TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVICE NEEDS TO IMPROVE
COMPLIANCE WITH LEGAL AND INTERNAL GUIDELINES WHEN
TAKING TAXPAYERS' PROPERTY FOR UNPAID TAXES
Reference No. 199910072
1 = Tax Return/Return Information
The collection of unpaid taxes by the Internal Revenue Service (IRS) generally begins with letters to the taxpayer, followed by telephone calls and personal contacts by an IRS employee. If these efforts have all been taken and the taxpayer has not paid, the IRS has the authority to take the taxpayer’s property for the payment of taxes. Taking a taxpayer’s property for unpaid taxes is commonly referred to as a "seizure." IRS procedures and provisions in 26 U.S.C. § 6331 through § 6344 (1986) are very specific as to how a seizure should be conducted. If seizure procedures are correctly followed, taxpayers’ rights and the government’s interest are protected.
The IRS Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) (referred to as RRA 98) placed particular emphasis on taxpayers’ rights and contained several new provisions for conducting seizures (e.g., approval levels specified for seizing business assets, exemption of personal residences from seizures if the tax liability is $5,000 or less, etc.). RRA 98 also added 26 U.S.C. § 7803(d)(1)(A)(iv) (1986), which requires the Treasury Inspector General for Tax Administration to evaluate the IRS’ compliance with procedures in 26 U.S.C. (1986) for seizure of property to collect unpaid taxes. We reviewed all 124 seizures (involving 92 taxpayers) conducted by the IRS during a 6-month period beginning July 22, 1998 (the date RRA 98 became law), for compliance with the 26 U.S.C. (1986) and IRS procedures. Since our objective was to assess compliance with legislative and procedural requirements, we did not determine whether seizure was the appropriate collection action to take in the cases we reviewed.
While the IRS followed legal and internal guidelines in 64 percent of the seizures conducted, improved compliance is needed to ensure that all guidelines are consistently followed. The IRS did not follow all legal and internal guidelines when conducting seizures in 33 of the 92 (36 percent) taxpayer cases reviewed. In seven of the 33 cases, both legal and internal guidelines were not followed. We identified the following issues during our review.
The Internal Revenue Service Needs to Improve Compliance with Legal Seizure Provisions When Conducting Seizures
The legal provisions for conducting seizures are generally contained in 26 U.S.C. § 6331 through § 6344 (1986). Some of these provisions were not followed in 19 of the 92 (21 percent) cases reviewed. In some of the 19 cases, multiple provisions were not followed. The provisions that were not followed are shown below.
The Internal Revenue Service Needs to Improve Compliance with Internal Seizure Guidelines When Conducting Seizures
The IRS has established procedures for conducting seizures. These procedures are contained in the Internal Revenue Manual (IRM) and in various memoranda issued by IRS officials in the National Office in Washington, DC. However, the IRS did not follow some of its own procedures in 21 of the 92 (23 percent) cases reviewed. In some of the 21 cases, multiple procedures were not followed. The IRM procedures that were not followed include:
On April 13, 1999, the IRS finalized the new Seizure and Sale Handbook as part of its IRM. A Pre-Seizure Checklist is included in the new IRM as Exhibit 5.10.1-2. While this Pre-Seizure Checklist is an excellent tool, it covers only some of the aspects of the legal and internal seizure guidelines that should be followed when conducting seizures. The checklist does not include procedures to follow when conducting the seizure (e.g., providing the taxpayer with the notice of seizure) or actions that should be taken after the seizure (e.g., providing the taxpayer with a record of the sale). Four of the legal provisions we identified that were not followed are not included on the existing Pre-Seizure Checklist. To supplement the existing Pre-Seizure Checklist, the IRS is developing checklists that will include legal and IRM guidelines that must be followed when conducting seizures and actions that must be taken after seizures are conducted.
Adherence to legal and internal procedures when conducting seizures is necessary to ensure that taxpayers’ rights are not violated and the government’s interest is protected. Failure to adhere to these procedures could result in violations of the law and could also result in the IRS having to return to taxpayers money received from the sale of seized property.
Summary of Recommendations
The IRS should use comprehensive seizure checklists that include pertinent legal and internal guidelines to help ensure that employees follow the applicable procedures when conducting seizures. The IRS should also request an opinion from the IRS Office of Chief Counsel on those seizure cases that did not follow legal guidelines to determine if the IRS should make restitution to those taxpayers.
Management’s Response: IRS management agreed to complete the seizure and post-seizure checklists that are being developed and ensure that pertinent legal and IRM requirements are included on the checklists. IRS guidelines will require that the checklists be completed before the seizures are approved by the appropriate officials. The IRS also agreed to review the applicable seizure cases to determine if returning any monies received as a result of the seizures would be the appropriate action to take.
Management’s complete response to the draft report is included as Appendix VIII.