TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVICE HAS SIGNIFICANTLY IMPROVED ITS COMPLIANCE WITH LEVY REQUIREMENTS
Reference No. 2000-10-150
The collection of unpaid tax by the Internal Revenue Service (IRS) begins with a series of letters (notices) mailed to the taxpayer, generally followed by telephone calls and personal contacts by an IRS employee. When these efforts have 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 taking of money is commonly referred to as a "levy."
Beginning January 19, 1999, 26 U.S.C. § 6330 (1986) required the IRS to notify taxpayers of its intent to levy and of their right to an Appeals 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 an Appeals hearing any time during the 30 days after the date on the notice. IRS procedures provide for an additional 15 days to allow for mailing and processing of hearing requests that are sent to the IRS at the end of the 30-day period. The additional 15 days does not extend the 30-day period for taxpayers to request an Appeals hearing. However, the extension provides further assurance that the taxpayer’s right to a hearing is protected.
On July 22, 1998, the President signed the IRS Restructuring and Reform Act of 1998 (RRA 98) into law. This act added 26 U.S.C. § 7803(d)(1)(A)(iv), which requires the Treasury Inspector General for Tax Administration (TIGTA) to annually determine if levies issued by the IRS comply with the legal guidelines in 26 U.S.C. § 6330 (1986). The first TIGTA report on levies was issued in September 1999. In that audit, we reported that the IRS did not follow legal guidelines for issuing levies in 32 percent of the cases reviewed and its own internal procedures for issuing levies in 31 percent of the cases reviewed. In this audit, we determined if levies issued by the IRS complied with legal guidelines set forth in 26 U.S.C. § 6330 (1986) and internal guidelines set forth in the IRS’ Internal Revenue Manual by reviewing a statistically valid sample of 451 levies issued between May 1 and August 31, 1999. The offices reviewed include two district offices where IRS employees make personal visits to contact taxpayers and five Customer Service offices, referred to as Automated Collection System (ACS) call sites, where IRS employees contact taxpayers by telephone.
The IRS has significantly improved its compliance with legal and internal guidelines to notify taxpayers of their appeal rights at least 30 days before levies are issued. We believe this improvement is the result of several computer system upgrades and the implementation of new procedures to ensure requirements are met when issuing levies. Although IRS management made significant progress towards fully complying with 26 U.S.C. § 6330 (1986), controls should be improved so that internal records reflect actions that have been taken on taxpayers’ accounts.
Compliance With Legal and Internal Guidelines for Notifying Taxpayers of Their Appeal Rights Before Issuing Levies Has Significantly Improved
Our review of a statistically valid sample of 157 district office levy cases showed that each taxpayer was notified of the IRS’ intent to levy and of the taxpayer’s right to a hearing at least 30 days prior to the levies being issued. In our review of a statistically valid sample of 294 ACS call site levy cases, we identified only 6 cases (2 percent) where the taxpayer was not properly issued a due process notice, which are potential taxpayers’ rights violations. Five of the six violations occurred in one call site because the service center that processed the levies for the call site did not implement new procedures designed to protect taxpayers’ rights until August 1999. Although the overall percentage is much less than in our Fiscal Year (FY) 1999 audit, we cannot make strict comparisons between the two reviews because our methodologies were different. However, we can conclude that there has been significant improvement in the IRS’ compliance with legal and internal guidelines from the prior audit. IRS management initiated the following changes after our FY 1999 audit identified a high rate of non-compliance with 26 U.S.C. § 6330 (1986).
Internal Revenue Service Records Did Not Always Accurately Reflect Levy Activity on Taxpayer Accounts
From our review of taxpayer cases, we identified three areas where case information was not reflective of actual case actions. In two of the areas, internal guidelines were not followed. The third area resulted from an internal control not working properly.
Taxpayers’ accounts were not always updated to indicate that a Notice of Intent to Levy had been mailed
Thirty-two of 451 taxpayers’ accounts reviewed (14 in the ACS call sites and 18 in the district offices) were not updated to show that taxpayers were notified of the IRS’ intent to levy and of their right to an Appeals hearing. The ACS and ICS case history documentation for these 32 cases showed that the Notices of Intent to Levy were mailed to the taxpayers; however, the Integrated Data Retrieval System was not updated to show that the notices were mailed. IRS records should indicate whether a Notice of Intent to Levy has been sent to a taxpayer to prevent multiple notices from being sent to the same taxpayer.
Levies were systemically generated, and records were not updated to show the cancellation of these levies
Nationwide, we identified 1,208 levies that were systemically generated during May and June of 1999. These levies were generated from one ACS call site but were not mailed to third parties, according to IRS manual records. The IRS’ computer records, however, still showed that the levies were issued and had not been updated to show the cancellation of these levies. In June 1999, a comprehensive system change was implemented that eliminated the systemic generation of levies. The IRS relies on accurate case documentation to support actions taken on a case. An employee accessing one of these cases in the future will not know that a specific levy was not mailed.
Certified mail listings could not always be located or were not always date stamped on or before the date on the Notice of Intent to Levy
In 124 (42 percent) of the 294 ACS cases reviewed, the certified mail listings could not be located (44 cases), were not date stamped (3 cases), or were date stamped after the date on the Notice of Intent to Levy and Notice of Your Right to a Hearing (77 cases). The certified mail list should be date stamped by the United States Postal Service (USPS) with the date that the Notices of Intent to Levy are mailed. IRS procedures require the local retention of these listings for 3 years from the date of assessment. One service center we reviewed uses the date on the certified mail listing (which is later than the date of assessment) to monitor the 3-year retention period.
According to USPS personnel assigned to one service center, they do not work at the IRS service center every day, and on the days they work at the service center, they do not perform a 100 percent review of the certified mail. Instead, they verify the mailing for a sample of the notices and date stamp the corresponding certified mail listings for only the pages they review, not the entire listing. The Service Center Collection Branch (at the one service center) assured us that all notices were mailed on or before the notice date. Without an accurately date stamped certified mail listing, the IRS has no proof that Notices of Intent to Levy issued by the ACS were timely mailed. Also, for the 77 notices with a postal date stamp later than the notice date, taxpayers’ rights may have been potentially violated if the notices were mailed on the date stamped on the certified mail listing because these taxpayers would not have received the full 30-day period to request an Appeals hearing.
Summary of Recommendations
We recommend that Customer Service management determine if restitution is warranted for 6 taxpayers, determine whether it would be beneficial to update account information for the 1,208 systemically generated levies, and ensure certified mail listings are retained as evidence of mailing. Collection and Customer Service management should identify and update incorrect information on the 32 taxpayers’ accounts we identified to show whether Notices of Intent to Levy were mailed. Forms and Submission Processing management should request the USPS ensure certified mail listings are date stamped to reflect the day notices are mailed.
Management’s Response: The IRS management response was due on September 11, 2000. As of September 14, 2000, management had not responded to the draft report.