Taxpayer Due Process Enhancement Act

Taxpayer Due Process Enhancement Act

This bill suspends the period of time allowed for claiming a federal tax refund (limitations period) during collection due process (CDP) proceedings, prohibits the Internal Revenue Service (IRS) from applying tax overpayments to a tax liability that is disputed in such proceedings, and expands the Tax Court’s jurisdiction.

As background, IRS collection actions and the underlying tax liability (in some circumstances) may be disputed in a CDP hearing. Collection actions are suspended during CDP proceedings, but the IRS may apply tax overpayments from other tax years to the disputed tax liability. The Tax Court may review an appeal of a CDP hearing determination. However, the Supreme Court held in Commissioner v. Zuch that the Tax Court loses jurisdiction over a CDP appeal if the CDP hearing determination is revoked because tax overpayments are applied to and fully satisfy the tax liability. In such circumstances, the taxpayer may claim a refund and seek redress in federal district court. Currently, the limitations period to file a refund claim is not suspended during CDP proceedings.

The bill

• suspends the limitations period for claiming a tax refund during CDP proceedings (with exceptions),
• prohibits the IRS from applying tax overpayments to a properly disputed tax liability during CDP proceedings (unless waived or an exception applies),
• expands the Tax Court's jurisdiction in CDP cases to include jurisdiction over the underlying tax liability amount (if properly disputed), and
• provides that the Tax Court retains its jurisdiction if the IRS abandons collection actions.