TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Executive Summary

Objective and Scope

Background

Results

Conclusion

Appendix I - Detailed Objective, Scope, and Methodology

Appendix II - Major Contributors to This Report

Appendix III - Report Distribution List

Appendix IV - Outcome Measures

Appendix V - Listing of District Offices Reviewed

Appendix VI - Synopsis of 26 U.S.C. (1986) Sections Containing Procedures for Conducting Seizures

Appendix VII - Statistical Snapshot of Seizure Cases

Appendix VIII – Management’s Response to the Draft Report

Executive Summary

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 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.

• In seven cases, the taxpayers were not advised of the amount of sales proceeds applied to the tax liability and/or the remaining balance due after the sale of seized property. ****1****. (26 U.S.C. § 6340(c) (1986))
• ****1****(26 U.S.C. § 6335(e)(2)(A) (1986))
• In five cases, the IRS did not thoroughly investigate the status of the property before seizing, seized property with little or no value, or did not consider alternatives to the seizure. (26 U.S.C. § 6331(j)(1) and (2) (1986))
• ****1****. (26 U.S.C. § 6342(a) (1986))
• In four cases, business property was seized without obtaining the required approvals. (26 U.S.C. § 6334(e)(2) (1986))
• ****1****. (26 U.S.C. § 6335(a) (1986))
• ****1****. (26 U.S.C. § 6331(d)(1) (1986))

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:

• In nine cases, case histories were not documented to indicate that Your Rights as a Taxpayer (Publication 1), which explains the taxpayer’s rights, was provided to the taxpayer, as required. (IRM section 5181.21)
• In four cases, taxpayers were not personally warned of pending seizure actions before the IRS seized their property. (IRM section 56(12)1.2(3))
• In three cases, expenses of the seizures were not added to the taxpayers’ tax liabilities when the property was released. (IRM section 56(12)8.13(5))
• In eight cases, other miscellaneous guidelines were not followed (e.g., seized property was not properly protected, minimum bid worksheets were not properly prepared, etc.). (IRM sections 56(12)5.2 and 56(13)5.1, respectively).

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.

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.

Objective and Scope

The overall objective of this audit was to determine if seizures conducted by the Internal Revenue Service (IRS) adhere to legal guidelines set forth in 26 U.S.C. § 6331 through § 6344 (1986).

While the main focus of our review was on the IRS’ compliance with the 26 U.S.C. (1986) procedures regarding seizures, we also evaluated adherence to internal procedures established by the IRS for conducting seizures. These procedures are included in various sections of Part V of the IRS’ Internal Revenue Manual (IRM).

We reviewed all seizures conducted by the IRS during a six-month period beginning July 22, 1998 (enactment date for the IRS Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998), referred to as RRA 98). During this period, the IRS conducted 124 seizures of property from 92 taxpayers in 28 of the 33 IRS offices. See Appendix V for a listing of the 28 offices.

In reviewing these seizures, we obtained files maintained by the IRS offices (commonly referred to as districts), including files that contained notes of the employees who conducted the seizures and related documents to support actions taken on the cases. We also discussed the exception cases with district management and National Office management.

We conducted our audit between January 1999 and May 1999. We did not determine whether the seizure was the appropriate collection action to take in the cases we reviewed. Due to resource constraints, we did not determine why the IRS did not follow all internal seizure guidelines when conducting seizures. Also, for those cases in which legal provisions were not followed, we did not determine the reasons for this and referred those cases with potential violations of § 1203 of RRA 98, Pub. L. No. 105-206, 112 Stat. 720 (1998), to the Treasury Inspector General for Tax Administration (TIGTA) Office of Investigations for whatever action it deems appropriate. For the remaining cases in which legal guidelines were not followed, we plan to refer them to the IRS Office of Chief Counsel to determine if the taxpayers’ rights were potentially violated. We performed the remainder of this audit in accordance with Government Auditing Standards.

Details of our audit objective, scope, and methodology are presented in Appendix I. Major contributors to this report are shown in Appendix II.

Background

On July 22, 1998, the President signed RRA 98 into law. RRA 98 added 26 U.S.C. § 7803(d)(1)(A)(iv) (1986), which requires the TIGTA to annually evaluate the IRS’ compliance with the required procedures in 26 U.S.C. § 6331 through § 6344 (1986) for seizure of property for collection of taxes.

The collection of unpaid taxes by the IRS begins with letters to the taxpayer, generally followed by phone calls and personal contacts by an IRS employee. If these actions 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." Procedures in 26 U.S.C. § 6331 through

§ 6344 (1986) and the IRM 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.

Provisions in 26 U.S.C. § 6331 (1986) generally authorize the IRS to seize all property or rights to property if a taxpayer neglects or refuses to pay taxes within 10 days after a notice and demand is provided to the taxpayer. An additional notice is to be provided to the taxpayer no less than 30 days before the day of the seizure, warning of possible seizure action if taxes are not paid.

Provisions in 26 U.S.C. § 6334 (1986) exempt certain property from seizure, including a minimum amount from wages, salary, other income, and tools of a trade. Seizure of the taxpayer’s principal residence is allowed only with the written approval of a United States district court judge or magistrate. Other sections of 26 U.S.C. (1986) govern the sale of seized property, expenses of seizure and sale, release of seized property, and other seizure-related matters.

The IRS has developed its own procedures for conducting seizures. These procedures are contained in the IRM. The seizure procedures were contained in various parts of the IRM until the IRS combined the procedures into the Seizure and Sale Handbook that was issued to its Collection Division employees on April 13, 1999.

The RRA 98 placed particular emphasis on taxpayer 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 tax liability is $5,000 or less, etc.). Most procedures for conducting seizures are contained in 26 U.S.C. § 6331 through § 6344 (1986). See Appendix VI for a synopsis of these procedures.

Per IRS collection reports, in Fiscal Year (FY) 1998, the Collection Field function (CFf) collected approximately $3.4 billion in delinquent taxes from taxpayers who had not timely paid. At fiscal year end, approximately 282,000 taxpayers still owed approximately $16.8 billion in unpaid taxes that the CFf was actively working to collect.

During FY 1997, there were over 10,000 seizures. In FY 1998, the number of seizures dropped to approximately 2,300. During the 6-month period after RRA 98 became law, IRS conducted only 124 seizures (involving 92 taxpayers). We received limited information on the cause for the decrease in seizures from approximately 85 managers and employees in the CFf. Most reasons given related to the provisions in the RRA 98, Pub. L. No. 105-206, 112 Stat. 720 (1998), particularly § 1203, which provides for terminating employment if taxpayers’ rights are violated, and the lack of training regarding seizure procedures in light of the new RRA 98 provisions.

The RRA 98, Pub. L. No. 105-206, 112 Stat. 758 (1998) § 3421 requires that the seizure of taxpayers’ property, where appropriate, be reviewed and approved by a supervisor of the employee who plans to conduct the seizure before the action is taken. This section allows the IRS to determine the approval process for seizures.

IRM section 56(12)1 requires the group manager (the employee’s immediate supervisor) to conduct a thorough review of the case to ensure that the seizure action is warranted. The manager will consider such factors as the taxpayer’s ability to pay, the amount of equity in assets, and the taxpayer’s efforts to resolve the tax liability. The manager will ensure that necessary actions prior to seizure have been taken. A memorandum issued to all Collection Field employees in December 1997 further requires the approval of the Collection Division Chief prior to seizure. The Collection Division Chief in each district office is the third level of management above employees who conduct seizures.

Results

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 some of the legal and internal guidelines when conducting seizures in 33 of the 92 (36 percent) taxpayer seizure cases reviewed. In 7 of the 33 cases, both legal and internal guidelines were not followed.

Failure of the IRS to follow the legal and internal guidelines could result in abuses of taxpayers’ rights and failure to protect the government’s interest. Failure to follow the procedures in 26 U.S.C. (1986) could also result in the IRS having to make restitution to taxpayers for monies collected as a result of improper seizures.

See Appendix VII for a statistical snapshot of the 92 taxpayer seizure cases reviewed.

The Internal Revenue Service Needs to Improve Compliance with Legal Seizure Provisions When Conducting Seizures

The legal requirements for conducting seizures are generally contained in 26 U.S.C. § 6331 through § 6344 (1986). The IRS did not comply with these requirements in 19 of the 92 (21 percent) taxpayer cases reviewed. Multiple legal provisions were not followed in some of the 19 cases. Details of the provisions that were not followed are discussed below.

• In seven cases, the taxpayers were not advised of the amount of the sale proceeds applied to their accounts and/or the remaining balance due. In addition, ****1****.

• ****1****.

• In five cases, the IRS did not perform a thorough investigation of the status of the taxpayer’s property before conducting the seizure.

• ****1****.

• ****1****.

• ****1****.

• ****1****.

• In four cases, proper approval was not obtained for seizure of business assets.

• ****1****.

• ****1****.

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 IRM and in various memoranda issued by IRS officials in the National Office in Washington, DC. We determined that the IRS did not follow some of its own procedures in 21 of the 92 (23 percent) taxpayer cases reviewed. Multiple internal procedures were not followed in some of the 21 cases.

• In nine cases, the case history did not indicate that Your Rights as a Taxpayer (Publication 1) was provided to the taxpayer.

• In four cases, taxpayers were not personally warned of seizure action.

• In three cases, the expenses of the seizure were not added to the taxpayer’s tax account after the seizure was released.

• In eight cases, other miscellaneous guidelines were not followed. For example:
• ****1****. (IRM 56(13)5.1).
• In three cases, seized property was not properly protected, resulting in the loss of some of the seized items in one of the cases. (IRM 56(12)5.2 (b))
• ****1****. (IRM 518(13).33)
• ****1****. The IRM states that, ordinarily, a notice of sale should be issued within 30 days of the seizure. (IRM 56(13) 7.1)

On April 13, 1999, the IRS issued the new IRM Seizure and Sale Handbook to its employees. The new IRM requires the use of a Pre-Seizure Checklist that is included as Exhibit 5.10.1-2 in the new IRM. While the existing Pre-Seizure Checklist is an excellent tool, it covers only some of the aspects of the legal and internal seizure procedures that should be followed when conducting seizures. The existing Pre-Seizure Checklist does not include four of the legal provisions that were not followed in the cases we reviewed.

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). 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 the 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 in the IRS having to return any seizure and sale proceeds to taxpayers.

We recommend that Collection management:

1. Complete the seizure and post-seizure checklists that are being developed and ensure that pertinent 26 U.S.C. § 6331 through § 6344 (1986) and IRM seizure requirements are included.

   Management’s Response: Collection management will complete the development of checklists that will include legal and internal guidelines that must be followed during the seizures and actions that must be taken after seizures are made.

2. Use memoranda, training sessions, group meetings, etc., to emphasize that IRS employees use the appropriate checklists for all seizures conducted.

   Management’s Response: Collection management will take whatever steps are necessary to eliminate mistakes in conducting seizures. They have increased their emphasis on proper case documentation and believe the use of checklists will help resolve the documentation problems identified. Training will address the use of the pre-seizure, seizure and post-seizure checklists.

3. Ensure that Collection management and other appropriate management officials verify that all applicable items on the Pre-Seizure Checklist are completed prior to approving the seizure and that all applicable items on the seizure and post-seizure checklists under development are completed.

   Management’s Response: The seizure and sale handbook will incorporate the seizure and post-seizure checklists into mandated procedural guidelines. The guidelines will state that seizures will not be approved and seizure cases will not be closed until the appropriate checklists are completed and reviewed by the appropriate official.

4. Determine from a legal standpoint what steps should be taken regarding any money received as a direct result of conducting seizures without following the provisions in 26 U.S.C. § 6331 through § 6344 (1986).

Management’s Response: Collection officials and personnel from other IRS functions will conduct a complete review of the applicable seizure cases to determine if returning any money received, as a result of the seizures, would be the appropriate action to take.

Conclusion

The IRS needs to improve compliance with legal and internal guidelines when conducting seizures. Adherence to these guidelines will help ensure that taxpayers’ rights and the government’s interest are protected.

Detailed Objective, Scope, and Methodology

The objective of this review was to determine if seizures conducted by the Internal Revenue Service (IRS) adhere to legal guidelines set forth in 26 U.S.C. § 6331 through § 6344 (1986) and comply with the IRS’ own seizure procedures. We did not include § 6330 of 26 U.S.C. (1986), which requires that the taxpayer receive notice and opportunity for a hearing prior to seizure, because the seizures reviewed were conducted prior to the effective date of this newly added section of 26 U.S.C. (1986).

We performed the following audit tests to accomplish our objective:

1. Identified, through discussions with appropriate National Office Collection Division employees, current seizure procedures (Internal Revenue Manual (IRM), local procedures, national office memoranda, etc.), including seizure procedures that address changes made by the IRS Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) (referred to as RRA 98).
2. Obtained from the IRS district offices a listing of all seizures conducted nationwide during a six-month period beginning July 22, 1998 (date of RRA 98 enactment). Compared the listings of seizures with Collection Division reports to determine whether the volume of seizures reported was correct.
3. Secured, from the listings obtained in step B, all related seizure documentation for the 124 seizures conducted for 92 taxpayers in the 28 IRS offices that conducted seizures.
4. Reviewed the cases to determine if the seizures were conducted in compliance with the legal (26 U.S.C. (1986)) and internal (IRM) guidelines.
5. Referred, when necessary, potential legal and procedural violations to the appropriate office for investigation.

Major Contributors to This Report

Maurice S. Moody, Associate Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

M. Susan Boehmer, Director

Thomas H. Black, Acting Director

Deborah H. Glover, Audit Manager

Alan D. Lund, Acting Audit Manager

Edmond G. Watt, Audit Manager

Gary L. Young, Audit Manager

Philip D. Adams, Senior Auditor

Joan R. Floyd, Senior Auditor

John L. Hawkins, Senior Auditor

Barry G. Huff, Senior Auditor

Larry A. Mart, Senior Auditor

Abraham B. Millado, Senior Auditor

Joanola Rose, Senior Auditor

D. Hal Schultz, Senior Auditor

Dale E. Schulz, Senior Auditor

Jeffrey E. Williams, Senior Auditor

Julia M. Collins, Auditor

Roy J. Evans, Auditor

Tracy K. Harper, Auditor

Edith R. Lemire, Auditor

Frank I. Maletta, Auditor

Britt M. Molitoris, Auditor

Tina M. Parmer, Auditor

Dan B. Peterson, Auditor

Susan A. Price, Auditor

Report Distribution List

Deputy Commissioner Operations C:DO

Chief Operations Officer OP

Assistant Commissioner (Collection) OP:CO

Assistant Commissioner (Program Evaluation and Risk Analysis) M:OP

National Director for Legislative Affairs CL:LA

Office of Management Controls M:CFO:A:M

Audit Liaison:

Assistant Commissioner (Collection) OP:CO

Outcome Measures

This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to the Congress in Appendix I.

The Internal Revenue Service (IRS) Needs to Improve Compliance with Legal and Internal Guidelines When Conducting Seizures. The IRS did not follow all legal and internal seizure guidelines in 33 of the 92 (36 percent) taxpayer cases reviewed. In seven cases, both legal and internal seizure guidelines were not followed.

The IRS did not follow all legal seizure guidelines in 19 of the 92 (21 percent) taxpayer cases reviewed. These legal guidelines are contained in 26 U.S.C. § 6331 through § 6344 (1986). The legal guidelines that were not followed include (1) not advising taxpayers of required information regarding the seizure and sale of their seized property, (2) selling seized property through an improper means, (3) not thoroughly investigating the status of the taxpayer’s property before seizure, (4) not applying the proceeds of the sale first to the expenses of the sale, (5) seizing property without the proper approvals, and (6) not providing taxpayers with the required notices of seizure and notices warning of pending seizure action. (Pages 5-9)

The IRS did not follow some of its own internal seizure guidelines in 21 of the 92 (23 percent) cases reviewed. These internal guidelines are contained in the IRS’ Internal Revenue Manual (IRM) and in various memoranda issued by IRS officials. The internal guidelines that were not followed include (1) not documenting that the required taxpayer rights publication was provided to taxpayers prior to seizure, (2) not personally warning taxpayers of pending seizure action, (3) not adding the expenses of the sale to the taxpayer’s tax liability, and (4) not adhering to other IRM procedures. (Pages 9-11)

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 determine what steps should be taken regarding any money received as a direct result of conducting seizures without following the legal provisions in 26 U.S.C. § 6331 through § 6344 (1986).

Type of Outcome Measure: Taxpayer Rights and Entitlements

We determined that the IRS potentially violated taxpayers’ rights in 32 of the 33 cases where legal and internal seizure guidelines were not followed. ****1****.

We determined that the rights of 32 taxpayers may have been violated because the IRS did not follow all legal and internal seizure guidelines. As a result, the IRS may have to make restitution to these taxpayers for money received as a result of improper seizures.

We reviewed all of the 124 seizures, involving 92 taxpayers, conducted during a 6-month period following the enactment of the IRS Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) to determine if the IRS complied with legal and internal seizure guidelines. In 32 cases, the IRS did not follow all applicable legal and internal seizure guidelines, which could result in violations of taxpayers’ rights.

Listing of District Offices Reviewed

Synopsis of 26 U.S.C. (1986) Sections Containing Procedures for Conducting Seizures

26 U.S.C. § 6331 (1986) generally authorizes the Internal Revenue Service (IRS) to levy (seize) a delinquent taxpayer’s property after providing the taxpayer a 30-day notice of intent to levy. This section also prohibits levy (1) during a pending suit for the refund of any payment of a divisible tax, (2) before a thorough investigation of the status of any property subject to levy, or (3) while either an offer in compromise or an installment agreement is being evaluated and 30 days thereafter, including appeals.

26 U.S.C. § 6332 (1986) requires anyone in possession of property subject to levy to surrender such property when a levy is conducted. It contains sanctions against anyone who does not surrender such property upon demand.

26 U.S.C. § 6333 (1986) requires anyone with control of books or records containing evidence or statements relating to property subject to levy to exhibit such books or records upon demand to the IRS.

26 U.S.C. § 6334 (1986) lists property exempt from levy. Exempt from levy is $6,250 in fuel, provisions, furniture, and personal effects, and $3,125 in books and tools necessary for business purposes. Also exempt from levy is generally any real property of the taxpayer that is used as a residence by either the taxpayer or any other individual, if the amount owed is $5,000 or less. Seizure of the taxpayer’s principal residence is generally allowed only with approval of a United States district court judge or magistrate. Property used in the taxpayer’s business is exempt except with written approval of the District Director or Assistant District Director, and may be approved for seizure only if other assets are not sufficient to pay the liability and expenses of the seizure.

26 U.S.C. § 6335 (1986) contains procedures for the sale of seized property. Notice of sale must be given to the taxpayer. The property must be advertised in the county newspaper and/or posted at the nearest post office and posted in at least two other public places. The notices shall specify the property to be sold, and the time, place, manner, and conditions of sale. The property must be sold not less than 10 days or more than 40 days from the time of giving public notice. Finally, this section expressly prohibits selling seized property for less than the minimum bid.

26 U.S.C. § 6336 (1986) contains procedures for the accelerated disposition of perishable property. This is property such as fresh food products or any property that requires prohibitive expenses to maintain during the normal sale time period. The property may either be sold as soon as practicable, returned to the taxpayer in exchange for payment of a bond, or returned to the taxpayer for payment of the appraised value.

26 U.S.C. § 6337 (1986) allows the owner of seized property to redeem the property prior to the sale by paying the amount due plus the expenses of the seizure. It also allows the owner to redeem real property within 180 days of the sale by paying the successful bidder the purchase price plus 20 percent per annum interest.

26 U.S.C. § 6338 (1986) requires the IRS to give purchasers of seized property a certificate of sale upon full payment of the purchase price. This includes issuing a deed to real property after expiration of the 180-day period in 26 U.S.C. § 6337 (1986). The deed is exchanged for the certificate of sale issued upon full payment.

26 U.S.C. § 6339 (1986) gives the legal effect of the certificate of sale for personal property and the transfer deed for real property.

26 U.S.C. § 6340 (1986) requires each IRS district office to keep a record of all sales of seized property (RRA 98 added personal property seizures to this requirement). This record includes the tax for which such sale was made, the dates of seizure and sale, the name of the party assessed and all proceedings in making such sale, the amount of expenses, the names of the purchasers, and the date of the deed or certificate of sale of personal property. The taxpayer will be furnished (1) the information above except the purchasers’ names, (2) the amount from such sale applied to the taxpayer’s liability, and (3) the remaining balance of such liability.

26 U.S.C. § 6341 (1986) states "The Secretary shall determine the expenses to be allowed in all cases of levy and sale."

26 U.S.C. § 6342 (1986) provides for the application of proceeds of levy. Proceeds are first applied to the expenses of the levy and sale proceedings. Any remainder is applied to the taxpayer’s liability. Any amount remaining after paying the liability will be credited or refunded to the taxpayer.

26 U.S.C. § 6343 (1986) outlines various conditions under which a levy may be released and property returned to the taxpayer. These conditions include full payment of the liability, determination of a wrongful levy, financial hardship, etc. This section also provides, with the consent of the taxpayer or the National Taxpayer Advocate (RRA 98 changed this from "Taxpayer Advocate"), the return of seized property when it would be in the best interests of the taxpayer (as determined by the National Taxpayer Advocate) and the United States. Finally, when a taxpayer’s account is deemed uncollectible, any outstanding seizure must be released.

26 U.S.C. § 6344 (1986) contains several cross-references for subchapter D of 26 U.S.C (1986).

 Statistical Snapshot of Seizure Cases

Listed below are several key attributes of the 92 taxpayer seizure cases (124 separate seizures) that we reviewed. These attributes depict the seizure process, from the amount of the liability through the disposition of the case. We are presenting this information to provide a perspective on the review results.

• The average liability owed by the taxpayer at the time of each seizure was $475,704. The following table indicates the range of liabilities owed.

• The following table indicates the types of property seized and the volume per type.

• Thirty-three (27 percent) of the 124 seizures resulted in a sale of the assets seized. Property seized in 49 (40 percent) of the seizures was released to the taxpayer. Property seized in 11 (9 percent) of the seizures was redeemed for the full tax liability and released to the taxpayer. In the remaining 31 cases, the property was disposed of using other means or the seizure was still open at the time of our review.
• The average property value of the seized property was $78,699. For the 99 seizures where the minimum bid was calculated, the average minimum bid was $37,489.
• The average net proceeds from the sale of 33 seized assets was $22,781.

Management’s Response to the Draft Report