Taxpayer Due Process Enhancement Act

Overview

• Bill: HR 6506 (Taxpayer Due Process Enhancement Act)
• Session: 119 (United States)
• Purpose: Strengthen taxpayer protections during IRS collection actions by delaying certain time limits, preventing overpayment applications against disputed liabilities, and expanding Tax Court review jurisdiction over collection due process decisions.

Main purpose and intent

• Improve due process for taxpayers contesting IRS collection actions.
• Provide additional opportunities to obtain refunds when disputes are pending.
• Ensure Tax Court can review both the collection action determination and the underlying disputed liability, even if the IRS abandons the collection action.
• Align enforcement procedures with recent court rulings and perceived needs for greater transparency and fairness in CDP (collection due process) scenarios.

Key provisions and changes

1) Suspension of period of limitations on filing a claim for credit or refund during collection action proceedings
- Amends 6330(e) to insert references to 6511 limitations.
- Adds new paragraph: while a CDP hearing is pending (and related appeals), the period for filing a claim for credit or refund is suspended for the portion of the liability that is properly disputed at the hearing.
- Suspension ends if a deadline lapses or a court action/order shows the taxpayer forfeited the dispute.
- Applies to lookback periods and any extended assessment periods tied to agreement with IRS (where applicable).

2) Prohibition on crediting of overpayments against disputed tax liability during collection action proceedings
- Adds new subsection 6402(o).
- If a taxpayer properly disputes an underlying liability at a CDP hearing, the IRS cannot apply overpayments to that disputed liability during the suspension period, unless the taxpayer consents.
- Applies similarly to certain levy hearing rules, clarifying terminology for lien/collection actions.

3) Expansion of jurisdiction of the Tax Court
- Expands 6330(d)(1) so that, upon petition, the Tax Court has jurisdiction over:
- The CDP determination, and
- Any underlying tax liability properly disputed at the hearing.
- Jurisdiction persists regardless of whether the IRS abandons the collection action or proposed collection action.
- Effective for petitions filed after enactment.

4) Effective dates
- Suspension-related provisions apply to periods ending on or after enactment.
- The overpayment credit restrictions apply to periods described by 6402(o) that fall after enactment.
- Tax Court jurisdiction expansion applies to petitions filed after enactment.

Who is affected

• Taxpayers who request or are subject to collection due process hearings (CDP) under sections 6320/6330.
• Taxpayers disputing underlying tax liabilities during CDP proceedings.
• Tax Court as a venue for challenging CDP determinations and related liabilities.
• IRS, through adjustments to how credits/refunds and overpayments are handled during disputes.

Procedural and timeline aspects

• The Act establishes a suspendable window from the date a CDP hearing is requested until the hearing and all appeals conclude or lapse.
• During suspension, the time to file a claim for credit or refund related to the disputed liability may not run.
• Overpayments cannot be credited against the disputed liability during the suspension period unless the taxpayer consents.
• Tax Court review window remains 30 days for petition filing, with broader jurisdiction to review both the CDP determination and underlying liability if properly disputed.
• Effective date: provisions apply to periods ending after enactment; petitions filed after enactment trigger expanded Tax Court jurisdiction.

Budget and policy notes

• Committee estimate indicates a small net federal revenue impact (loss under $500,000) over 2026-2035, reflecting administrative changes.
• No new budget authority or new tax expenditures are created beyond reconfiguring timing and review pathways.

Conclusion

HR 6506 enhances taxpayer due process in IRS collection matters by delaying limitations on refunds, preventing automatic application of overpayments to disputed liabilities during CDP proceedings, and broadening Tax Court oversight of collection determinations and underlying disputed liabilities. It aims to increase fairness and access to timely relief for taxpayers contesting collection actions.