This bill enhances taxpayer due process by suspending the statute of limitations for filing refund claims during collection proceedings, prohibiting the IRS from offsetting disputed liabilities with overpayments during those proceedings, and expanding the Tax Court's jurisdiction over collection determinations and underlying tax liabilities.
Nathaniel Moran
Representative
TX-1
The Taxpayer Due Process Enhancement Act aims to strengthen taxpayer rights during IRS collection actions. It suspends the deadline for taxpayers to file refund claims while collection proceedings are active and prevents the IRS from immediately applying overpayments against a disputed tax liability. Furthermore, the bill expands the jurisdiction of the Tax Court to review both the collection determination and the underlying tax liability during these disputes.
IRS Can't Seize Your Tax Refund for Disputed Debts Under New Taxpayer Due Process Bill
If you’ve ever had a run-in with the IRS over a tax bill, you know how quickly things can escalate from a letter to a full-blown collection action—like a lien or a levy. The “Taxpayer Due Process Enhancement Act” (SEC. 1) is essentially a rulebook upgrade designed to give regular people more protection and breathing room when they are fighting the tax agency.
The core of this bill is centered on two major procedural fixes that affect how the IRS can collect money and how long you have to file a refund claim. First, the bill prevents the IRS from automatically taking your tax overpayment (your refund) to cover a tax liability you are actively disputing in a collection hearing (SEC. 3). If you’ve properly requested a hearing because you disagree with the debt, the IRS can’t just grab your refund to pay it off unless you specifically consent. This prohibition lasts as long as the dispute is ongoing.
The Refund Clock Stops Ticking
One of the trickiest parts of fighting the IRS is the clock. There are strict deadlines, called the statute of limitations, for filing a claim for credit or refund. If you’re tied up fighting a collection action—say, arguing that the underlying tax debt is wrong—that refund deadline can pass right by you. This bill addresses that head-on. Section 2 suspends the time limit for filing a tax refund claim during the collection action proceedings, specifically for the portion of the refund related to the disputed tax liability. Think of it like hitting the pause button on your refund rights while you focus on the immediate fight. This protection ends only when the dispute is formally resolved or you lose the right to pursue it.
Expanding the Tax Court’s Turf
Currently, when you go to the U.S. Tax Court to challenge an IRS collection determination, the court’s review is often limited to whether the IRS followed the correct procedure. The Tax Court often doesn't have the explicit power to review whether the underlying tax amount itself was correct. Section 4 changes this by significantly expanding the Tax Court’s jurisdiction during collection due process hearings.
Under the new rules, when you petition the Tax Court, it gains jurisdiction over three things: the collection determination itself, the underlying tax liability (if you properly disputed it during the hearing), and any claims you make for equitable tolling of the 30-day filing deadline. This is a big deal for due process. It means that if you’re fighting an IRS lien, the court can now look at the core issue—whether you actually owe the money—instead of just checking the boxes on the IRS’s paperwork. Furthermore, the court keeps this jurisdiction even if the IRS decides to abandon the collection action, ensuring you still get your day in court to resolve the underlying debt.