TREASURY INSPEcTOR GENERAL
FOR TAX ADMINISTRATION
REVIEW OF SPEcIAL PROJEcTS IN THE
NEW JERSEY DISTRIcT cOLLEcTION DIVISION
REFERENcE NO. 093307
In Fiscal Year (FY) 1998, two national audits were performed in the New Jersey collection Division. One review focused on the use of collection performance measures and statistics. The other review focused on the use of seizure authority in the collection Field function. In each of these reviews, facts developed from the Districtís Liquor License Project (LLP) contributed to audit findings. Based on a sample of seizures from 11 districts, 50% of the legal defect and contact cases presented in the report on seizures were attributable in part to practices on the LLP. These practices did not conform to the notice and contact requirements that are designed to protect taxpayersí rights.
This audit was initiated to determine whether special projects in the New Jersey District collection Division were initiated, controlled and executed to ensure project objectives were achieved while ensuring taxpayersí rights were protected.
Special projects were used to help the collection Division meet statistical goals while resulting in mistreatment of taxpayers. During our audit, in July 1998, the Acting District Director suspended activity on all collection Division special projects.
We found the following, warranting management attention:
- The Department of Labor (DOL) Project was used to issue levies on 8,000 taxpayers with management instructions not to attempt initial contact with the taxpayers. Revenue officers were also instructed to initiate levy actions without ensuring a Notice of Intent to Levy had been issued or performing initial case analysis. These practices were intended to meet a divisional goal of closing approximately 3,400 cases in a relatively short timeframe, prior to the close of an evaluation period for the District. The DOL Project case closures significantly contributed to the achievement of the Districtís Average Hours per Entity Disposition goal. These practices do not conform to Service procedural requirements, and increase the risk of failure to meet legal notification requirements. A preliminary review of these levies showed instances where wage levies were issued on taxpayers who were deceased, had financial or medical hardships, or were not liable for the tax.
- Levying as the first action on a case, as occurred in the DOL Project, appeared to be an established practice in the New Jersey District and was used as a means to expeditiously close taxpayer cases. This is not a sound business practice and is contrary to Service procedural requirements. Taxpayersí rights are not protected when the Service fails to contact taxpayers prior to taking levy actions or to perform initial analysis to determine if legal notice requirements have been met. During our audit, the Acting chief, collection Division issued revised levy procedures to all collection Division employees.
- We will fully assess and report the impact of this practice in a separate report on the Districtís use of levy authority.
- The LLP was used to seize liquor licenses over a 28-month period, which significantly increased seizure statistics for the District. Over 500 seizures were conducted during this period. In FY 1997, the New Jersey District led the nation in the number of seizures conducted, and at least 28% of the seizures were on LLP cases. The number of seizures was included in national, regional and local collection activity reports. Seizure numbers from the LLP were also regularly provided to the District Director in monthly briefings.
- Our review did not identify evidence that the LLP was initiated for the primary purpose of increasing the number of seizures. However, the project was initiated with the knowledge that seizure statistics would increase, as supported by statements from the Districtís collection Division FedState coordinator. Early LLP meeting minutes indicate that the District intended to seize licenses and considered noncompliance in the liquor license market segment as egregious. Project plans called for seizing a liquor license if the license was in jeopardy (i.e., the State plans to seize the liquor license or the taxpayer attempts to dispose of assets). However, our review of LLP seizures in a previous review determined that liquor license seizures were not conducted using jeopardy procedures. A comparison of data from LLP seizures and non-LLP seizures raises questions regarding the propriety of using seizure actions to achieve voluntary compliance for this taxpayer group. In our opinion, the LLP became a vehicle to attain seizures.
We found other conditions warranting management attention as follows:
- Management did not always have an empirical basis for initiating projects.
- Special projects were not properly re-authorized when there were changes to the scope, life or completion date.
- Locally developed collection notices issued to taxpayers on the LLP were inappropriately patterned after a Notice of Intent to Levy, and documentation requirements for the project were not met.
Summary of Recommendations
The Internal Revenue Service (IRS) has a legitimate need to assist taxpayers in voluntarily meeting their tax obligations by tailoring efforts to the needs of market groups, as well as developing methods to enforce payment when other alternatives are unsuccessful. Special projects, when used appropriately, are intended to be a vehicle to accomplish this. By adopting our recommendations, the District can strengthen the use of these projects in a manner consistent with both sound tax administration and concern for taxpayer needs.
- Require District Director approval for all levy and seizure actions on special project cases. This would supplement the Service requirement for Director approval of all seizures of residences, perishable goods, and household goods.
- To assist in this approval process, require collection management certification that all legal and procedural requirements have been met before a request is forwarded for approval. A comprehensive check sheet for seizures, developed in response to Office of Auditís report on the use of seizure authority, could be used in the certification process for levy actions as well as seizures.
- Ensure that enforcement actions taken on special project cases are consistent with enforcement actions taken on non-project cases with regard to frequency and case circumstances. To accomplish this, consider using Service employees who are independent of the New Jersey collection Division to conduct reviews at appropriate intervals.
- Require District counsel approval for all locally developed taxpayer notices used on special projects to ensure that all legal requirements are met.
- Ensure that all documentation requirements are met for special projects to provide a clear trail of all actions taken for subsequent review.
- Ensure that a sound business basis, supported by reliable data, exists for initiating projects.
- Ensure that special projects are re-authorized by the Director when there are changes in objectives, scope, or project duration.
All special projects in the New Jersey collection Division have ended. Revised review and approval procedures have been instituted regarding all District seizure actions and training will be used to stress the need for prudent use of levies as an enforcement tool.
IRS stated that the District has no plans to develop any local taxpayer notices; if, however, this is done in the future, the District will submit them for District counsel approval. The District will establish review and oversight procedures, and procedures regarding documentation requirements for all future special projects. District Office Research and Analysis (DORA) will be used to secure sound empirical data to support all future projects.
The District will follow the compliance Initiative Project (cIP) guidelines and requirements to ensure proper initiation and re-authorization of all special projects when changes occur.