IRS Seizures:

Needed for Compliance but Processes for Protecting Taxpayer Rights Have Some Weaknesses

GGD-00-4: Published: Nov 29, 1999. Publicly Released: Jan 3, 2000.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) use of seizure authority, focusing on whether: (1) IRS targeted the most noncompliant taxpayers; (2) IRS brought affected taxpayers into compliance; (3) IRS exercised appropriate discretion in conducting seizures; and (4) IRS' implementation of the IRS Restructuring and Reform Act of 1998 would address any weaknesses found in the pre-Restructuring Act seizure process.

GAO noted that: (1) IRS' use of seizure authority produced mixed results in terms of targeting the most noncompliant taxpayers and then bringing them into compliance; (2) GAO's review of a sample of fiscal year 1997 seizures showed the following: (a) seizures targeted the more noncompliant taxpayers; (b) seizures were as much as 17 times more likely to occur for delinquent individual taxpayers in some IRS district offices than others; (c) many seizures improved compliance with the tax laws; and (d) some seizures produced little revenue to the government and contributed little to resolving the taxpayers' delinquencies; (3) in reviewing 115 sample seizure cases, GAO found examples in which IRS revenue officers' use of discretion in deciding whether and how to conduct a seizure was questionable; (4) GAO recognizes that some revenue officer discretion is necessary and that the adversarial nature of seizure cases can limit the information available to revenue officers when making seizure decisions; (5) nevertheless, some of the decisions made by revenue officers were questionable; (6) IRS' use of seizure authority is in transition while IRS adapts to the Restructuring Act requirements; (7) revenue officers have expressed concerns about a lack of guidance on when to make seizures in light of the act, and the number of seizures has declined about 98 percent; (8) IRS officials expect the number of seizures to rebound as changes to the seizure program are implemented and revenue officers adapt to the new requirements; (9) GAO's review of IRS' processes for protecting taxpayer rights and interests in planning and conducting seizures identified implementation breakdowns and, in some instances, inadequate process requirements; (10) breakdowns and inadequate processes were also identified in the postseizure processes for controlling assets, selling assets, and reviewing actions taken; (11) because of the severe impact that seizures may have on taxpayers, GAO views any breakdown in the seizure process as a weakness; (12) GAO's comparison of the weaknesses found in the pre-Restructuring Act seizure program with the changes IRS is making shows that some significant weaknesses are not being fully addressed; (13) with respect to controlling the use of seizure authority, it is unclear whether continued reliance on manual reviews of revenue officer case files, which failed to prevent process departures in the past, would be sufficient to prevent departures from process requirements in the future; and (14) only limited guidance is being provided to revenue officers on how to carry out and document some of the new seizure guidelines.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS agreed with the recommendation and has revised the Internal Revenue Manual to provide guidance in the three areas.

    Recommendation: To strengthen IRS' processes for ensuring that seizure authority is appropriately exercised--that is, taxpayers are made aware of their responsibilities and provided time to comply, proposed seizure actions are evaluated for necessity and appropriateness, and seizure actions are conducted appropriately--and when warranted is exercised, the Commissioner of Internal Revenue should provide guidance that describes the lengths that revenue officers are to go to: (1) personally contact delinquent taxpayers; (2) obtain financial information from delinquent taxpayers or develop such information from alternative sources; and (3) develop and document estimates of the minimum sales price at which the seized assets could be sold.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS agreed with the recommendation and has issued instructions to revenue officers regarding case file documentation, including the completion of a standardized analysis of proposed seizure actions prior to submitting the case file for approval. This standardized analysis format requires revenue officers to document their judgments and provides a written basis for managerial review of those judgments.

    Recommendation: To strengthen IRS' processes for ensuring that seizure authority is appropriately exercised--that is, taxpayers are made aware of their responsibilities and provided time to comply, proposed seizure actions are evaluated for necessity and appropriateness, and seizure actions are conducted appropriately--and when warranted is exercised, the Commissioner of Internal Revenue should require revenue officers to document the basis for judgments made (e.g. the basis for determining that sufficient attempts were made to gain taxpayer cooperation to pay delinquent taxes and the basis for determining the impact on taxpayer dependents) to facilitate managerial review of case files.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS agreed with the recommendation and has revised the Internal Revenue Manual to clarify the conditions and circumstances that would justify seizure actions. IRS augmented these procedures with a special training session for all collection managers.

    Recommendation: To strengthen IRS' processes for ensuring that seizure authority is appropriately exercised--that is, taxpayers are made aware of their responsibilities and provided time to comply, proposed seizure actions are evaluated for necessity and appropriateness, and seizure actions are conducted appropriately--and when warranted is exercised, the Commissioner of Internal Revenue should provide written guidance on when seizure actions ought to be taken, that is, the conditions and circumstances that would justify seizure action and the responsibilities of senior managers to ensure that such actions are taken.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: IRS generally agreed with the recommendation and revised the Internal Revenue Manual (IRM) to provide instructions to revenue officers for documenting certain basic asset control information (e.g., model and serial numbers) and instructions for an independent verification of that information. In January 2003, IRS revised the IRM to include instructions for completion of the Notice of Seizure (Form 2433) that requires the information on the seized asset's condition with special instructions for documenting the condition of a seized motor vehicle.

    Recommendation: To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include ensuring that revenue officers document basic asset control information, including detailed asset control identity descriptions, asset condition, and custody information.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: IRS agreed with the recommendation on the need to timely input asset control information into its automated systems. All new seizures conducted after September 27, 2003, must be included in the Integrated Collection System's Sale and Seizure Program. This program includes data on the seizure's status and is updated as the seizure at each major step in the seizure process providing timely asset control information.

    Recommendation: To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include ensuring that basic control information is entered in a timely manner and included in the revised automated inventory control system.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: In August 2003, IRS revised procedures to improve the accountability for seized assets. IRS issued a new form (Form 13464) to report the status of open seizures. Part III of the form requires documentation of the results of physical inventories, and requires an IRS official to match the condition of the seized asset to the documentation created at the time of the seizure and note any differences.

    Recommendation: To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include ensuring asset security and accountability through scrutiny of decisions regarding security and periodic reconciliation of inventory records to assets-on-hand (periodic physical inventories).

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Closed - Implemented

    Comments: In August 2003, IRS revised procedures to improve the accountability for seized assets. IRS now requires staff responsible for the custody of seized assets to periodically inventory the asset and document any changes in the asset's condition since seizure. This documentation in the collection case file will provide the basis to account for losses and obtain reimbursement for the expenses.

    Recommendation: To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include requiring revenue officers to record and account for all theft, loss, and damage expenses of each asset and document efforts to obtain reimbursement for the expenses in collection case files.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Closed - Not Implemented

    Comments: With respect to setting a minimum acceptable price for selling property seized from taxpayers, IRS agreed with GAO's recommendation to the extent that revenue officers would be required to document the reasons for reductions that are made to an asset's fair market value--the starting point in computing a minimum sales price. GAO agrees with this change as it represents an attempt to assure the establishment of minimum sales prices that would be reasonably related to the value of the property seized. This is important because, as GAO's report demonstrates, IRS's sales of taxpayer assets were frequently consummated at or near the minimum price, and at auctions that attracted one or two prospective purchasers (i.e., sales with little or no competitive bidding). But, IRS also said that it would continue with its practice of automatically setting the minimum price of an asset at an amount equal to the taxpayer's tax debt if that produced a lower minimum price. IRS set no limit on how great a price reduction this could involve. Furthermore, IRS commented that it saw its responsibility as "only to secure payment of the legally established debt." GAO disagrees. IRS has a responsibility to take the steps necessary to prevent taxpayers' property from being sold at unreasonably low prices and to refund to the taxpayers any sales proceeds in excess of the tax debt or other encumbrances. The frequency that IRS has sold seized assets at the minimum price and without competitive bidding shows the importance of setting minimum prices that bear some relation to the value of the assets seized.

    Recommendation: To strengthen the sales process for assuring that the highest prices are obtained from seized asset sales, the Commissioner of Internal Revenue should develop guidelines for establishing minimum asset prices to preclude the use of arbitrary percentage reductions or the amount of the delinquency as the minimum price.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  9. Status: Closed - Implemented

    Comments: IRS has implemented this recommendation by (1) establishing specialized positions for managing and selling seized assets and (2) establishing procedures for the asset specialists to evaluate alternative methods of selling assets to achieve the highest net return.

    Recommendation: To strengthen the sales process for assuring that the highest prices are obtained from seized asset sales, the Commissioner of Internal Revenue should take the steps necessary to promote reasonable competition among potential buyers during asset sales.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  10. Status: Closed - Implemented

    Comments: IRS indicated that it can develop procedures for reviewing the quality of seizure cases but preferred to do so outside of its existing system for assessing collection quality. In part, this reflected concerns about the capability of reviewers assigned to that program to review asset management activities. To implement its quality review, IRS's national office has required the field offices to report all seizures conducted and, on closure, to submit copies of their seizure files to the national office for review and comment.

    Recommendation: To strengthen oversight of seizure activities, the Commissioner of Internal Revenue should expand the quality review of collection cases to include an assessment of the use of seizure authority and of asset management and disposal activities.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  11. Status: Closed - Implemented

    Comments: All new seizures conducted after September 27, 2003 must be included in the Integrated Collection System's Sale and Seizure Program. This program includes data on the delinquent taxpayer and debt owed, assets to be seized, and status of the seized asset's disposition providing a basis for IRS management to monitor the seizure.

    Recommendation: To strengthen IRS' processes for ensuring that seizure authority is appropriately exercised--that is, taxpayers are made aware of their responsibilities and provided time to comply, proposed seizure actions are evaluated for necessity and appropriateness, and seizure actions are conducted appropriately--and when warranted is exercised, the Commissioner of Internal Revenue should build controls into the automated field collection system, currently under development, that would act as a check to prevent departures from seizure process requirements that are verifiable on an automated basis.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  12. Status: Closed - Implemented

    Comments: Several administrative and legal changes have provided IRS senior managers with additional information to monitor the use of seizure authority, and have provided taxpayers with the opportunity to resolve complaints regarding the use of seizures. All new seizures conducted after September 27, 2003, must be included in the Integrated Collection System's Sale and Seizure Program, which provides IRS managers with current information regarding the status of seizures. IRS also has established additional controls over the seizures with additional required reviews for seizures of certain assets, which may be difficult to dispose (i.e. perishable goods or FCC broadcast licenses). Additionally, IRS now requires SBSE Headquarters and the Treasury Inspector General for Tax Administration to review each seizure for compliance with IRS policies and procedures after completion. With regard to resolution of taxpayer complaints regarding seizures, following the IRS Restructuring and Reform Act of 1998, strengthened National Taxpayer Advocate Program is available to taxpayers to seek relief from an unjustified seizure action.

    Recommendation: To strengthen oversight of seizure activities, the Commissioner of Internal Revenue should establish a method for providing IRS senior managers with useful information to monitor the use of seizure authority and resolution of taxpayer complaints.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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