The collection of unpaid tax by the Internal Revenue Service (IRS) begins with letters to the taxpayer, generally followed by telephone calls and personal contacts by an IRS employee. When these efforts have all been taken and the taxpayer has not paid, 26 U.S.C. § 6331 (1986) gives the IRS authority to work directly with financial institutions and other parties to obtain funds owed to taxpayers. This procedure is commonly referred to as a "levy."

Beginning January 19, 1999, 26 U.S.C. § 6330 (1986) requires the IRS to let taxpayers know of the intent to levy and of the taxpayers’ right to a hearing before the IRS can levy on their bank accounts or take other money that is owed to the taxpayers. The IRS has to notify taxpayers of its plans to issue a levy at least 30 calendar days before the levy is issued. The taxpayer may request a hearing any time during the 30 days after the notification. In most instances, IRS procedures increase this time to 45 days to allow for mailing and processing. This extension of the required waiting period further protects the taxpayers’ right to a hearing. The IRS procedures also require employees to notify taxpayers of the intent to levy only when issuing a levy is imminent.

The Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) (referred to as RRA 98) added 26 U.S.C. § 7803(d)(1)(A)(iv) (1986), which required the Treasury Inspector General for Tax Administration to determine if levies, issued by the IRS, comply with the legal guidelines in 26 U.S.C. § 6330 (1986). We evaluated the IRS’ compliance with the new levy procedures by reviewing 284 taxpayer accounts involving 291 levies requested between mid-January and mid-April 1999. The offices reviewed include five district offices where IRS employees make personal visits to contact taxpayers, and four Automated Collection System (ACS) Call Sites where IRS employees use the telephone to contact taxpayers. ACS Call Sites are part of the Customer Service function.

IRS management developed guidelines and procedures to comply with the new levy requirements. For example, new procedures require IRS employees to review taxpayer accounts to determine that levy is the next action to be taken before advising the taxpayer of the IRS’ intent to levy. New procedures were also provided to employees stating that the IRS cannot issue a levy unless the taxpayer is notified at least 30 days before the levy is issued. IRS employees must also advise taxpayers that they may request a hearing any time during the 30 days after the notice is issued.

New letters were developed to explain the taxpayers’ appeal rights. We were not able to evaluate the appeals process because, at the time of our review, none of the cases had completed the appeals process in the districts we visited. We plan to conduct a separate review in this area.

In addition, prior to enactment of 26 U.S.C. § 6330 (1986), IRS computer systems automatically generated levies for mailing to employers and other parties for delinquent taxpayer accounts that met certain criteria. Because 26 U.S.C. § 6330 (1986) required the IRS to notify taxpayers of the intent to levy prior to issuing a levy, IRS management developed procedures to prevent the mailing of levies that are automatically generated by computer systems.

Overall, the new procedures have not been effectively implemented in the IRS offices we tested. The IRS did not consistently notify taxpayers of their appeal rights and of the intent to levy, as required by 26 U.S.C. § 6330 (1986) and its own guidelines. As a result, taxpayers’ rights were potentially violated in some instances, which could result in the IRS having to make restitution to some taxpayers.

In March 1999, we advised Customer Service management of initial problems we identified regarding compliance with legal and internal levy guidelines. Action was immediately taken to correct the problems. The volume of problems we identified may have been significantly higher if we had not advised IRS management early and they had not taken immediate corrective action. Also, in June 1999 we discussed the final results of this report with National Office Collection and Customer Service management officials. IRS management agreed with the facts presented in this report.

From our review of 284 taxpayer accounts, we determined that legal levy provisions in 26 U.S.C. § 6330 (1986) were not followed in 92 accounts (32 percent) and IRS levy procedures were not followed in 88 accounts (31 percent). We expanded our analysis and identified an additional 112 accounts in which legal provisions in 26 U.S.C. § 6330 (1986) were not followed, and an additional 20 accounts in which IRS levy procedures were not followed.

• Seventy-four taxpayers (26 percent) were not notified of their appeal rights or of the IRS’ intent to levy before the IRS issued levies.
• Twelve taxpayers (4 percent) were notified of their appeal rights and of the IRS’ intent to levy after the levies were issued.
• Six taxpayers (2 percent) were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued by the IRS prior to the expiration of the 30-day waiting period required by 26 U.S.C. § 6330 (1986).
• While conducting tests at 1 ACS Call Site, we also identified an additional 112 business taxpayer accounts that had levies systemically generated and, per IRS local management, presumably mailed to levy sources without taxpayers being notified of their appeal rights and of the IRS’ intent to levy.

• Six taxpayers (2 percent) were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued prior to the expiration of the 45-day waiting period required by IRS procedures.
• Twenty-one taxpayers (7 percent) did not have appropriate information added to their computer accounts to show the taxpayers had been notified of the IRS’ plans to levy.
• Sixty-one taxpayers (21 percent) did not have appropriate information added to their computer accounts’ history to show the initially requested levy had been destroyed.
• While conducting tests at 1 ACS Call Site, we also determined that 332 Notices of Intent to Levy and Notice of Your Right to a Hearing (LT11s) were automatically generated and mailed to taxpayers without the accounts being reviewed to determine if levy was the next action, as required. Our review of a judgmental sample of 41 of these accounts showed the IRS should not have mailed notices to 20 taxpayers because levy was not the next action that needed to be taken.

On March 12, 1999, we advised Customer Service management of potential levy due process issues we identified during our initial testing at the ACS Call Sites. The issues included LT11s and levies that had been issued without following provisions in 26 U.S.C. § 6330 (1986) and without following instructions in a message sent on February 17, 1999, from the Assistant Commissioner (Customer Service). Customer Service management immediately initiated action to correct these problems. They issued instructions which required that all LT11s and levies be reviewed prior to mailing to ensure that all legal and internal procedures were followed.

Although the IRS has made some progress in correcting the problems identified in the Customer Service functions, additional actions are needed to ensure that all IRS employees comply with the levy provisions in 26 U.S.C. § 6330 (1986) and the IRS’ own internal procedures. We recommend that Collection and Customer Service management develop additional safeguards to ensure that employees follow the applicable legal and IRS procedures for issuing levies. Also, Collection and Customer Service management should request an opinion from the IRS Chief Counsel on those levy cases in which money may have been taken improperly, to determine if restitution to the taxpayers is warranted.

Management’s Response: IRS management agreed to implement additional safeguards to ensure that employees comply with the levy provisions in 26 U.S.C. § 6330 (1986) and the IRS’ own internal procedures. This will be accomplished by programming changes to computers systems and by allowing only the highest grade employees in the Customer Service functions to issue levies. IRS management also agreed to consult with IRS District Counsel to determine if restitution is appropriate for cases where levies were issued without following the law, and proceeds were received from the levy source.

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