for 

cases closed in fiscal year 2004)7

 or did not respond or responded only 

initially to Appeals (about 20 percent). Some taxpayers questioned the 

existence or amount of the liabilities (about 38 percent) even though the 

majority did not claim that they were not properly notified. Other 

taxpayers self-reported their tax liabilities and therefore were aware of 

their outstanding obligations to IRS (about 47 percent). Other taxpayers 

that contested collection of either employment or unemployment taxes 

(about 13 percent) had often failed to pay their taxes for long periods of 

time. Because the law makes no distinctions in this regard, these concerns 

cannot be addressed through regulatory changes.

IRS also raised concerns that other types of cases have resulted in an 

inefficient use of Appeals’ resources. These include cases where taxpayers 

that requested OICs or IAs did not submit overdue tax returns, provide 

supporting financial information, or provide the OIC application form (if 

appropriate) necessary for Appeals to consider their requests. In these 

cases, Appeals staff had to devote time to getting taxpayers to file required 

returns and obtaining basic financial information necessary to determine 

whether the taxpayers were even eligible for either of these alternatives. 

One option in these situations would be to require taxpayers that request 

only a collection alternative to provide the necessary supporting financial 

information or OIC application form (if appropriate) within a set period 

 7

Percentages cited in this paragraph indicate the portion of cases that exhibited each 

specific characteristic. However, cases could include multiple characteristics, so these

categories are not mutually exclusive. As a result, the percentages do not add to 100

percent.

Page 6 GAO-07-112 Tax Administration
and proceed to make a final case determination at that time on the basis of

the information available. In addition, some taxpayers requesting OICs 

from Appeals had not previously worked with IRS’s specialized unit that 

was established to screen and process OICs quickly and efficiently. IRS 

also raised concerns that Appeals spent time attempting to bring taxpayers 

into filing compliance–-that is, securing delinquent returns from 

taxpayers—in order to assist taxpayers in meeting the most basic 

eligibility criterion for either an OIC (about 23 percent were ineligible 

because of noncompliance) or IA (about 21 percent were ineligible 

because of noncompliance). Although the Restructuring Act does not 

specifically address this issue, IRS officials said that a statutory change

would be needed to require taxpayers to file all the required returns before 

transferring cases to Appeals for review. IRS has proposed making 

changes to the CDP hearing request form as well as to the regulations that

govern the CDP program. The proposed changes to the regulations are 

intended to clarify processes generally related to requesting and 

conducting a CDP appeal hearing, as well as to clarify what issues or 

arguments taxpayers may raise. Although these changes may improve the 

CDP program, IRS has not established responsibility for analyzing future 

CDP program outcome data in order to determine if these changes will 

result in achieving the desired objectives. 

While the proposed revisions to CDP regulations may improve program 

operations, additional operational changes not addressed in the 

regulations may help achieve further efficiencies. To that end, this report 

includes three recommendations to IRS to help ensure that Appeals’ 

resources are more efficiently devoted to its mission of resolving disputes 

by (1) determining—for taxpayers seeking only a collection alternative—a

reasonable amount of additional time beyond the current 30-day period for 

requesting a CDP hearing for these taxpayers to submit the required 

supporting financial information necessary for Appeals to consider the 

alternative of choice, and the OIC application form if appropriate; 

(2) instructing Appeals to transfer OIC cases to IRS’s specialized 

processing unit for investigation and evaluation of OICs before 

consideration by Appeals; and (3) establishing responsibility for analyzing 

CDP appeal case outcome data in order to determine whether revisions to 

the hearing request form and program regulations result in meeting their 

objectives. This report also includes three matters Congress should 

consider to help ensure CDP appeal hearings meet the goal of ensuring 

due process to taxpayers while excluding certain specific categories of 

taxpayers or issues that Congress may now deem to be inconsistent with 

that intent. Specifically, Congress should consider (1) amending the 

statute to remove eligibility for CDP appeal for selected categories of 

Page 7 GAO-07-112 Tax Administration
taxpayers if it judges that that taxpayers have characteristics deemed 

inconsistent with the Restructuring Act’s goal of providing due process; 

(2) amending the statute to require taxpayers seeking collection 

alternatives such as OICs or IAs and that raise no other issues to meet the 

basic eligibility criteria, that is, file all outstanding tax returns due, before 

Appeals reviews the case; and (3) requiring taxpayers that raise only 

collection alternatives to submit the supporting financial information 

needed to consider the alternative of choice, and the OIC application form

if appropriate, within a reasonable amount of time following the request 

for a CDP hearing. 

In commenting on a draft of this report, the Commissioner of Internal 

Revenue agreed that our recommendation on transferring cases where 

taxpayers request OICs as a collection alternative to one of IRS’s 

specialized processing units for consideration before Appeals considers 

the cases merited further study. IRS also agreed with the recommendation 

to establish responsibility for evaluating CDP outcome data to assess 

whether changes to the hearing request form and proposed regulation 

changes are effective. IRS did not agree with our draft recommendations 

that it should require taxpayers seeking collection alternatives to submit 

supporting financial information with their CDP appeal hearing request or

requiring taxpayers seeking an OIC to submit the OIC application form 

because it lacks the authority to do so. In response to IRS’s concerns, we 

revised our recommendations to present these issues as a matter for 

congressional consideration. In the event that Congress decides to take 

action on this matter, we added a recommendation to the agency. 

Specifically, IRS should determine the reasonable amount of additional 

time that taxpayers seeking collection alternatives should be allowed in 

order to provide the supporting financial information and OIC application 

form (if appropriate) following their CDP hearing requests. 

When Congress passed the Restructuring Act, it created new and 

expanded taxpayer rights, including the right to CDP hearings and judicial

review to challenge IRS’s liens and levies. IRS’s Collection Appeals 

Program (CAP), established before the Restructuring Act, allows 

taxpayers to appeal several IRS collection actions. However, taxpayers 

that do not agree with CAP’s determination cannot go to court because 

CAP’s decisions are not subject to judicial review. According to a Senate

Finance Committee report, CDP was intended to afford taxpayers with 

protection from IRS collection methods similar to the protection they have 

in dealing with any other creditor. The report stated that IRS should 

Background 

Page 8 GAO-07-112 Tax Administration
provide taxpayers with adequate notice of collection activity and a 

meaningful hearing.8

IRS issues several different types of collection notices that also inform 

taxpayers of their due process rights, including the right to request a CDP 

hearing. IRS issues a Notice of Federal Tax Lien (lien notice) to establish 

the priority of the tax lien over other liens against the taxpayer’s assets for 

the amount of unpaid tax liability.9

 IRS issues a Notice of Intent to Levy 

(levy notice) to inform taxpayers that failure to pay their tax liabilities 

could result in an IRS levy on the taxpayers’ assets held by financial 

institutions or other parties.10 Lien or levy notices may be issued by IRS’s 

Automated Collection System (ACS) or Collection Field Function (Field 

Collection).11 Taxpayers may also request CDP hearings in response to 

notices received related to automated levy programs, specifically the State 

Income Tax Levy Program (SITLP), the Federal Payment Levy Program 

(FPLP), or the Alaska Permanent Fund Dividend (PFD) Program.12 In 

addition, some taxpayers request and receive CDP hearings based on 

multiple due process collection notices, such as a combination of lien and

levy notices. Taxpayers are given a CDP hearing after a levy on a state 

income tax refund, and a levy is issued when the IRS finds collection of 

the tax is in jeopardy. 

Any taxpayer that receives a lien or levy notice has the right to dispute the 

action by filing a written request for a CDP hearing within 30 days of the 

date of the notice. Taxpayers that file for CDP hearings within the 30-day 

period are granted hearings with a right to judicial review from the U.S. 

Tax Court or U.S. District Court if they do not agree with Appeals’ 

determination. Taxpayers that file a request for CDP hearings after the 30-

 8

Senate Committee on Finance Report, S. Rep. 105-174, April 22, 1998, p. 67. 

9

A federal tax lien arises upon the taxpayer’s failure to pay tax liabilities after a demand for 

payment and attaches to all of the taxpayer’s property, I.R.C. § 6321. 

10Levies are issued under IRS’s authority to seize delinquent taxpayers’ assets, I.R.C. § 6331. 

11ACS is a computerized system that maintains balance due accounts and return

delinquency investigations. With some exceptions, balance due accounts and return

delinquency investigations are sent to ACS at the conclusion of normal collection notice

routines. Examples of exceptions, which are available for assignment to the Field 

Collection area, include complex cases, “high-risk” cases, and high-dollar cases. 

12The Alaska PFD Program matches a master file database of delinquent taxpayers against 

a database of PFD applicants. PFD is provided to eligible Alaska residents and is the result 

of the state’s oil wealth investment, which belongs to all residents of the state of Alaska. 

Page 9 GAO-07-112 Tax Administration
day period will be given an equivalent hearing (EH), but have no right to 

judicial review. Once IRS receives a CDP hearing request, all tax collection 

efforts are generally suspended until Appeals issues its determination to 

the taxpayer. Under the EH process, IRS may continue to enforce 

collection efforts although IRS’s policy is generally to suspend collection 

during an EH. Interest and penalties continue to accrue during the hearing 

period for both EH and timely CDP hearings. 

By statute, during CDP hearings, taxpayers may raise issues related to 

(1) the appropriateness of the lien filing or levy; (2) offers of collection 

alternatives, such as IAs, OICs, and posting bonds or substitution of other

assets; (3) appropriate spousal defenses; and (4) challenges to the 

existence or amount of the tax, but only in cases where they did not 

receive statutory notice of deficiency13 or did not otherwise have an 

opportunity to dispute the tax liability. The Internal Revenue Manual

allows the taxpayer to raise issues related to a hardship determination.14

However, a taxpayer may not raise an issue that was raised previously and 

considered at a prior administrative or judicial hearing if the taxpayer 

participated meaningfully in that hearing or proceeding. 

Once IRS receives a CDP request, Collection attempts to work with the 

taxpayer for approximately 45 to 90 days to resolve the issue prior to 

transferring the case to Appeals. If Collection is successful in resolving the 

case with the taxpayer, the taxpayer can formally withdraw from CDP. 

When Collection is unsuccessful in resolving the case with the taxpayer, it 

forwards the case file to Appeals for its independent review. However, in 

certain situations, Collection immediately forwards the taxpayer’s case to

Appeals, such as when collection alternatives have already been explored

and discussions are at an impasse, the taxpayer raises frivolous or 

constitutional issues, the taxpayer appears to be using CDP as a delaying 

tactic because the taxpayer is not responding to requests for information, 

 13A statutory notice of deficiency is IRS’s determination of a taxpayer’s income, estate, gift, 

or certain excise tax deficiencies sent to the taxpayer by certified or registered mail. The

notice of deficiency consists of a letter explaining the purpose of the notice, the amount of

the deficiency and the taxpayer’s options, a waiver if the taxpayer should decide to agree to 

the additional tax liability, a statement showing how the deficiency was computed, and an

explanation of the adjustments. A taxpayer that does not agree with the adjustments may 

file a petition with the U.S. Tax Court within 90 days of the notice date. 

14IRS can classify an account as Currently Not Collectible if the taxpayer cannot be located 

or contacted, payment would cause significant financial hardship to the taxpayer, the

taxpayer is bankrupt, a business taxpayer no longer exists, or an individual taxpayer is 

deceased. 

Page 10 GAO-07-112 Tax Administration
or the taxpayer does not want to work with Collection after requesting the 

CDP hearing. 

Appeals’ mission is to independently resolve tax disputes prior to litigation 

on a basis that is fair and impartial to both the government and the 

taxpayer. By statute, when Collection forwards the case to Appeals, 

Appeals will (1) verify that the requirements of any applicable law and 

administrative procedures have been met, (2) consider any relevant issues 

relating to the unpaid tax or the levy, and (3) determine whether any lien 

filing or levy balances the need for the efficient collection of taxes with the 

legitimate concern of the taxpayer that any collection be no more intrusive 

than necessary. Appeals then renders a decision on the case in which it 

may either agree that the lien filing or levy is appropriate (that is, “sustain” 

or uphold the collection action) or not appropriate (that is, “not sustain” 

the collection action). Appeals may also include in its final determination a 

description of the terms for any collection alternative negotiated with the 

taxpayer, such as an OIC or IA. 

As shown in figure 2, the volume of CDP case closures has increased 

steadily from the inception of the CDP program from fiscal year 1999 

through fiscal year 2004 and then declined in fiscal year 2005. In fiscal year

2005, CDP cases accounted for more than one-quarter of Appeals’ annual 

caseload. 

Page 11 GAO-07-112 Tax Administration
Figure 2: CDP Cases Closed by Appeals, Fiscal Years 1999 through 2005 

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1999 2000 2001 2002 2003 2004 2005

CDP cases

Fiscal year

Source: IRS.

32,200

27,500 27,900 25,300

8,000

4,100

1,200

Our case file review indicates that during the CDP review process Appeals 

found evidence that Collection had not followed proper procedures in an

estimated 2 percent of the cases closed in fiscal year 2004. For reasons 

unrelated to an error by Collection, in an estimated 27 percent of cases, 

taxpayers emerged from the CDP hearing process with a different 

outcome than the lien filing or levy action. Of these, Appeals agreed to a

collection alternative for an estimated 16 percent of all taxpayers, and 

approximately 11 percent of all taxpayers fully paid their tax liabilities or 

no longer had balances due to IRS. In addition, an estimated 11 percent of 

all taxpayers withdrew from the CDP process. Finally, in about 60 percent 

of cases, Appeals upheld the lien filing or levy for a variety of reasons, 

including because taxpayers did not file required returns, had not paid 

their taxes for certain periods, or both. 

CDP Appeals 

Identified Few Errors 

by Collection, but 

Some Taxpayers 

Received a Different 

Outcome 

Page 12 GAO-07-112 Tax Administration
As previously shown in figure 1, Appeals found evidence that Collection 

had not followed proper procedures in an estimated 2 percent of CDP 

cases. Although Appeals did not identify any instances in our sample 

where “requirements of applicable law and administrative procedure” 

were not met,15 our case file review did identify instances where Appeals 

detected other types of procedural errors during the collection phase of a 

case. For example, in one case IRS misapplied a payment to the taxpayer’s 

ex-spouse. Appeals reapplied the payment to the taxpayer’s account and

did not uphold the lien filing and levy because there was no balance due. 

We included these types of cases in our estimation of procedures not 

followed as they represented other examples of situations where 

taxpayers utilized the CDP appeal process consistent with the provisions 

of the Restructuring Act—that is, as an opportunity to correct any errors 

made by Collection. 

Appeals Rarely Found 

Evidence of Procedural 

Errors by Collection 

Of approximately 27 percent of CDP cases that resulted in a different 

outcome after taxpayers appealed, Appeals negotiated a collection 

alternative with taxpayers in about 16 percent of the cases. However, 

when Appeals negotiates a collection alternative, it is not necessarily 

disagreeing with the lien filing or levy. Appeals may accept a taxpayer’s 

collection alternative but sustain the filing of the lien in order to protect 

the government’s lien priority in the event of default. In addition, 

taxpayers may present Appeals with new information not previously 

provided to Collection for consideration. For example, in one of our cases, 

the taxpayer requested an IA with both Collection and Appeals. After 

submitting requested financial information and a down payment with 

Appeals, the taxpayer qualified for an IA. The taxpayer benefited from the 

CDP process by negotiating a collection alternative with Appeals. In an 

estimated 11 percent of all CDP cases, Collection’s lien filing or the levy 

was no longer appropriate because the taxpayer had since fully paid the 

liability or had no balance due. In these cases, the lien or levy was no 

longer necessary because the taxpayer no longer owed any tax to IRS. 

Appeals officials stated that some taxpayers file for CDP to delay 

imminent collection action while they find revenue sources to pay off their 

 15The Restructuring Act requires Appeals to verify that the requirements of any applicable 

law or administrative procedure have been met. In conjunction with this, Appeals will 

verify that an assessment was made in accordance with I.R.C. § 6201, that a notice and 

demand for payment was issued to the taxpayer in accordance with I.R.C. § 6303, and that

a balance due existed at the time the lien was filed or the CDP levy notice was issued. 

Appeals will also verify that other pre-lien/levy requirements were met.

Page 13 GAO-07-112 Tax Administration
unpaid liabilities. For example, one taxpayer in our sample obtained a loan 

during the hearing process to fully pay the liabilities owed. 

In addition, in about another 11 percent of all CDP cases, taxpayers 

withdrew from the CDP process after their cases reached Appeals, so 

Appeals neither upheld nor overturned the liens or levies. For example, 

one taxpayer continued to work with Collection while the case was 

transferred to Appeals. Collection negotiated an IA with the taxpayer, and 

then the taxpayer withdrew the CDP request from Appeals. We did not 

track the final outcome of cases after taxpayers withdrew from the CDP 

hearing process. 

Of all CDP cases, approximately 6 percent of taxpayers negotiated a 

collection alternative while in Collection but failed to formally withdraw 

from the CDP program, resulting in their cases being forwarded to 

Appeals. According to Appeals officials, in these situations Appeals will 

generally agree with the proposed collection alternatives unless the 

taxpayers’ situations change so much that they can no longer comply with 

the agreements reached with Collection. Appeals officials also said that 

some professional representatives advise clients not to withdraw from 

CDP even though they resolved the issue at the Collection level because 

they want to preserve their clients’ right to judicial review. 

Appeals Upheld the 

Majority of Liens and 

Levies, Often Because of 

Taxpayer Noncompliance 

In an estimated 60 percent of cases where Appeals determined the lien or

levy was appropriate, Appeals upheld the lien filing or levy 46 percent of 

the time because Appeals determined that taxpayers did not comply with 

filing requirements, did not pay their liabilities for certain tax periods, or 

both, as shown in table 1. For example, to be eligible for an OIC, a 

business taxpayer must file all required federal tax returns, file and pay 

any required employment taxes on time for the two quarters prior to filing 

the OIC, be current with deposits for the quarter in which the OIC was 

submitted, pay any required estimated tax for the current period, and not 

be a debtor in a bankruptcy case. To be eligible for an IA, an individual 

taxpayer must file all required tax returns currently due and make all 

required estimated tax payments on the current period prior to the 

commencement of the IA. 

Page 14 GAO-07-112 Tax Administration
Table 1: Reasons Why Appeals Upheld the Lien Filing or Levy for Cases Closed in

Fiscal Year 2004 

Reasons Appeals agreed with Collection Percentage of CDP casesa

Noncompliance in filing, payment, or both 46b

Amount of the liability was not in question 38c

No response from taxpayer 30d

Source: GAO analysis of IRS data. 

a

Percentages do not add up to 100 percent because the categories are not mutually exclusive. 

b

We are 95 percent confident that the true value would be between 38 percent and 55 percent. 

c

We are 95 percent confident that the true value would be between 30 percent and 47 percent. 

d

We are 95 percent confident that the true value would be between 22 percent and 39 percent. 

In addition to noncompliant taxpayers, Appeals upheld the lien filing or 

levy for a variety of other reasons, including when taxpayers questioned 

the amount of the tax liability but Appeals determined the liability to be 

correct (an estimated 38 percent) and when taxpayers did not respond to 

Appeals (an estimated 30 percent). With respect to nonresponsive 

taxpayers, Appeals officials stated that they attempt to communicate with 

taxpayers at least twice by correspondence before issuing determination 

letters. 

About 2 percent of all taxpayers that requested CDP appeal hearings 

contested the Appeals determination in the U.S. Tax Court or U.S. District 

Court. Officials in IRS’s Office of Chief Counsel said that based on their 

experience with docketed cases, Appeals is upheld a majority of the time. 

When the courts overturn the Appeals determination, IRS Chief Counsel 

officials said that it does not necessarily mean that Appeals erred. Some 

taxpayers provide additional or new information considered by the courts 

but not presented to Appeals, leading to reversed decisions.

Page 15 GAO-07-112 Tax Administration
During fiscal year 2004, most taxpayers raised arguments permitted by 

statute to Appeals, while we estimated that 5 percent of taxpayers raised 

arguments considered frivolous under IRS guidance with either Collection 

or Appeals.16 When a taxpayer raised the same argument in both Collection 

and Appeals, in an estimated 81 percent of the cases Appeals agreed with 

Collection on the merits of the taxpayer’s argument. During the CDP 

process, Collection and Appeals initiated multiple communications with 

the taxpayer, including letters, telephone discussions, and face-to-face 

meetings. 

Taxpayers raised various arguments permitted by the Restructuring Act in

more than an estimated 90 percent of CDP cases. After their cases were 

transferred to Appeals, about 41 percent of taxpayers requested an OIC 

and about 37 percent of taxpayers requested an IA. Less than 3 percent of 

taxpayers requested innocent spouse relief as permitted under the 

Restructuring Act during their CDP hearings in Appeals. 

The Majority of 

Taxpayers Raised the 

Same Arguments with 

Both Collection and 

Appeals, Received the 

Same Determination, 

and Had Multiple 

Contacts with IRS 

Most Taxpayers Raised 

Permissible Arguments, 

but Some Presented 

Frivolous Arguments 

Approximately 38 percent of taxpayers questioned the existence of the tax 

liability. Under the Restructuring Act, a taxpayer may challenge the 

existence or dollar amount of the tax liability at the CDP hearing if the 

taxpayer did not receive a statutory notice of deficiency for the liability or 

did not otherwise have an opportunity to dispute the tax liability. Seven 

out of the 80 taxpayers in our sample challenging the existence of a

liability claimed they did not receive the statutory notice of deficiency. 

The remaining 73 out of the 80 taxpayers raised existence of the liability 

for a variety of other reasons, including contesting the amount of the 

liability. One Appeals official suggested that some taxpayers without 

professional representation (pro se) may not understand the definition of

questioning “the existence or amount of the liability” under the 

Restructuring Act. IRS has drafted a revised CDP appeal hearing request 

form in an effort to assist taxpayers in determining what types of 

collection alternatives are available and what types of arguments are 

allowed. The revised hearing request form is intended to more clearly 

 16IRS has published detailed guidance on 39 different types of frivolous arguments that IRS 

will not accept. This guidance includes a section specifically devoted to frivolous 

arguments prevalent in CDP cases. See “The Truth About Frivolous Arguments” available 

on IRS’s Internet site, http://www.irs.gov/pub/irs-utl/friv_tax.pdf.

Page 16 GAO-07-112 Tax Administration
explain what it means to dispute the existence or amount of the liability 

and the taxpayer’s ability to question the liability under CDP. 

While their cases were in Appeals, an estimated 38 percent of taxpayers 

questioned the appropriateness of the lien filing or levy and presented 

hardship arguments. According to guidance issued by IRS Counsel, 

taxpayers may argue that a lien or levy is inappropriate because payment

would cause hardship, for example, if the taxpayer has no disposable 

income or assets. The primary hardship issue taxpayers cited during the 

CDP process was illness (about 11 percent). Other hardship issues 

taxpayers reported included bankruptcy, unemployment, and death in the

family. 

An estimated 5 percent of taxpayers requesting a CDP appeal presented a

frivolous argument to either Collection or Appeals. According to IRS, 

taxpayers raising frivolous issues consume a disproportionately large 

amount of time because Appeals personnel must often read lengthy 

frivolous submissions in search of any substantive issue that might be 

contained within the case file. In addition, according to IRS, delays result 

when taxpayers use face-to-face meetings as a venue for frivolous oration 

and harassment of Appeals personnel. IRS has proposed changes to the 

CDP regulations, which clarify that Appeals will not offer face-to-face 

meetings if the taxpayers or their representatives raise only frivolous 

arguments.17 However, representatives from an external stakeholder group 

expressed concerns that IRS may misclassify cases as frivolous and deny 

face-to-face meetings although the taxpayer is raising arguments permitted 

under the Restructuring Act. For example, one stakeholder suggested that 

a pro se taxpayer’s argument may be misclassified as frivolous if the 

taxpayer uses the word protest on the CDP request form. Prior to the 

Restructuring Act IRS could designate certain taxpayers, such as those 

using arguments that had been repeatedly rejected by the courts, as “illegal 

tax protesters.” As a result, taxpayers using the term protest might be 

equated with taxpayers offering frivolous arguments. The act prohibited 

IRS from using this or any similar designation.18

 1770 Fed. Reg. 54681, September 16, 2005. 

18Prior to the Restructuring Act, taxpayers could be designated in the IRS master file and 

other records as illegal tax protesters when their tax returns or other correspondence with 

IRS contained certain specific indicators of noncompliance with the tax laws, such as the

use of arguments that had been repeatedly rejected by the courts. 

Page 17 GAO-07-112 Tax Administration
In Cases Where Taxpayers 

Raised the Same 

Arguments in Appeals as in 

Collection, Appeals Agreed 

with Collection the 

Majority of the Time 

Nearly 90 percent of taxpayers raised the same argument permitted by the 

Restructuring Act with both Collection and Appeals. IRS encourages 

taxpayers to discuss the issues they want to appeal with Collection 

because the matter may be resolved without the need for Appeals’ 

involvement. As shown in table 2, Appeals agreed with Collection that a 

taxpayer’s argument lacked merit in more than an estimated 80 percent of

the cases where taxpayers raised the same argument in both Collection 

and Appeals. For example, taxpayers argued that they qualified for 

collection alternatives but were not in compliance with requirements for 

filing tax returns for prior periods, paying taxes for certain periods, or 

both. 

Table 2: Estimated Percentage and Number of Taxpayers Raising Restructuring Act Arguments in Both Collection and 

Appeals and Cases Where Appeals Agreed with Collection for Cases Closed in Fiscal Year 2004 

Raised in both Collection and Appeals

Percentage of cases where Appeals 

reached same conclusion as Collection

Arguments raised by taxpayer 

permitted by the Restructuring Act 

Percentage of all

 CDP cases

Number of 

taxpayers Percentage

Number of 

taxpayers

Offer-in-compromise 31 10,075 88a8,835

Existence of the liability 37 11,780 89b10,540

Installment agreement 27 8,680 84c7,285

Appropriateness of the lien filing or 

levy 

26 8,525 83d8,370

Innocent spousee— — — —

All arguments permitted by the 

Restructuring Act 

89 28,676 81 23,251

Source: GAO analysis of IRS data. 

Notes: The arguments do not sum to 100 percent because some taxpayers raised more than one 

argument permitted by the Restructuring Act. In addition, the percentage of cases where Appeals 

reached the same conclusion as Collection for all arguments permitted by the Restructuring Act is 

lower than the percentages for individual argument categories as it includes innocent spouse 

category data. This category had a lower percentage of cases where Appeals agreed with Collection 

on the merits of the argument. 

a

We are 95 percent confident that the true value would be between 77 percent and 95 percent. 

b

We are 95 percent confident that the true value would be between 80 percent and 95 percent. 

c

We are 95 percent confident that the true value would be between 72 percent and 92 percent. 

d

We are 95 percent confident that the true value would be between 72 percent and 91 percent. 

e

Results are not shown for innocent spouse arguments because of the small number of cases with 

this characteristic. 

Page 18 GAO-07-112 Tax Administration
More than half of the taxpayers that requested an IA (about 61 percent)19

or OIC (about 56 percent)20 in Appeals were not compliant for tax periods 

in addition to the period under CDP review. Appeals officials added that

when a taxpayer requests an OIC in Appeals, Appeals staff often spend a

lot of time developing the case by requesting and reviewing 

documentation needed to determine the taxpayer’s compliance and 

eligibility. Our review of the case files for the estimated 31 percent of 

taxpayers that asked both Collection and Appeals for an OIC indicated 

that Appeals staff spend time building cases. Appeals requested the OIC 

form from an estimated 33 percent21 of these taxpayers, and an estimated 

24 percent22 provided the form. Appeals also requested supporting 

financial documents from an estimated 37 percent23 of these taxpayers, 

and an estimated 24 percent24 of taxpayers that requested an OIC in both 

Collection and Appeals provided the requested information. IRS voiced 

concerns that many taxpayers are raising the same issues with Appeals 

that were rejected by Collection in what appeared to be efforts to delay 

collection of the liabilities. 

In an approximately 19 percent of the cases where taxpayers raised 

arguments permitted by the Restructuring Act, Appeals reached a different

conclusion than Collection on the merits of the taxpayer’s argument, but 

may have upheld the lien filing or levy. For example, in one case Appeals 

approved an IA rejected by Collection but upheld the lien to protect the 

government’s interests in case the taxpayer defaulted. Appeals differed 

from Collection on the merits of the taxpayer’s arguments for a variety of 

reasons, including a change in the taxpayer’s circumstances or 

information. When Appeals differed from Collection on the merits of the 

 19We are 95 percent confident that the true value would be between 50 percent and 73

percent.

20We are 95 percent confident that the true value would be between 45 percent and 67

percent.

21We are 95 percent confident that the true value would be between 19 percent and 49

percent.

22We are 95 percent confident that the true value would be between 12 percent and 39

percent.

23We are 95 percent confident that the true value would be between 23 percent and 53

percent.

24We are 95 percent confident that the true value would be between 12 percent and 39

percent.

Page 19 GAO-07-112 Tax Administration
taxpayer’s argument, in an estimated 20 percent25 of these cases the 

taxpayer provided different information to Appeals than to Collection. In 

addition, in an estimated 11 percent26 of the cases when Appeals reached a

different conclusion than Collection it was because the taxpayer did not 

provide requested information to Collection, but provided the information 

to Appeals. 

IRS Initiated 

Communication with CDP 

Taxpayers Multiple Times, 

Primarily by Telephone 

and Letter 

After sending the lien or levy notice, IRS (Collection and Appeals) 

contacted the taxpayer multiple times using different methods. The range 

of communication between IRS and the taxpayers in our sample varied.

For example, the maximum number of phone calls in a single case was 34 

and the maximum number of letters was 17. The estimated median number 

of letters IRS sent to the taxpayers was 3.6 and the estimated median 

number of phone calls was 3.2.27 As shown in table 3, in general the median 

number of IRS-initiated contacts with taxpayers—letters, telephone 

conversations, and formal meetings—was twice as high as the median 

number of taxpayer-initiated contacts with IRS. 

Table 3: Estimated Median Number of Total and IRS- and Taxpayer-Initiated

Contacts after Lien/Levy Notice Issuance for Cases Closed in Fiscal Year 2004 

IRS area Total contacts

IRS-initiated 

contacts 

Taxpayer-initiated

contacts

Collection 4.6 2.9 1.2

Appeals 6.6 3.5 1.5

Source: GAO analysis of IRS data. 

After IRS sent the lien or levy notice, about 28 percent of taxpayers had at 

least one face-to-face contact, including meetings and drop-in visits, with 

Collection or Appeals. Most external stakeholders we interviewed stated 

that face-to-face CDP hearings were preferable, although a few 

 25We are 95 percent confident that the true value would be between 6 percent and 34 

percent.

26We are 95 percent confident that the true value would be between 3 percent and 27 

percent.

27The median, the midpoint in a series of numbers, was selected to represent the typical 

amount of contact initiated by IRS, the taxpayer, or both, because the total amount of 

contacts varied greatly among taxpayers. All medians based upon the results of our sample 

have a relative standard error of less than 30 percent unless otherwise stated. 

Page 20 GAO-07-112 Tax Administration
representatives favored telephone conferences. Members of the National

Association of Enrolled Agents, for example, said they preferred face-toface meetings because they could review all documents and reach 

agreement in writing. In contrast, members of the American Institute of 

Certified Public Accountants stated that teleconferences were the most 

efficient way to handle CDP hearings. 

The September 2005 proposed changes to the CDP regulations describe 

specific circumstances under which Appeals will not offer a face-to-face 

conference to taxpayers or their representatives because it determines 

that a conference will not serve a useful purpose. Under the proposed 

changes, a face-to-face conference will not be granted if the taxpayer does 

not provide the required information in the written request for a CDP 

hearing or if the taxpayer proposes collection alternatives that would not 

be available to other taxpayers in similar circumstances. For example, 

because IRS does not consider OICs from taxpayers that have not filed 

required returns or made certain required deposits of tax, face-to-face 

conferences will not be offered to taxpayers that request an OIC but have 

not fulfilled those obligations. In addition, a face-to-face conference will 

not be held at the location closest to the taxpayer’s residence or principal

place of business if all Appeals officers or employees at that location are

considered to have prior involvement with the taxpayer. 

The National Taxpayer Advocate (Advocate) and American Bar 

Association (ABA) expressed concern about the potential reduction in 

face-to-face hearings that may result from the proposed changes in the 

CDP regulations. The Advocate noted that certain taxpayers may need a

face-to-face meeting with an Appeals officer who is familiar with local 

economic conditions, such as a business’s payroll provider that went 

bankrupt. In our sample, an estimated 2 percent of taxpayers requested 

that Appeals transfer the CDP hearing to another location and Appeals 

accommodated all of these requests. However, we did not collect data on 

whether the relocation was to accommodate a face-to-face hearing. The 

Advocate also expressed concern that the centralization of Appeals 

activities to IRS campuses will result in only certain taxpayers receiving 

face-to-face hearings, such as those with representation. ABA 

representatives stated that the proposed regulations will grant Appeals 

more ability to deny face-to-face hearings, which would adversely affect

pro se CDP taxpayers. They also said that Appeals cases can be more 

quickly resolved in person than through correspondence and phone 

hearings. 

Page 21 GAO-07-112 Tax Administration
Individuals constituted the majority of taxpayers that requested a CDP 

appeal hearing, although business entities also exercised their right to 

request an appeal hearing. When compared to individual taxpayers with 

income tax liabilities, businesses with employment taxes liabilities had 

more delinquent periods. The majority of individuals requesting a CDP 

appeal were lower-income taxpayers. 

Individuals constituted about 87 percent of all taxpayers that exercised 

CDP appeal rights. Of these individuals, approximately 79 percent filed a 

CDP appeal related to individual income tax liability. Business entities 

constituted the remaining 13 percent of all taxpayers that requested CDP 

appeals, with business-related liabilities such as employment and 

unemployment tax. See table 4 for more detail on the types of taxpayers 

requesting CDP appeal. 

Both Individuals and 

Businesses Used CDP,

but Case

Characteristics Varied 

Most Taxpayers That 

Requested CDP Appeal 

Were Individuals, although 

Businesses Also Used the 

Program 

Table 4: Type of Taxpayer Requesting CDP Appeal for Cases Closed in Fiscal Year

2004 

Type of taxpayer based on

income reporting 

requirement 

Type of liability 

appealed in CDP 

Estimated percentage of 

population requesting 

CDP appeal

All individual 87

Individual Incomea 79

Individual Trust fund recovery 

penaltyb

8

All businesscEmployment and 

unemployment 

13

Total 100

Source: GAO analysis of IRS data. 

a

Includes sole proprietors. A sole proprietor is an unincorporated business that is owned by one 

individual. Although the majority of sole proprietors had income liability issues in CDP, there were 

also a small number that had business-related liabilities.

b

Trust fund recovery penalties may be assessed against any person who is responsible for collecting

and paying withheld income and employment taxes, or for paying collected excise taxes, and willfully

fails to collect and pay them to IRS. 

c

Includes corporations, S corporations, and a small number of other “flow-through” entities, such as

partnerships and trusts, and cases where a taxpayer appealed the collection of multiple types of 

liabilities, such as a business appealing both an employment tax and excise tax liability. An S 

corporation is a flow-through entity that distributes net income—as well as losses—to shareholders 

who are subsequently required to report the net income or loss on their individual tax returns and to

pay any applicable taxes. Although flow-through entities do not generally pay taxes on income, they

may still incur other types of tax liabilities, such as employment or unemployment taxes.

Page 22 GAO-07-112 Tax Administration
Both the ACS and Field Collection areas of IRS generate lien and levy 

notices, which may lead to eventual CDP appeals. ACS issued the vast 

majority of notices related to individual cases, about 88 percent. Our 

sample data suggest that Field Collection issued the majority of notices 

related to business cases, about 78 percent. However, because of a small 

sample size we cannot conclude that this observed level of notice issuance 

is statistically different from the level of notices issued to individuals. IRS 

procedures specify that simpler cases are usually handled by ACS. Field 

Collection handles complex, high-risk, high-dollar, and certain other types 

of collection cases. 

Although taxpayers are afforded CDP appeal rights for lien and levy 

notices, about 64 percent of all CDP appeals resulted from a levy notice. 

ACS issued levy notices for an estimated 49 percent of all cases, while 

Field Collection issued levy notices for about 15 percent of all CDP cases. 

Lien notices, which may be issued by either ACS or Field Collection, 

accounted for about 29 percent of all cases. For the remaining estimated 7 

percent of cases, taxpayers either received both a lien and levy notice on

the same liability amount and tax periods28 or a different type of levy 

notice, such as SITLP or FPLP. 

Businesses with 

Employment Tax 

Liabilities Had More 

Delinquent Periods Than 

Individuals with Income 

Tax Liabilities 

Business entities that appealed proposed collection of quarterly 

employment tax liabilities had on average over twice as many delinquent 

periods included in their appeals as individual taxpayers with income tax 

liabilities.29 As shown in table 5, these businesses had on average nearly 6

delinquent periods included in their appeals. In calendar terms, this means 

that on average businesses that requested a CDP appeal for failure to pay 

employment tax liabilities were delinquent for nearly 1-1⁄2 years. The 

number of delinquent periods included in the CDP appeal for these 

taxpayers ranged from a low of 1 to a high of 26 quarters, or in calendar 

terms, from 3 months to 6-1⁄2 years. In contrast, individuals who appealed 

 28IRS may issue lien and levy notices simultaneously on the same liability amounts and tax 

periods to a taxpayer. 

29When issuing a lien or levy notice, IRS may include multiple delinquent tax periods in one

notice. As a result, taxpayers may appeal the lien or levy on not just one but several 

delinquent periods. Individuals file returns and pay their income taxes on an annual basis,

so the tax period is a calendar year. Businesses file returns and pay employment taxes on a 

quarterly basis, or a tax period of 3 months. Unemployment taxes are also paid on a 

quarterly basis unless the amount due is less than $500, in which case unemployment taxes 

may be paid annually. 

Page 23 GAO-07-112 Tax Administration
the lien filing or levy on income tax liabilities in CDP had on average 2.6 

delinquent periods, or years, included in their appeals. For individual 

income tax liabilities the number of multiple periods involved ranged from 

a low of 1 to as many as 9 years per case. 

Table 5: Average and Range of Number of Delinquent Tax Periods by Type of Tax

Liability 

Number of delinquent tax periods

Range

Type of tax liability Estimated average Minimum Maximum

Employment (quarterly) 5.7a1 26

Unemployment (quarterly) 2.0b1 8

Trust fund recovery penalty (quarterly) 3.3c1 9

Individual (annual) 2.6d1 9

Source: GAO analysis of IRS data. 

a

We are 95 percent confident that the true value would be between 3.6 and 7.8 periods. 

b

We are 95 percent confident that the true value would be between 0.8 and 3.2 periods. 

c

We are 95 percent confident that the true value would be between 1.8 and 4.8 periods. 

d

We are 95 percent confident that the true value would be between 2.3 and 2.9 periods. 

Similarly, the estimated amount of the tax liability associated with CDP 

appeals varied widely and was associated with the type of tax liability 

involved. The highest median tax liability was associated with trust fund 

recovery penalty cases, followed by employment tax liabilities, as shown 

in table 6. 

Table 6: Estimated Median of Total Liability by Type of Tax Liability in CDP for 

Cases Closed in Fiscal Year 2004 

Type of tax liability Total median liability (dollars)

Trust fund recovery penalty $44,941

Employment 30,403a

Individual 12,916

Unemployment 1,237b

Source: GAO analysis of IRS data. 

a

The relative standard error for this estimate is 38 percent. 

b

The relative standard error for this estimate is 46 percent. 

Page 24 GAO-07-112 Tax Administration
In general, taxpayers represented themselves more than half of the time in

CDP appeal cases, an estimated 56 percent of the time. Individual 

taxpayers represented themselves even more frequently, about 61 percent 

of the time. Individuals engaged the services of a professional 

representative, such as a tax attorney, certified public accountant (CPA), 

or enrolled agent,30 during CDP about 30 percent of the time. Our sample 

data suggest that 50 percent of businesses retained professional 

representation; however, because of our small sample size we cannot

conclude that this observed level of representation is statistically different 

from the level of professional representation for individuals.

Most Individuals Were 

Lower-Income Taxpayers 

with Varied Liability 

Amounts 

More than an estimated 50 percent of individual taxpayers who requested 

a CDP appeal had most recently reported an adjusted gross income (AGI)31

of less than or equal to $50,000 prior to their CDP appeals. The estimated 

median tax liability associated with these cases varied somewhat when 

compared to income level, as shown in table 7.

Table 7: Estimated Adjusted Gross Income Level versus Median Tax Liability for 

Individual Taxpayers Requesting CDP Appeal for Cases Closed in Fiscal Year 2004

Adjusted gross income 

level (dollars) 

Percentage of taxpayers 

requesting CDPa

Median tax liability 

(dollars)

Zero or negative (under $1) 3 44,941b

$1 to $25,000 26 7,935

$25,001 to $50,000 25 15,278

$50,001 to $75,000 15 8,415

$75,001 to $100,000 7 15,224c

$100,001 to $300,000 12 32,835

Over $300,001d— —

Source: GAO analysis of IRS data. 

a

Does not total to 100 percent because of exclusion of cases where data were unavailable. 

b

The relative standard error for this estimate is 38 percent. 

 30Like attorneys and CPAs, an enrolled agent is an individual who has earned the privilege 

of practicing, or representing taxpayers, before IRS. To become an enrolled agent, a person

must demonstrate technical expertise with tax matters by either passing a written 

examination or through past service and technical experience with IRS. 

31AGI is defined as the sum of total income less certain types of allowed expense 

deductions, such as moving expenses, alimony, or student loan interest expenses. Negative 

AGI indicates taxpayers whose reported deductions exceeded their total income. 

Page 25 GAO-07-112 Tax Administration
c

The relative standard error for this estimate is 41 percent. 

d

The relative standard error was greater than 50 percent. 

The results of our case file review and interviews with IRS officials have

raised concerns that certain types of taxpayers have used CDP in a manner 

that may be inconsistent with the goal of the Restructuring Act to ensure 

due process. IRS also raised concerns that taxpayers have used CDP in a 

manner that resulted in an inefficient use of Appeals’ resources. Our case 

file review enabled us to develop quantitative estimates of the extent to 

which cases with selected characteristics of concern were present among 

cases closed by Appeals during fiscal year 2004. IRS devotes a significant 

amount of its resources to resolving CDP appeals cases. Changing the CDP 

process could release a significant amount of Appeals’ resources for other 

purposes. In operating the CDP program, IRS must balance efficient 

resource utilization against the goal of protecting taxpayer rights. 

The Restructuring Act permits any taxpayer who receives a lien or levy

notice to request a CDP appeal hearing. The act makes no distinction with 

respect to the type of taxpayer, type of tax liability, or whether the liability 

is self-reported or asserted by IRS. According to the legislative history, the 

Senate Committee on Finance believed that following procedures 

designed to afford taxpayers due process in collections would increase 

fairness to taxpayers. However, the results of our case file review and 

interviews with IRS officials raised concerns that certain taxpayers are 

using CDP in ways that may be inconsistent with the goal of the 

Restructuring Act to ensure due process. These would include the 

following: 

Appeals Devoted 

Many Staff Hours to 

Resolving CDP Cases 

That May Not Be

Consistent with Goals 

of the Program or an 

Efficient Use of 

Resources 

Concerns about Certain 

Types of CDP Cases 

Frivolous arguments: As discussed earlier, an estimated 5 percent of 

taxpayers requesting a CDP appeal presented a frivolous argument to 

either Collection or Appeals. An estimated 4 percent of CDP taxpayers 

raised a frivolous argument to Appeals alone. IRS has publicized those 

arguments that are considered frivolous and that will not be considered as 

a basis for contesting tax liabilities. IRS officials said that taxpayers that 

submit frivolous arguments may simply be delaying collection efforts. In 

the budget submissions for fiscal years 2005 to 2007, the administration 

submitted a legislative proposal that would increase the penalty for filing 

frivolous income tax returns from $500 to $5,000. The proposal would 

permit IRS to dismiss requests for CDP hearings (as well as IAs and OICs) 

if they are based on frivolous arguments or are intended to delay or 

impede tax administration. In 2005, IRS’s Office of Chief Counsel also 

Page 26 GAO-07-112 Tax Administration
issued guidance encouraging Counsel staff to coordinate with Collection 

staff in order to file a motion to levy during CDP proceedings where a 

taxpayer raises solely frivolous arguments. 

Nonresponsive taxpayers: About an estimated 20 percent of taxpayers 

requesting a CDP hearing in fiscal year 2004 did not respond at all or 

responded initially and then became nonresponsive to attempts by 

Appeals to contact them for additional information.32 IRS officials 

questioned whether taxpayers that requested CDP hearings but did not 

respond to Appeals’ efforts to contact them were serious about resolving a 

lien or levy. According to Appeals’ procedures, taxpayers are provided at

least two opportunities by correspondence to schedule the CDP hearing or 

discuss the case. While it is possible that nonresponsive taxpayers may no 

longer reside at the most recent address on file with IRS, Appeals makes 

efforts to contact the taxpayers using the most recent information it has 

available. In addition, the taxpayer can initiate contact with IRS to inform 

it of a new address and continue the CDP hearing. If the taxpayer does not

respond, Appeals will issue a final determination on the lien or levy. For 

cases closed during fiscal year 2004, nonresponsive taxpayers that 

requested a CDP hearing experienced an estimated average cycle time of 

314 calendar days33 from the time they requested a CDP hearing until the 

time the final determination was issued by Appeals. As previously 

discussed, IRS generally suspends all collection efforts during CDP until 

the final determination is issued. 

Basis for questioning the existence of the liability: As discussed 

earlier, taxpayers challenged the existence or amount of the liability with 

both Collection and Appeals about 37 percent of the time. An estimated 

38 percent of taxpayers raised the issue with Appeals alone. In addition, 

Appeals agreed with Collection’s evaluation of the merits of the argument

an estimated 89 percent of the time. However, as discussed earlier, in only 

7 of 80 cases in our sample where the taxpayer raised the existence of the 

liability with Appeals during CDP was the taxpayer claiming not to have 

received a statutory notice of deficiency from IRS.34 The remaining 73 out 

 32This includes both taxpayers that were completely nonresponsive to all attempts at 

contact by Appeals as well as taxpayers that may have responded initially to Appeals, but

in whose final case determination Appeals cited overall taxpayer nonresponsiveness as one 

of the deciding factors. 

33We are 95 percent confident the true value would be between 265 and 363 days. 

34The seven cases are presented as descriptive information, not an inferential statistic. The 

sample size is not large enough to project this result. 

Page 27 GAO-07-112 Tax Administration
of the 80 taxpayers raised existence of the liability for a variety of other 

reasons, including contesting the amount of the liability. IRS intends to 

clarify the circumstances under which a taxpayer may appropriately 

dispute the existence or amount of the liability in CDP when it revises the 

hearing request form. 

Self-reported liabilities: Taxpayers that self-reported their liabilities 

accounted for nearly an estimated 50 percent of Appeals’ total CDP 

caseload for cases closed during fiscal year 2004.35 Of these taxpayers, 

nearly one-quarter raised the existence of the liability issue during their 

CDP appeals.36 The Restructuring Act states that taxpayers can use the 

CDP process to appeal the underlying tax liability in limited 

circumstances. IRS initially interpreted the language as meaning an 

additional tax assessment by IRS, not a liability reported by the taxpayer 

on the return. In 2004, the U.S. Tax Court rejected this interpretation and 

concluded that the term underlying tax liability referred to self-assessed 

amounts as well as amounts assessed under deficiency procedures. The 

U.S. Tax Court held that petitioners generally could dispute their selfreported tax liability because they had not received a notice of deficiency 

and had no other opportunity to challenge the merits of the disputed tax 

liability.37

Employment and unemployment taxes: In previous reports GAO has 

discussed the unique problems associated with ensuring business 

taxpayers comply with their employment tax deposit requirements.38 IRS 

also expressed concern about business taxpayers who use CDP to appeal 

collection action for employment and unemployment taxes because many 

of them continue to incur additional liabilities by not filing subsequent 

returns or paying related taxes, often referred to as “pyramiding.” As 

previously discussed, businesses that requested CDP appeal for 

employment taxes were on average delinquent for 6 quarterly periods, or 

behind on their payments for 1-1⁄2 years. For example, in one case the 

 35We are 95 percent confident that the true value is between 40 percent and 53 percent. 

36We are 95 percent confident that the true value is between 17 percent and 35 percent. 

37Montgomery v. Commissioner, 122 T.C. 1 (2004). 

38GAO, Financial Management: Some DOD Contractors Abuse the Federal Tax System 

with Little Consequence, GAO-04-95 (Washington, D.C.: Feb. 12, 2004). See also GAO,

Financial Management: Thousands of Civilian Agency Contractors Abuse the Federal

Tax System with Little Consequence, GAO-05-637 (Washington, D.C.: June 16, 2005).

Page 28 GAO-07-112 Tax Administration
business requested a CDP appeal hearing to contest collection of 

employment taxes dating back over 26 quarterly periods, or 6-1⁄2 years. The

administration has submitted a legislative proposal with its fiscal year 2007 

budget to amend CDP procedures for employment tax liabilities. In 

contrast to most other CDP cases, the proposal would allow IRS to levy 

businesses with delinquent employment tax liabilities first, and then 

provide the taxpayer with the opportunity for a postlevy CDP appeal

hearing within a reasonable period of time. This proposal is similar to the 

postlevy hearing established by the Restructuring Act for levies issued to 

collect a federal tax liability from state tax refunds under SITLP and for 

levies where IRS has made a finding that the collection of tax is in 

jeopardy. 

IRS also raised concerns that other types of cases result in an inefficient 

use of Appeals’ resources. These include the following: 

Offers-in-compromise: In 2001, IRS established two centralized OIC 

processing centers to reduce inventory, processing times, and costs. IRS 

officials said that some taxpayers fail to work with these specialized units

and instead go directly to Appeals to seek OICs. In addition, when making 

its determination about the acceptability of an OIC, Appeals in most cases 

does not refer the OIC to the specialized processing units or a Field 

Collection offer specialist for investigation or for a recommendation on 

acceptance or rejection. In contrast, Appeals refers CDP cases involving 

innocent spouse issues to either IRS’s Centralized Innocent Spouse 

Operation (CISO) or a field examination office for investigation and 

evaluation. Appeals will delay its ruling on any other issues or collection 

alternatives until the CISO or field examination area issues a preliminary 

determination on the innocent spouse issue. As a result of taxpayers that

seek OICs directly from Appeals instead of working with the specialized 

processing centers, Appeals deviates from its mission of settling disputes 

between taxpayers and Collection and instead spends time doing original 

case-building work, such as trying to get taxpayers to file overdue returns 

for prior periods, an important eligibility criterion for OICs. 

IRS also said that many taxpayers who apply for a collection alternative do

not (1) meet the basic requirement of having filed all necessary tax returns 

or (2) provide with their CDP requests the necessary supporting 

documentation or a completed OIC application for Appeals to consider, 

causing further delay and consuming more staff resources. As discussed 

earlier, for those taxpayers that asked both Collection and Appeals for an 

OIC, Appeals requested the OIC application form and other supporting 

Page 29 GAO-07-112 Tax Administration
financial documentation from about an estimated one-third of the 

taxpayers. 

One option for ensuring that taxpayers timely provide overdue tax returns, 

supporting financial information, or a completed OIC application with 

their requests for a collection alternative would be to require taxpayers to

provide this information before IRS accepts the request for a CDP hearing. 

However, according to officials from IRS’s Office of Chief Counsel, under 

the current statute IRS may not deny a taxpayer’s request for a CDP 

hearing even if the taxpayer only wants a collection alternative and has 

not met basic filing compliance requirements.39 Similarly, IRS said that it 

also lacks authority to deny a request for a CDP hearing to taxpayers 

seeking an alternative that fail to submit the supporting financial 

information or OIC application form. IRS also stated that most taxpayers 

would be unable to provide this information within the 30 days they have 

to request a CDP hearing. 

Another option would be to require taxpayers to provide the information 

within a reasonable time following the request for the CDP hearing and for 

IRS to proceed to make a final determination at that time on the basis of 

whatever information the taxpayer had provided. This would be similar to 

IRS’s current practice of proceeding to make a final determination when 

taxpayers have not been responsive to IRS’s request for information. At 

the time we completed our review, however, IRS had not determined 

whether it could do this without a statutory change. 

Installment agreements: As with OIC cases, IRS also said that many 

taxpayers do not provide the necessary documentation for Appeals to 

even consider an IA with their CDP requests. Instead of concentrating on 

dispute resolution, Appeals officers instead must attempt to bring 

noncompliant taxpayers into filing compliance in order to meet the basic 

 39The Restructuring Act does not specifically address this issue. However, the statute as

currently written permits taxpayers to submit collection alternatives, such as an IA or OIC,

during the CDP hearing. In addition, Appeals is required to do more than consider a 

taxpayer’s request for a collection alternative during the CDP hearing. Appeals must verify 

that all legal and administrative requirements have been satisfied and must balance the 

government’s need for efficient tax collection with the taxpayer’s legitimate concern that

the collection action be no more intrusive than necessary. Therefore, IRS believes that 

where a taxpayer raises no other allowable arguments to the lien filing or levy except a 

collection alternative, IRS may not administratively require that taxpayer to comply with 

the same basic eligibility requirements that are imposed on non-CDP taxpayers before the

case can be forwarded to Appeals for review of its acceptability. 

Page 30 GAO-07-112 Tax Administration
eligibility criteria for the alternative, and then develop the IAs, including 

requesting application forms and the necessary financial information from 

the taxpayers. 

Low liability cases: For cases closed during fiscal year 2004, about 3 

percent of the taxpayers, or approximately 1,100, requested a CDP hearing 

for liabilities totaling less than $500. One Appeals official stated that small 

liability cases may not be the most efficient use of Appeals’ resources. 

However, establishing a dollar threshold would deny some taxpayers the 

right to appeal the lien filing or levy at the judicial level while taxpayers 

with perhaps slightly higher liabilities would retain that right. In addition, 

for some lower-income taxpayers, an improperly assessed liability of $500 

may represent a significant amount of money. The median for the most 

recently reported AGI for taxpayers in our sample with a liability of less 

than $500 was estimated at approximately $36,000,40 with a range from as 

low as about $11,000 a year to a high of more than $200,000 a year. 

Changing the CDP Process 

Could Free Up a 

Significant Amount of 

Appeals’ Resources 

Restricting CDP appeals rights for certain kinds of taxpayers or 

implementing other processing changes, such as requiring taxpayers to 

submit documentation for collection alternatives following the CDP 

hearing request, could release a significant amount of Appeals’ resources 

for other purposes. According to IRS records, in fiscal year 2004, Appeals

allocated more than 285,000 direct staff hours, or about 23 percent of all 

direct case time charges, to resolve about 32,000 CDP cases. We estimate 

that this cost was approximately $8.2 million. 

Table 8 shows the resources devoted to selected types of CDP cases. 

However, the data on direct case time charges and salary costs for each 

type of CDP cases may overstate the potential resource savings of 

changing the CDP process. First, the table represents the resources 

devoted to cases that exhibited the specific characteristic, but other 

characteristics could also be present, so the categories are not mutually 

exclusive. A case with a self-reported liability may also be an 

employment/unemployment tax case, and the resources devoted to that 

case would be included in each category. As a result, the potential staff 

hour savings to be realized from excluding more than one category of 

cases from CDP cannot be estimated by totaling the salary costs 

associated with each category. For example, suppose taxpayers with self-

 40The relative standard error for this estimate is 47 percent. 

Page 31 GAO-07-112 Tax Administration
reported liabilities and employment/unemployment taxes were deemed 

ineligible for the CDP process. The table shows that Appeals devoted 

about 135,000 staff hours to cases with self-reported taxes and about 

34,000 hours to cases with employment/unemployment taxes. However, 

the total staff hours that would be released by deeming both categories 

ineligible would not be the sum of those two categories (169,000 staff 

hours) because some of employment/unemployment taxes are also selfreported. The actual total would be less. Second, although we obtained the 

total direct time charges involved in resolving each case in our sample, we 

could not isolate the amount of direct time Appeals expended in 

requesting and obtaining documentation in order to develop collection 

alternatives. (For more detail on the confidence intervals associated with

the estimated hours and salary costs shown in table 8, see app. I.) 

Table 8: Estimated Data on Selected Characteristics of All CDP Cases by Direct Hours Worked and Percentage of Caseload

for Cases Closed in Fiscal Year 2004 

Selected characteristics of CDP case 

Average number 

of additional

characteristics

Direct hours 

worked by

Appeals

Salary 

costs 

Percentage of

CDP caseloada

Frivolous argumentsb0.75 — — 4

Nonresponsive to Appeals 1.24 45,571 1,308,343 20

Self-reported liabilities 1.13 135,203 3,881,678 47

Existence of the liability questioned by taxpayer 1.09 110,441 3,170,761 38

Employment/unemployment taxes 1.89 34,140 980,159 13

OIC raised by noncompliant taxpayer 1.60 63,474 1,822,339 23

IA raised by noncompliant taxpayer 1.91 58,437 1,677,726 21

Total liability less than $500 1.43 7,440 213,602 3

Source: GAO analysis of IRS data. 

a

Percentages do not add up to 100 percent because the categories are not mutually exclusive. 

b

Results are not shown for frivolous arguments because of the small number and large variability in 

cases with this characteristic. 

IRS Has Taken Some Steps 

to Improve the CDP 

Program 

IRS has taken some steps to improve the CDP program. IRS has drafted a 

revised CDP hearing request form in an effort to assist taxpayers in 

determining what types of collection alternatives are available. In addition,

in 2005, IRS issued proposed revisions to the CDP program regulations 

intended to allow Appeals to effectively and fairly handle the cases of 

taxpayers that raise issues of substance. Included in these proposed 

changes is a provision stating that Appeals will not offer a face-to-face 

meeting with a taxpayer when Appeals staff determine that the conference 

Page 32 GAO-07-112 Tax Administration
would not serve a useful purpose, such as with a taxpayer that offers only 

frivolous arguments. Further, the proposed changes state that a face-toface conference need not be granted if a taxpayer does not provide the

reasons for disagreeing with the lien filing or levy on the written CDP 

request. As previously discussed, stakeholder groups, including the 

Advocate and the ABA, voiced concerns about whether Appeals would 

have the ability under the proposed revised regulations to deny face-toface hearings to taxpayers in need of assistance and thereby adversely 

affect taxpayer rights. 

In issuing the proposed regulatory changes for the CDP program, IRS 

asserted as its goal to increase efficiency without compromising the 

quality and fairness of review. Appeals anticipates collecting detailed 

information on CDP case outcomes as a result of planned enhancements 

to its information management system. IRS guidance lays out a seven-step

process for data collection and analysis, the last of which is that managers 

should use data to follow up and monitor the effectiveness of a course of 

action. However, we found that IRS has not clearly assigned responsibility 

for analyzing future CDP outcome data to assess whether the revised 

hearing request form or updated program regulations achieve their 

objectives or whether further corrective actions will be necessary. 

Providing taxpayers with the ability to appeal unfair lien filings or levies is

an important consideration in ensuring IRS continues to respect taxpayer

rights as it collects tax revenue. However, Appeals devotes a significant 

amount of resources to CDP cases and decision makers need to weigh the 

value of the existing program against the value of potentially redirecting 

those resources to serve other taxpayers better. 

Conclusions 

The results of our case file review and interviews with IRS officials raised 

concerns about whether Appeals is devoting a large share of its resources 

to providing temporary relief from collection action to taxpayers that 

Congress may not have intended to benefit from the CDP process. The 

statute currently affords all taxpayers the protection of due process 

appeal, even those that raise frivolous arguments or that do not respond to 

Appeals after requesting a hearing and may not be serious about working 

with IRS. For those taxpayers, which collectively may represent as much 

as approximately 24 percent of the total CDP workload, the delay in 

collection activity until Appeals issues its final determination may be an

incentive to request an appeal, even though penalties and interest continue 

to accrue during the time the case is with Appeals. Other types of CDP 

cases represent those that may involve an inefficient use of Appeals’ 

Page 33 GAO-07-112 Tax Administration
resources, such as taxpayers that are seeking OICs or IAs but are not in 

compliance with basic tax return filing requirements. 

IRS has taken some steps that may improve CDP program operations. 

Appeals anticipates collecting more detailed CDP case outcome data as a 

result of planned enhancements to its information system. However, IRS 

has not established responsibility for analyzing future program outcome 

data to determine if these changes will be effective. Given the significant 

share of Appeals staff resources dedicated to resolving CDP cases, 

balancing the need to employ these resources efficiently versus the goal of 

protecting taxpayer rights as required by the Restructuring Act has been, 

and will likely continue to be, a challenge for IRS. 

We are making three recommendations to the Commissioner of Internal 

Revenue to ensure that Appeals uses its resources in line with its mission

as well as more efficiently. Specifically, we recommend that the 

Commissioner 

• determine—for taxpayers seeking only a collection alternative—a 

reasonable amount of additional time beyond the current 30-day period for 

requesting a CDP hearing for these taxpayers to submit the required 

supporting financial information necessary for Appeals to consider the 

alternative of choice, and if seeking an OIC, to submit the OIC application 

form; 

• instruct Appeals to transfer CDP cases where taxpayers seek an OIC as a 

collection alternative and raise no liability issues to IRS’s specialized 

processing units for investigation and evaluation of OICs before 

consideration by Appeals; and 

• establish responsibility for analyzing future CDP appeal case outcome data

in order to determine whether revisions to the hearing request form and 

program regulations will result in meeting their objectives. 

Since the Restructuring Act permits any taxpayer who receives a lien or 

levy notice to request a CDP hearing, Congress should consider amending 

the statute to remove eligibility for CDP appeal for selected categories of 

taxpayers or types of cases if it judges that they have characteristics that 

are inconsistent with the Restructuring Act’s goal of ensuring due process.

These categories may include self-reported tax liabilities, including 

employment and unemployment taxes, or other categories deemed 

inconsistent with the goal of the Restructuring Act provisions. In order to 

leverage IRS resources more efficiently, Congress should consider 

Recommendations for 

Executive Action 

Matters for 

Congressional 

Consideration 

Page 34 GAO-07-112 Tax Administration
requiring taxpayers that seek collection alternatives, such as OICs or IAs, 

and that raise no other allowable issues to comply with the basic eligibility 

criteria, that is, file all required tax returns before Appeals reviews their 

cases. In addition, Congress should consider requiring taxpayers that raise 

only collection alternatives to submit the supporting financial information 

needed to consider the alternative of choice, and if seeking an OIC without 

raising any liability issues, to submit the OIC application form within a 

reasonable time following their CDP request. 

The Commissioner of Internal Revenue provided written comments on a 

draft of this report in a September 20, 2006, letter, which is reprinted in 

appendix II. The Commissioner agreed that our findings would assist IRS 

in its effort to improve CDP program operations, and provided technical 

comments and clarifications that we have incorporated throughout this 

report where appropriate. 

With regard to our recommendation on transferring cases where taxpayers 

request OICs as a collection alternative to one of IRS’s specialized 

processing units for consideration before Appeals considers the cases, IRS 

agreed that our recommendation merited consideration, although IRS 

concluded that additional study is needed to assess the advantages and 

disadvantages of such a change in order to achieve the proper balance

between agency resource allocation and imposing unnecessary delays in 

processing OICs. IRS also agreed with our recommendation regarding 

establishing responsibility for evaluating CDP outcome data in order to 

determine if the changes to the hearing request form and proposed 

regulatory changes will achieve desired objectives. IRS expressed support 

for our matter for congressional consideration related to suggesting that 

Congress consider amending the statute to remove eligibility for CDP 

appeal for selected categories of taxpayers or types of cases, noting that 

IRS has submitted several legislative proposals in past years aimed at 

limiting taxpayer access to CDP. 

In our draft report we recommended that IRS require taxpayers seeking a 

collection alternative to submit supporting financial information with their 

requests for a CDP hearing in order to consider the alternative of choice. 

We also recommended that IRS require each taxpayer seeking an OIC that

raises no liability issues to submit the OIC application form with the 

hearing request. IRS disagreed with both of these recommendations. While 

IRS agreed that having this information would be desirable to facilitate 

consideration of taxpayers’ requests for collection alternatives, IRS 

believes that most taxpayers would be unable to provide this information 

Agency Comments 

and Our Evaluation 

Page 35 GAO-07-112 Tax Administration
within the 30-day period taxpayers are provided to request a CDP appeal 

hearing. Further, IRS stated that it does not currently have statutory 

authority to deny CDP hearings to taxpayers who fail to submit financial

information forms or the OIC application form. IRS believes that 

congressional action would be required to enable it to impose these 

requirements on taxpayers. We incorporated this information into the 

body of our report. Given IRS’s concerns, we revised our report to say that 

taxpayers should be given a reasonable amount of time after filing a CDP 

request to provide supporting financial information and OIC applications. 

If taxpayers do not provide the materials within that time, IRS would 

proceed to make a final determination on the basis of available 

information. Further, because at the time we completed our review IRS 

had not decided if this could be done without a statutory change, we made 

this a matter for congressional consideration. Finally, we also added a 

recommendation that IRS should determine what a reasonable amount of 

additional time would be for taxpayers to assemble and submit this 

information since IRS would be in a position to make this determination. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

date. At that time, we will send copies of this report to the Secretary of the 

Treasury, the Commissioner of Internal Revenue, and other interested 

parties. Copies will be made available to others upon request. This report 

will also be available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you or your staff have any questions, please contact me at (202) 512-

9110. I can also be reached by e-mail at brostekm@gao.gov. Contact points 

for our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. Key contributors to this report are listed in

appendix III. 

Michael Brostek 

Director, Tax Issues 

Strategic Issues Team 

Page 36 GAO-07-112 Tax Administration
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

Our objectives were to provide information on (1) the extent to which the 

Internal Revenue Service’s (IRS) Office of Appeals (Appeals) found the 

IRS Collection function (Collection) had made errors in processing liens 

and levies and how often Collection Due Process (CDP) case results 

changed after a taxpayer requested a CDP appeal hearing; (2) the nature of 

the arguments presented by taxpayers seeking relief from a lien filing or 

levy and the amount of communication between IRS and taxpayers; (3) the 

characteristics of the taxpayers that availed themselves of the CDP appeal 

process, such as the amount of their total liability; and (4) whether 

opportunities exist to improve the operations of the CDP program while 

protecting taxpayer rights. 

To develop information addressing our objectives, we interviewed 

stakeholder groups with an interest in CDP, both within and outside of 

IRS. Within IRS we interviewed officials in Appeals as well as from the 

Collection area of the compliance divisions where CDP appeal cases 

originate. We also interviewed officials in the Office of Chief Counsel and

the Office of the National Taxpayer Advocate. Outside of IRS, we met with

representatives from organizations whose members provide professional 

representation to taxpayers during CDP appeals, including the American 

Institute of Certified Public Accountants, the American Bar Association, 

and the National Association of Enrolled Agents. 

We reviewed the Appeals Centralized Database System (ACDS) to 

determine whether it contained sufficient case results information to 

address our objectives. In conjunction with another GAO study addressing 

the operations of IRS Appeals, we tested the reliability of the data in 

ACDS. Based on this assessment, we found that data in ACDS were not 

sufficiently reliable for our use.1

 Therefore, we collected data through a 

random probability sample of CDP cases closed by Appeals during fiscal

year 2004 using IRS case files. The sample of 208 cases was drawn from a 

population of 32,241 cases. Results from this sample are generalizable to 

all cases closed in the CDP program in fiscal year 2004. 

For each of the cases in our sample, we requested the Appeals closed 

office file and reviewed the documentation in the files to determine case 

characteristics, such as the ultimate outcome of the CDP appeal process, 

 1

GAO, Tax Administration: Opportunities to Improve Compliance Decisions and Service 

to Taxpayers through Enhancements to Appeals’ Feedback Project, GAO-06-396 

(Washington, D.C.: Mar. 24, 2006). 

Page 37 GAO-07-112 Tax Administration
Appendix I: Objectives, Scope, and 

Methodology 

including whether a case was “sustained” or “not sustained.” We reviewed 

documents available in the file, including the taxpayer’s Request for CDP 

Hearing, the Case Activity Record (documented notes on the case history

recorded by the Appeals officer), and the Appeals Case Memorandum (a 

summary memorandum outlining the Appeals officer’s findings at the 

conclusion of the hearing process). Based on the documents available, we 

determined the nature of the arguments raised by each taxpayer, including

whether the taxpayer sought a collection alternative, such as an offer-incompromise (OIC) or installment agreement (IA). 

Through our case file review we also determined whether Appeals 

identified any evidence of improper procedures or errors that occurred 

during the Collection phase of the case. Based on the Internal Revenue

Service Restructuring and Reform Act of 1998, as part of each case 

determination, Appeals is legally required to verify that the requirements 

of any applicable law or administrative procedure have been met. 

Specifically, Appeals will verify that Collection met legal and procedural 

requirements by reviewing whether (1) an assessment was made in 

accordance with the Internal Revenue Code, which requires IRS to make 

inquiries, determinations, and assessments of taxes;2

 (2) a notice and 

demand for payment was issued to the taxpayer;3

 and (3) the taxpayer had 

a balance due at the time the notice of lien or levy was issued. In addition 

to reviewing cases to determine if Appeals found any instances where 

Collection did not comply with these requirements, we also identified 

cases where all of these legal conditions may have been met, but Appeals 

identified some other type of procedural error or problem. We used this 

broader, more inclusive definition of improper procedures when compiling 

and reporting our results. 

We also requested access to the Collection administrative file associated

with each of our sample CDP cases in order to assess what transpired 

between the taxpayer and IRS during the collection phase of the case prior 

to the CDP appeal. We sought access to these files so we could develop

additional case characteristics, such as the nature of the arguments raised 

by the taxpayer with IRS Collection, as well as the extent to which the 

taxpayer and the IRS employee working the collection case actively 

initiated communication with each other to resolve the collection dispute. 

Of the 208 cases in our sample, 162 originated from the Automated 

 2

I.R.C. § 6201. 

3

I.R.C. § 6303. 

Page 38 GAO-07-112 Tax Administration
Appendix I: Objectives, Scope, and 

Methodology 

Collection System (ACS) area.4 When documents were missing from the 

Collection administrative files for ACS cases, we supplemented the file 

information by reviewing the ACS history transcript for the case. The 

remaining 46 cases in our sample originated in the Field Collection area of 

IRS. IRS Field Collection officials were concerned that providing GAO 

with access to the complete case file for our sample cases would be 

burdensome and potentially disruptive in cases where collection 

enforcement was ongoing. In response to this concern, we agreed to 

consider using case history information stored in the Integrated Collection 

System (ICS).5

 We tested the reliability of ACS and ICS history transcripts 

by comparing the information on issues raised and communication 

contacts documented in the collection administrative file to the 

information in ICS for a subsample of cases. We found that the 

information in both systems generally agreed with the administrative case

file data and was therefore sufficient for our data-gathering purposes. 

While we relied on ACS transcripts as a supplement to the collection case 

file documentation, for CDP cases that originated in the Field Collection 

area, we relied exclusively on reviewing the detailed ICS case history 

transcript. 

To record the descriptive data obtained from case file review for our 

sample cases, we developed a detailed data collection instrument (DCI). 

We refined this DCI through extensive pretesting, and also shared an 

interim draft of the instrument with officials from both IRS Appeals and

Office of Chief Counsel to ensure that it was technically accurate. To 

ensure that the data entered on the DCI conformed to GAO’s data quality 

standards, each completed DCI was subject to secondary review by at 

least one other GAO analyst. Reviewers compared the data recorded on 

the DCI to the data in the case files to determine whether they concurred 

with the interpretation of the case files and the way the data were 

recorded on the DCI. When there were differing perspectives, the analysts 

met and reconciled them. 

 4

ACS is a computerized system that maintains balance due accounts and return

delinquency investigations. With some exceptions, balance due accounts and return

delinquency investigations are issued to ACS at the conclusion of normal service center

notice routines. Examples of exception cases, which are available for assignment to the 

Field Collection area, include complex, “high-risk,” and high-dollar cases.

5

ICS is a computerized system that maintains balance due accounts and return delinquency

investigations for cases that have been assigned to Field Collection. 

Page 39 GAO-07-112 Tax Administration
Appendix I: Objectives, Scope, and 

Methodology 

We input the data recorded on the DCIs into a computer data collection 

program. To ensure the accuracy of the transcribed data, each electronic 

DCI entry was compared to its corresponding paper DCI by analysts other 

than those who electronically entered the data. If the reviewers found any 

errors, changes were made to the electronic entries, and the entries were 

reviewed again to ensure that all data were transcribed accurately. 

To tabulate and analyze the results of the compiled DCI information, we 

used a standardized statistical software package. All cross-tabulation 

analyses of case file characteristic data were based on computer programs 

that were reviewed by a second independent data analyst. 

Because we followed a probability procedure based on random selection, 

our sample is only one of a large number of samples that we might have 

drawn. Since each sample could have provided different estimates, we 

express our confidence in the precision of our particular sample’s results 

as a 95 percent confidence interval, less than plus or minus 8 percentage

points unless otherwise noted. This is the interval that would contain the 

actual population value for 95 percent of the samples we could have 

drawn. In some instances, we report our sample estimates as medians. The 

median, or midpoint in a series of numbers, was selected in certain 

instances because the total number of observations for a given 

characteristic varied greatly across the population. To determine the 

reliability of median estimates, we calculated the relative standard error 

associated with each estimate by dividing the standard error of the median 

by the median and multiplied by 100 to get a percentage. All medians 

based upon the results of our sample have a relative standard error of less 

than 30 percent unless otherwise stated. In instances where our sample 

estimate included a fraction, we rounded the estimate up if the fraction 

was greater than or equal to 0.50. 

To estimate the salary costs associated with selected types of CDP cases 

with specific characteristics shown in table 8, we estimated the total direct 

hourly time charges based on the sample cases that had the characteristic 

of interest. We multiplied direct hourly time charges by a weighted hourly 

salary rate that was based on Appeals data for time charged to working 

CDP cases during fiscal year 2004. Each of the figures for direct hours 

worked and salary costs, as well as the average number of additional case

characteristics present for each category, have their own confidence 

intervals, which are shown in tables 9, 10, and 11. 

Page 40 GAO-07-112 Tax Administration
Appendix I: Objectives, Scope, and 

Methodology 

Table 9: Confidence Intervals for Table 8—Average Number of Additional 

Characteristics 

Confidence intervals

Selected characteristics of CDP 

case 

Average number 

of additional

characteristics 

Lower

bound

Upper 

bound

Frivolous arguments 0.75 0.20 1.30

Nonresponsive to Appeals 1.24 0.93 1.55

Self-reported liabilities 1.13 0.93 1.33

Existence of the liability questioned by 

taxpayer 

1.09 0.88 1.30

Employment/unemployment taxes 1.89 1.57 2.21

OIC raised by noncompliant taxpayer 1.60 1.32 1.88

IA raised by noncompliant taxpayer 1.91 1.65 2.17

Total liability less than $500 1.43 0.97 1.89

Source: GAO analysis of IRS data. 

Table 10: Confidence Intervals for Table 8—Direct Hours Worked by Appeals 

Confidence intervals

Selected characteristics of CDP 

case 

Direct hours 

worked by Appeals 

Lower

bound

Upper

 bound

Frivolous argumentsa— — —

Nonresponsive to Appeals 45,600 30,900 60,200

Self-reported liabilities 135,200 107,700 162,700

Existence of the liability questioned by 

taxpayer 

110,400 87,000 133,900

Employment/unemployment taxes 34,100 20,200 48,100

OIC raised by noncompliant taxpayer 63,500 44,200 82,800

IA raised by noncompliant taxpayer 58,400 39,100 77,800

Total liability less than $500 7,400 200 14,700

Source: GAO analysis of IRS data. 

Note: Estimates and confidence intervals have been rounded up to the nearest 100 and are 

expressed at the 95 percent level of confidence. 

a

Because of the wide variation in hours per case, the estimates for total direct hours and related 

confidence intervals are not projectable. 

Page 41 GAO-07-112 Tax Administration
Appendix I: Objectives, Scope, and 

Methodology 

Table 11: Confidence Intervals for Table 8—Salary Costs 

Confidence intervalsb

Selected characteristics of CDP 

case Salary costsa

Lower

bound

Upper 

bound

Frivolous argumentsc— — —

Nonresponsive to Appeals $1,308,000 $888,000 $1,729,000

Self-reported liabilities 3,882,000 3,092,000 4,671,000

Existence of the liability questioned by 

taxpayer 

3,171,000 2,496,000 3,846,000

Employment/unemployment taxes 980,000 579,000 1,381,000

OIC raised by noncompliant taxpayer 1,822,000 1,269,000 2,376,000

IA raised by noncompliant taxpayer 1,678,000 1,122,000 2,233,000

Total liability less than $500 214,000 6,000 421,000

Source: GAO analysis of IRS data. 

Note: Estimates and confidence intervals have been rounded up to the nearest 1,000 and are 

expressed at the 95 percent level of confidence. 

a

Salary costs for each category were estimated by multiplying the direct hours worked (table 10) by a 

weighted hourly salary rate based on Appeals workload data. 

b

Confidence interval boundaries were estimated by multiplying the confidence intervals for direct 

hours worked (table 10) by the weighted hourly salary rate based on Appeals workload data. 

c

Because of the wide variation in hours per case, the estimates for salary costs and related 

confidence intervals are not projectable. 

Page 42 GAO-07-112 Tax Administration
Appendix II: Comments from the Internal Appendix II: Comments from the Internal Revenue Service 

Revenue Service 

Page 43 GAO-07-112 Tax Administration
Appendix II: Comments from the Internal 

Revenue Service 

Page 44 GAO-07-112 Tax Administration
Appendix II: Comments from the Internal 

Revenue Service 

Page 45 GAO-07-112 Tax Administration
Appendix II: Comments from the Internal 

Revenue Service 

Page 46 GAO-07-112 Tax Administration
Appendix II: Comments from the Internal 

Revenue Service 

Page 47 GAO-07-112 Tax Administration
Appendix II: Comments from the Internal 

Revenue Service 

Page 48 GAO-07-112 Tax Administration
Appendix III: GAO

St

 Contact and 

aff Acknowledgments

Page 49 GAO-07-112 

Appendix III: GAO Contact and Staff 

Acknowledgments 

Michael Brostek, (202) 512-9110 or brostekm@gao.gov

In addition to the contact named above, Jonda Van Pelt, Assistant 

Director; Carl Barden; Keira Dembowski; Evan Gilman; Shirley Jones; 

Laurie King; Edward Nannenhorn; Bryan Rogowski; Ellen Rominger; 

Susan Sato; Sam Scrutchins; and Michael Trujillo made key contributions 

to this report. 

Tax Administration

GAO Contact 

Acknowledgments 

(450369) 
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