Toolkit · Tax

The Collection Due Process Request, Financial Statement, and Offer in Compromise Toolkit

26 U.S.C. § 6201

Type
Toolkit
Jurisdiction
National
Date
2024-11-25
Topic
Tax

This toolkit supplies the working documents a tax collection matter runs on, each keyed to the authority it implements. Intake materials include a transcript analysis worksheet and a collection statute expiration calculator that tracks every suspending event. Emergency materials include a levy release request with the hardship budget that supports it, and standing client instructions for an unannounced field visit. Transaction materials include lien discharge and subordination applications with the arithmetic that persuades, plus a withdrawal request. Resolution materials include a financial statement support index built for verification, a reasonable collection potential model, and an offer versus agreement decision memorandum. Procedural materials include a collection due process request, a penalty abatement letter, and a wrongful levy claim for third parties. Each template states the failure it prevents.

The Collection Due Process Request, Financial Statement, and Offer in Compromise Toolkit

Tax > IRS Collection, Liens, Levies, and Offers in Compromise | Published 25 November 2024 - Updated 2 December 2025 | UpLaw - uplaw.us

Authority reference card

Question Authority
What authorizes assessment? 26 U.S.C. § 6201, 26 U.S.C. § 6203
What is the deficiency notice? 26 U.S.C. § 6212
When is assessment restricted? 26 U.S.C. § 6213
What is the collection authority? 26 U.S.C. § 6301
What is notice and demand? 26 U.S.C. § 6303
What creates the lien? 26 U.S.C. § 6321
How long does the lien last? 26 U.S.C. § 6322
Who is protected until filing? 26 U.S.C. § 6323
How is a lien released, discharged, subordinated, or withdrawn? 26 U.S.C. § 6325
What authorizes levy? 26 U.S.C. § 6331
Who must surrender levied property? 26 U.S.C. § 6332
What property is exempt? 26 U.S.C. § 6334
How is seized property sold? 26 U.S.C. § 6335
What redemption rights exist? 26 U.S.C. § 6337
When must a levy be released? 26 U.S.C. § 6343
What authorizes installment agreements? 26 U.S.C. § 6159
What authorizes compromise? 26 U.S.C. § 7122
What allows interest abatement? 26 U.S.C. § 6404
What is collection due process? 26 U.S.C. § 6320, 26 U.S.C. § 6330
How long can collection continue? 26 U.S.C. § 6502
What bars suits to restrain collection? 26 U.S.C. § 7421
What allows cost recovery? 26 U.S.C. § 7430
What allows damages for wrongful collection? 26 U.S.C. § 7433
What is the trust fund penalty? 26 U.S.C. § 6672
What is the automatic stay? 11 U.S.C. § 362
What taxes are nondischargeable? 11 U.S.C. § 523
What tax claims have priority? 11 U.S.C. § 507
Can the bankruptcy court determine tax? 11 U.S.C. § 505
What is estate property? 11 U.S.C. § 541

Case anchors. Property reach: Aquilino v. United States, Drye v. United States, United States v. Craft, United States v. Bess, United States v. Rodgers. Levy: United States v. National Bank of Commerce, United States v. Whiting Pools, Inc.. Bankruptcy: United States v. Energy Resources Co., Begier v. Internal Revenue Service, Florida Department of Revenue v. Piccadilly Cafeterias, Inc.. Procedure: Boechler, P.C. v. Commissioner, Hinck v. United States, United States v. Brockamp, Commissioner v. Lundy, United States v. Clintwood Elkhorn Mining Co., CIC Services, LLC v. IRS, Hibbs v. Winn.

Tool 1: Transcript analysis worksheet

One row per assessment. Complete before giving any advice.

Period Tax type Assessment date Tax Penalty Interest Balance Notice of deficiency issued? Lien filed (date, office) Trust fund portion Dischargeable under 11 U.S.C. § 523?

Why each column matters. The assessment date starts the collection period. The deficiency notice determines whether the liability can be challenged in a collection hearing. The lien filing date sets priority under 26 U.S.C. § 6323. The trust fund portion identifies personal exposure under 26 U.S.C. § 6672 that survives entity dissolution. Dischargeability determines whether bankruptcy is even a candidate.

Tool 2: Collection statute expiration calculator

One sheet per assessment. Recompute after every event.

Item Date Days added
Assessment date —
Base expiration (assessment + 10 years, 26 U.S.C. § 6502) —
Offer in compromise pending (from / to) + pending period + statutory addition
Second offer pending (from / to) +
Collection due process request pending (from / to) + pending period + statutory addition
Bankruptcy (petition / discharge or dismissal) + pending period + statutory addition
Innocent spouse request pending (from / to) +
Absence from the country +
Assets in control of a court +
Extension by agreement (if any) +
Current expiration date
Months remaining

The rule this enforces. A pending offer suspends the period. A taxpayer twenty months from expiration who files two successive offers may add three years to the government's collection window while believing they are resolving the debt. Compute this before filing anything.

Tool 3: Levy release request

[Date] — VIA FAX AND MAIL [Revenue Officer / ACS] Re: [Taxpayer], TIN [__] — Request for Immediate Release of Levy under 26 U.S.C. § 6343

A [wage / bank] levy was served on [payor] on [date]. [Taxpayer] requests immediate release on the ground that the levy is creating an economic hardship, in that it leaves [Taxpayer] unable to meet necessary living expenses.

Supporting facts. Monthly net income is $[]. Necessary monthly expenses are $[], itemized on the attached budget with supporting documents at Exhibits A through []. The levied amount of $[] leaves $[] available against $[] of necessary expenses.

Additional grounds, if applicable. [Release will facilitate collection because ___ / An installment agreement is being submitted concurrently / The property's value substantially exceeds the liability and partial release will not hinder collection / The liability is unenforceable because the collection period expired on ___.]

Alternative proposed. [Taxpayer] concurrently proposes [installment agreement / offer in compromise / currently not collectible status], with the completed financial statement and supporting documentation enclosed.

[Taxpayer] is current on all filing obligations and on current-year [withholding / estimated payments / federal tax deposits].

Please confirm release in writing. If release is denied, please advise so that a collection due process request under 26 U.S.C. § 6330 may be timely filed.

Why the last two paragraphs matter. A release request paired with a proposal succeeds far more often than one standing alone, and the compliance sentence answers the first question the officer will ask. The closing sentence preserves the procedural track.

Tool 4: Hardship budget

Category Monthly amount Standard allowance Documentation attached
Food, clothing, household supplies
Housing and utilities
Vehicle ownership
Vehicle operating
Public transportation
Out-of-pocket health care
Health insurance
Taxes (current withholding or estimates) actual
Court-ordered payments actual
Child or dependent care actual
Term life insurance actual
Secured debt (necessary) actual
Other necessary expenses (justify each)
Total necessary expenses
Net income
Available

Rule. Every above-standard line requires a document. A budget without attachments is an assertion, and assertions fail at verification.

Tool 5: Lien discharge application

Re: [Taxpayer], TIN [__] — Application for Certificate of Discharge under 26 U.S.C. § 6325

1. Lien. Notice of Federal Tax Lien recorded [date] in [office], instrument [], for periods [], in the amount of $[__].

2. Property. [Legal description and address.] Owned by [] since [].

3. Proposed transaction. Sale to [buyer], unrelated, for $[price], closing scheduled [date]. Purchase agreement at Exhibit A.

4. Value. Appraisal / broker opinion at Exhibit B supporting $[__].

5. Encumbrances senior to the federal lien.

Holder Instrument date Recorded Payoff

6. Estimated closing statement. Exhibit C. Net proceeds after senior encumbrances and ordinary closing costs: $[__].

7. Basis for discharge. [Select and support: the government will be paid $[__] from proceeds, being the value of its interest / the remaining property subject to the lien has value of at least double the liability plus senior encumbrances / the government's interest in this property has no value because senior encumbrances exceed value / proceeds will be held in escrow subject to the lien pending determination.]

8. Request. Issue a certificate of discharge as to the described property, conditioned on payment of $[__] at closing.

Timing. Submit six to eight weeks before closing. Every practitioner who has done this once submits earlier the second time.

Tool 6: Subordination request

Re: [Taxpayer], TIN [__] — Application for Certificate of Subordination under 26 U.S.C. § 6325

1. Lien and property. [As above.]

2. Proposed financing. [Lender], principal $[], rate [], term [__]. Commitment letter at Exhibit A.

3. Basis: subordination will increase the amount ultimately collectible.

Without subordination With subordination
Monthly debt service
Monthly cash flow available to the United States
Cash paid to the United States at closing
Projected collection over [__] months
Alternative outcome [foreclosure / business closure] [installment agreement of $__ per month]

4. Concurrent proposal. [Taxpayer] will enter a direct-debit installment agreement under 26 U.S.C. § 6159 in the amount of $[__] per month upon closing, and requests withdrawal of the notice of lien on that basis.

5. Request. Issue a certificate of subordination in favor of [Lender] to the extent of $[__].

The persuasive core is the table. The decision is arithmetic, not equity, and an application without the comparison is asking for a favor rather than making a case.

Tool 7: Financial statement support index

Assemble before submitting anything. Verification is routine.

Item Document Attached
Every bank account (2 years of statements)
Investment and brokerage accounts
Retirement accounts, with plan loan terms and withdrawal penalties
Real property deeds, appraisals, and mortgage payoffs
Vehicle titles, loan payoffs, and value evidence
Business financial statements (3 years)
Accounts receivable aging
Insurance policies with cash value
Pay records (6 months) or business profit and loss (12–24 months)
Lease or mortgage statement
Utility bills
Medical expense documentation
Court orders for support
Child care invoices
Every transfer of property in the look-back period, with consideration received

The omission rule. Anything the government finds that the statement did not disclose is treated as concealment, and every discretionary decision in the file afterward is made by someone who no longer believes the client. Disclose transfers affirmatively and explain them.

Tool 8: Reasonable collection potential model

Net realizable equity

Asset Fair market value Quick-sale value Encumbrances Net equity Notes
Total

Future income

Item Monthly
Gross income (all sources)
Less allowable expenses (Tool 4)
Monthly disposable income
Applicable multiplier (months)
Future income component

Reasonable collection potential = net realizable equity + future income component = $[__]

Compare:

  • Total balance: $[__]
  • Months remaining on the collection period: [__]
  • Projected collection under an installment agreement over the remaining period: $[__]

Decision rule. If RCP is materially below both the balance and projected agreement collection, an offer is indicated — provided the remaining collection period is long enough that suspending it is acceptable.

Tool 9: Offer versus agreement decision memorandum

  1. Balance and periods. By assessment, with dates.
  2. Remaining collection period. From Tool 2, by assessment.
  3. Reasonable collection potential. From Tool 8.
  4. Effect of filing an offer on the collection period. State the months added.
  5. Projected collection if no offer is filed, over the remaining period, at a realistic monthly amount.
  6. Comparison. Offer amount plus suspension cost, versus agreement collection over the remaining period.
  7. Non-financial factors. Lien withdrawal availability, credit impact, the client's tolerance for continued contact, and the compliance condition that follows an accepted offer.
  8. Alternatives considered. Currently not collectible; bankruptcy under 11 U.S.C. § 523 and 11 U.S.C. § 507; partial-payment agreement.
  9. Recommendation and reasoning.

Tool 10: Collection due process request

Re: [Taxpayer], TIN [__] — Request for Collection Due Process Hearing under 26 U.S.C. § 6320 / 26 U.S.C. § 6330

Notice. [Notice of Federal Tax Lien Filing / Final Notice of Intent to Levy] dated [], periods [].

Issues raised:

  1. Verification. Taxpayer requests verification that all applicable law and administrative procedure were followed, including valid assessment under 26 U.S.C. § 6201 and notice and demand under 26 U.S.C. § 6303.
  2. Collection alternative. Taxpayer proposes [installment agreement under 26 U.S.C. § 6159 / offer in compromise under 26 U.S.C. § 7122 / currently not collectible status], with financial statement and support enclosed.
  3. Balancing. The proposed action is more intrusive than necessary because [__].
  4. Lien withdrawal. Taxpayer requests withdrawal under 26 U.S.C. § 6325 because [direct-debit agreement / facilitates collection / best interest of both parties].
  5. Underlying liability. [Taxpayer did not receive a notice of deficiency for period [__] and had no prior opportunity to dispute the liability, and therefore challenges it as follows: __.] (Include only where accurate — this is where most substantive arguments are lost.)
  6. Spousal relief. [Taxpayer requests relief from joint and several liability for period [__].]
  7. Penalty abatement. Taxpayer requests abatement for reasonable cause as set out at Exhibit [__].

Deadlines. Filed within the statutory period. (If late: note that under Boechler, P.C. v. Commissioner the Tax Court petition deadline is not jurisdictional, and consider whether equitable tolling arguments apply.)

Raise every issue. Issues not raised in the request are generally unavailable on review.

Tool 11: Penalty abatement letter

Re: [Taxpayer], TIN [] — Request for Abatement of Penalties, Periods []

1. Penalties assessed. [Itemize by period and type, with amounts.]

2. First-time administrative relief. [Taxpayer] had no penalties assessed for the three preceding years and has filed all currently required returns and paid or arranged to pay any tax due. Relief is requested on that basis for period [__].

3. Reasonable cause. For the remaining periods, the failure was due to reasonable cause and not willful neglect, in that [serious illness / death in the immediate family / casualty or disaster / inability to obtain records / reliance on erroneous professional advice / circumstances beyond the taxpayer's control], as documented at Exhibits [__].

4. Ordinary business care and prudence. [Describe the steps taken to comply, the events that prevented compliance, when the impediment ended, and how promptly compliance followed.]

5. Interest. To the extent interest is attributable to unreasonable error or delay in performing a ministerial or managerial act, abatement is requested under 26 U.S.C. § 6404. (Note Hinck v. United States: review of a denial lies exclusively in the Tax Court.)

Why to send it in every case. Penalties are frequently the largest reducible component of a balance, relief is discretionary and routinely granted on a documented request, and the request is almost never made.

Tool 12: Wrongful levy claim

Re: Wrongful Levy — Levy served on [payor] [date], Taxpayer [], TIN []

1. Claimant. [Name], who is not the taxpayer named in the levy.

2. Property levied. [Account / property description, amount.]

3. Ownership. The property belongs to Claimant and not to the taxpayer, as shown by [source-of-funds records / title / purchase documents / insurance] at Exhibits [__].

4. Authority. A levy is a provisional remedy that does not determine ownership; United States v. National Bank of Commerce. Claimant asserts no interest of the taxpayer in the property.

5. Relief requested. Immediate release and return of the levied property.

6. Preservation. Claimant reserves all rights, including a wrongful levy action, and notes the short limitation period applicable to such claims.

Deadline warning. The wrongful levy limitation period is short and unforgiving. File the administrative claim immediately and calendar the suit deadline the same day.

Tool 13: Standing client instructions

If a revenue officer comes to your home or business: Be polite. Provide our name and telephone number. Say: "I am represented; please contact my representative." Then stop talking. Do not answer questions about your assets, your income, your accounts, or your business. Do not consent to a walk-through. Call us the same day.

If you receive any notice or letter: Send it to us the day it arrives, including the envelope. Deadlines in this area are short and are lost by delay, not by decision.

Before you do any of the following, call us first: Sell or transfer any property. Refinance anything. Close a business. Take money out of a retirement account. Change jobs. Move funds between accounts. Add or remove anyone from an account or a title. File bankruptcy.

Every year, without exception: File your return on time. Keep your withholding or estimated payments high enough that you do not owe. A new balance defaults every agreement we make and undoes every resolution we obtain.

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