TREASURY INSPECTOR GENERAL

FOR TAX ADMINISTRATION

The Internal Revenue Service Complied With Levy Requirements

July 2001

Reference No. 2001-10-113

Executive Summary

When initial contacts by the Internal Revenue Service (IRS) do not result in the successful collection of unpaid tax, the IRS has the authority to work directly with employers and other parties to obtain funds owed to the taxpayer. This procedure is commonly referred to as a "levy."

Since January 19, 1999, the IRS has been required by 26 U.S.C. § 6330 to notify taxpayers of its plans to levy their property, and their right to appeal pending levy actions, at least 30 calendar days before issuing levies. The Treasury Inspector General for Tax Administration (TIGTA) is required to determine annually if the IRS is complying with this law. In September 1999, the TIGTA reported 32 percent of the levies reviewed did not comply with the law. In September 2000, the TIGTA reported the IRS significantly improved its compliance with the law; only 2 percent of the levies reviewed did not meet the legal requirements.

This is the third TIGTA audit to determine if the IRS complied with legal requirements set forth in 26 U.S.C. § 6330 by notifying taxpayers of its intent to levy, and of their appeal rights, at least 30 days before issuing levies. To accomplish our objective, we reviewed 78,594 levies requested nationwide through the IRS’ Automated Collection System (ACS) and the Integrated Collection System (ICS) between February 1 and July 31, 2000. We also determined if the IRS complied with internal levy guidelines.

Results

The IRS complied with 26 U.S.C. § 6330 by notifying taxpayers, at least 30 days before issuing levies, of its intent to levy and of their appeal rights. The IRS implemented extensive computer system upgrades and used established internal guidelines to help ensure it met its legal and internal requirements when issuing levies.

Although the IRS met its legal requirements, Revenue Officers did not always properly document their actions when providing taxpayers with Notices of Intent to Levy. Unlike the ACS call site employees, Revenue Officers make personal (face-to-face) contact with taxpayers and use the ICS to manage inventories and to track collection actions taken on taxpayers’ accounts.

Revenue Officers did not always obtain proof they timely mailed the notices via certified mail, return receipt requested. In addition, they did not always update accounts on the primary IRS computer system, the Integrated Data Retrieval System (IDRS), to show they provided notices to taxpayers.

Internal Revenue Service System Controls and Procedures Help Ensure It Complies With Legal and Internal Requirements

The IRS complied with the provisions of 26 U.S.C. § 6330 for all 78,594 levies reviewed (66,634 ACS levies and 11,960 ICS levies). We believe this compliance is primarily the result of system upgrades to the ACS and ICS, as well as adherence to established internal requirements.

IRS employees use the ACS and ICS to manage inventory and track collection actions, including levies and Notices of Intent to Levy. The IRS upgraded the ACS in January 2000 and the ICS in April 1999 to systemically prevent employees from levying taxpayers’ property less than 30 days after sending them notice of its intent to levy. In addition, the IRS upgraded both systems during the same time periods to warn employees who may attempt to levy taxpayer property too soon. IRS procedures require employees to wait 45 days after requesting a Notice of Intent to Levy before levying taxpayer property, to help ensure mailing delays or timing differences do not cause the IRS to levy taxpayer property after the taxpayer has timely requested an appeal.

Our tests of the ACS and ICS verified these systemic controls were effective. At our request, the IRS employees made several attempts to prematurely issue levies; neither system allowed the employees to issue a levy less than 30 days after the notice request date. Also, both systems generated a warning each time an employee attempted to levy taxpayer property after the 30-day legal waiting period had passed but before the IRS 45-day guideline had expired.

In addition, system controls and procedures helped ensure the IRS complied with internal guidelines. For example, the ACS systemically updates accounts on the IDRS to show when the IRS notified a taxpayer of its intent to levy his/her property. This alerts any IRS employee who works the account in the future that the taxpayer was issued a Notice of Intent to Levy. In addition, the ACS procedures for providing Notices of Intent to Levy to taxpayers help ensure the notices are timely mailed via certified mail, return receipt requested, so the IRS has proof of mailing. The IRS also has an ICS closed case quality review program. This program includes procedures to determine if taxpayers were properly notified of the IRS’ intent to levy.

Revenue Officers Did Not Always Properly Document Their Actions When Providing Taxpayers With Notices of Intent to Levy

In contrast to the ACS call site employees, Revenue Officers did not always retain evidence that the Notices of Intent to Levy were mailed timely to taxpayers. In addition, they did not always update accounts on the IDRS to show they provided taxpayers the Notice of Intent to Levy.

Revenue Officers did not always obtain postmarks when mailing the Notice of Intent to Levy to taxpayers. The IRS was able to provide us with postmarked mail receipts for only 7 of 39 (18 percent) ICS sampled cases. The IRS manual does not require Revenue Officers to obtain postmarked receipts when they mail Notices of Intent to Levy to taxpayers. However, without such documentation, the IRS has no proof that the notices were timely mailed and taxpayers’ appeal rights were protected.

Revenue Officers updated taxpayer accounts on the IDRS for only 30 of the 44 (68 percent) ICS cases sampled. Revenue Officers should request taxpayer account updates on the IDRS through the ICS. Updating the IDRS notifies any IRS employee who may work the account in the future that the IRS mailed or delivered a Notice of Intent to Levy to the taxpayer. After we advised the IRS of this concern, an analyst from the Small Business/Self-Employed (SB/SE) Division informed us that information will be distributed to clarify the procedures and stress the importance of updating the IDRS to show that a Notice of Intent to Levy has been issued. In addition, the analyst stated that the IRS manual and the ICS User Guide will be updated appropriately.

Summary of Recommendations

The Commissioner, SB/SE Division, should develop guidelines to ensure that Revenue Officers working ICS cases maintain proof that they timely mailed Notices of Intent to Levy to taxpayers. The Commissioner, SB/SE Division, should also ensure information is distributed to employees and that manuals and guides are revised to clarify the procedures and stress the importance of updating taxpayer accounts to show a Notice of Intent to Levy has been issued. Also, managerial and quality reviews should include procedures to monitor Revenue Officers’ compliance with the requirement to update taxpayer accounts.

Management’s Response: SB/SE management proposed an alternative solution for enhancing its documentation when Revenue Officers provide taxpayers with Notices of Intent to Levy. The IRS manual will be updated to require that Revenue Officers record in the case history when and how the notice is delivered. In addition, if the notice is mailed, the case file will include the related certified mail documents. SB/SE management will not require Revenue Officers to obtain proof from the Post Office of when the notices are mailed. They stated that if this information is needed they could obtain the proof of mailing from the Post Office for a year after the mailing. We believe that these actions will result in better documentation of the notification process.

SB/SE management also agreed to revise the IRS manual to provide instructions on the correct method for updating the notice information and to ensure the instructions are distributed to employees. In addition, the Collection Quality Measurement System will include a new process measure for reflecting Revenue Officers’ compliance with the requirement to update taxpayer accounts when sending Notices of Intent to Levy.

Management’s complete response to the draft report is included as Appendix VI.