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IRS Seizures: Needed for Compliance but Processes for Protecting Taxpayer Rights Have Some Weaknesses

GGD-00-4 Published: Nov 29, 1999. Publicly Released: Jan 03, 2000.
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Highlights

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.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
IRS agreed with the recommendation and has revised the Internal Revenue Manual to provide guidance in the three areas.
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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).
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Not Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
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.
Internal Revenue Service 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.
Closed – Implemented
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.

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Topics

AssetsDebt collectionDelinquent taxesInternal controlsSearch and seizureTax lawTax nonpaymentTaxpayersVoluntary complianceReal property