TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVICE IS NOW TRACKING POTENTIAL FAIR DEBT COLLECTION PRACTICES ACT VIOLATIONS, BUT MAY NOT ALWAYS BE PROPERLY REPORTING VIOLATIONS
Reference No. 2000-10-014
The Fair Debt Collection Practices Act (FDCPA), 15 U.S.C.§ 1692b (1996), included provisions that restrict various collection abuses and harassment in the private sector that did not apply to the United States (U.S.) Government. The Internal Revenue Service (IRS) Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) (future references to this law will be to the law in general and will be referred to as RRA 98), however, requires the IRS to be at least as considerate to taxpayers as private creditors are required to be with their customers. In addition, taxpayers whose FDCPA rights are violated can now file a civil action under 26 U.S.C. § 7433 (1986) for damages against the U.S. Government. IRS reports show that approximately 2.5 million taxpayers were in active Collection status as of March 31, 1999. All of these taxpayers have the potential to have their FDCPA rights violated if IRS employees do not comply with the regulations.
Specifically, the RRA 98 added 26 U.S.C. § 6304 (1986), which states that, in general, IRS employees are not to communicate with taxpayers in connection with the collection of any unpaid tax:
The RRA 98 also added 26 U.S.C. § 7803(d)(1)(G) (1986) requiring the Treasury Inspector General for Tax Administration to provide information to the Congress regarding any administrative or civil actions with respect to violations of the FDCPA, including a summary of employee administrative actions taken against IRS employees and a summary of money paid as part of a civil action.
We did not identify any civil actions where money has been paid out to taxpayers as a result of FDCPA violations, based on our review of information provided by the Department of Justice’s Tax Division. ****1,3d****, at the time of our review, IRS management information systems did not reflect the number of FDCPA violations. Instead, IRS systems indirectly tracked violations based on issue codes that describe the inappropriate employee behavior, such as misuse of position/authority or unprofessional conduct. ****1,3d****.
During our limited review of the IRS’ process for controlling and tracking potential FDCPA violations, we identified two areas needing IRS management attention. IRS management addressed the first area during our audit when we brought the issue to their attention.
The Internal Revenue Service Has Upgraded Existing Management Information Systems to Track Fair Debt Collection Practices Act Violations and Identify Monetary Settlements to Taxpayers
Taxpayer complaints about IRS employee conduct can be identified through several IRS functions and management information systems. If a taxpayer files a civil action or if IRS management determines that the taxpayer’s FDCPA rights were potentially violated, the complaint should be referred and tracked on one or both of the following IRS systems:
At the time of our review, these systems did not have information that tracked FDCPA violations. However, IRS management had recognized the need to identify FDCPA violations and had already taken steps toward creating specific violation codes that would identify fair debt collection violations on the ALERTS. In addition, the IRS Office of Chief Counsel responded to an audit memorandum, stating that it had added a specific sub-category tracking code to the CASE that will identify FDCPA civil actions filed by taxpayers and track money paid to taxpayers who are successful in FDCPA civil actions against the IRS.
Internal Revenue Service Management May Not Always Properly Report Potential Fair Debt Collection Practices Act Violations
IRS managers are responsible for understanding the provisions of the FDCPA to ensure taxpayer complaints of fair debt collection violations are properly reported to the appropriate IRS division. However, the IRS provided only limited training on the new RRA 98 provisions and did not provide specific guidance to employees in the Chief Operations Officer organization or in the Taxpayer Advocate’s office on the FDCPA regulations and reporting process.
Our review of taxpayer complaints in two IRS districts indicated that all FDCPA violations may not have been reported; however, we do not know if this is happening nationwide. We identified three additional FDCPA violations that were handled internally instead of being referred to the Office of Labor Relations to be tracked. ****1,3d****. IRS management agreed that the complaints should have been reported to the Office of Labor Relations as potential FDCPA violations.
We also reviewed our own Office of Investigations’ Investigations Management Information System to determine if there were any FDCPA violations. We identified seven open investigations (from six different districts in three separate regions) having FDCPA violation codes. However, while IRS management referred these allegations to us as potential IRS Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 720 (1998) (referred to as RRA 98 § 1203) violations or as employee conduct issues, they did not properly identify them as potential FDCPA violations.
This report has no additional recommendations for corrective action beyond what the IRS had committed to during the audit. We will be performing a subsequent review during Fiscal Year 2000 to determine whether potential FDCPA violations are being properly reported nationwide.
Management’s Response: The IRS has upgraded the ALERTS by adding new issue codes that specifically identify FDCPA violations. Guidance has been sent to the Office of Labor Relations staff to ensure proper use of these codes. In addition, the Office of Chief Counsel is now entering case information regarding amounts paid out for violations of 26 U.S.C. § 6304 into the CASE. The entries will indicate whether such payments resulted from settling a claim prior to suit or settlement of judgment as the result of a suit.
Currently, the Internal Revenue Manual (IRM) contains procedures for reporting allegations of inappropriate behavior, but the procedures do not refer specifically to the new case issues that are used to identify FDCPA violations. The IRS will supplement the IRM to include procedures that will require managers to identify alleged FDCPA violations and report the violations to the servicing Labor Relations office so they can be tracked on the ALERTS.
Management’s complete response to the draft report is included as Appendix VII.
1 = Tax return/Return information
3d = Identifying information - Other Identifying Information of an Individual or Individuals