TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVICE HAS SIGNIFICANTLY IMPROVED COMPLIANCE WITH LEGAL AND INTERNAL GUIDELINES WHEN SEIZING TAXPAYERS’ PROPERTY
Reference No. 2000-10-114
The Internal Revenue Service’s (IRS) efforts to collect unpaid taxes generally begin with letters to the taxpayer, followed by telephone calls and personal contacts by an IRS employee to discuss the taxpayer’s ability to pay the taxes or to consider alternatives such as installment payment agreements or offers in compromise. If the taxpayer does not pay his or her taxes through these efforts, the IRS has the authority to take the taxpayer’s funds or property for the payment of taxes. Taking property is commonly referred to as a "seizure."
The IRS Restructuring and Reform Act of 1998 (RRA 98), Pub. L. No. 105-206, 112 Stat. 685, placed particular emphasis on taxpayer rights and contained several new provisions for conducting seizures. The provisions in 26 U.S.C. §§ 6330 through 6344 (1986) are very specific about how the seizure and sale of taxpayers’ property should be conducted. In addition, RRA 98 § 3443 requires the IRS to implement a new system for disposing of seized property by July 22, 2000.
The RRA 98 added 26 U.S.C. § 7803(d)(1)(A)(iv) (1986), which requires the Treasury Inspector General for Tax Administration (TIGTA) to annually evaluate the IRS’ compliance with procedures in 26 U.S.C. (1986) for seizure of property to collect unpaid taxes. The first TIGTA report on seizures was issued in September 1999. In that audit, we reviewed all seizures conducted between July 22, 1998, and January 22, 1999. We reported that the IRS did not follow legal provisions or its own internal guidelines in 36 percent of the cases reviewed.
The objective of our Fiscal Year 2000 audit was to determine whether seizures conducted by the IRS adhere to legal guidelines set forth by 26 U.S.C. §§ 6330 through 6344 (1986) and comply with the IRS’ own internal guidelines. Our review included all seizures identified from IRS records as conducted during the period May 1 through September 30, 1999. We also reviewed the IRS’ efforts to comply with RRA 98 § 3443 which requires the IRS to design a process to remove revenue officers from participating in the sale of seized property and to consider using outside sources such as auctioneers or other Federal agencies for this purpose. This audit was not intended to determine whether the decision to seize was appropriate in the 35 seizure cases we reviewed, and our analysis did not determine whether this was the appropriate number of seizures for the period.
The IRS has significantly improved compliance with legal and internal guidelines when making seizures of taxpayers’ property. Additionally, the IRS has developed a plan and begun the process to establish a new specialist position that removes revenue officers from participating in the disposal of seized property.
The Internal Revenue Service Is Complying With Legal and Internal Guidelines When Conducting Seizures
We reviewed all 35 seizures identified from IRS records as conducted during the period May 1 through September 30, 1999. We determined that actions taken by the IRS were in accordance with the seizure provisions and its own guidelines in all cases reviewed, which is a significant improvement when compared to the results from our prior review.
We attribute the improvement to the following:
While we did not identify any legal or procedural issues in the 35 seizures, we identified one weakness in the IRS’ procedures that can allow wrongful seizures to occur. Specifically, prior to seizure, a revenue officer must verify property ownership as part of the initial investigation into the status of the property. Because an extended period of time could pass before the seizure action is taken, the property ownership could change. The Internal Revenue Manual (IRM) does not specify a time frame in which the property ownership must be verified before seizure action is taken. Seizing property owned by third party taxpayers could, if not released immediately, expose the IRS to liability under 26 U.S.C. § 7426 (1986).
The Internal Revenue Service Is Developing a Specialist Position to Implement a Uniform Asset Disposal Mechanism
We reviewed the IRS’ efforts to implement a new process that will remove revenue officers from participating in the disposal of seized property. This new process, referred to as the Uniform Asset Disposal Mechanism (UADM), will consist of a specialist position known as the Property Appraisal and Liquidation Specialist (PALS). The PALS will serve as a technical authority in appraising property proposed for seizure and will be responsible for planning, marketing, and coordinating the sale of property. The IRS submitted the PALS position description for approval in March 2000 and expects to have the position in place by July 22, 2000.
The IRS considered contracting with outside sources (i.e., outsourcing) the sale of all seized property and conferred with the Criminal Investigation Division and other Federal agencies that routinely sell acquired property. The IRS determined that instead of contracting this service out, it would give the PALS the authority to outsource the sale of seized property after considering the best interests of the government and the taxpayer.
Summary of Recommendation
We recommend that the IRS revise current internal guidelines to ensure that ownership of the property is timely verified prior to seizure.
Management’s Response: National Collection management stated that the Seizure and Sale Handbook is being revised to require that re-verification of taxpayer ownership of property be made within 30 days prior to beginning the process for securing seizure approval. Collection management also stated that the UADM was in place July 22, 2000, the new PALS personnel have been selected and trained, as of July 21, 2000, and a memorandum was issued to Collection field personnel that revenue officers cannot participate in seizure sales after July 22, 2000.
Management’s complete response to the draft report is included as Appendix VI.