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 provide taxpayers with adequate notice of collection activity and a meaningful hearing. 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. 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. Lien or levy notices may be issued by IRS’s Automated Collection System (ACS) or Collection Field Function (Field Collection). 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. 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- 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 deficiency 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. 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, 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. 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. 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, 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. 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 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.