The Internal Revenue Service Has Not Fully Implemented Procedures to Notify Taxpayers Before Taking Their Funds For Payment of Tax

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http://www.treas.gov/tigta/reports/199910071fr.html


The Internal Revenue Service Has Not Fully Implemented Procedures to Notify Taxpayers Before Taking Their Funds For Payment of Tax

September 1999

Reference Number: 199910071

September 29, 1999

MEMORANDUM FOR COMMISSIONER ROSSOTTI

FROM: Pamela J. Gardiner /s/Pamela J. Gardiner

Deputy Inspector General for Audit

SUBJECT: Final Audit Report – The Internal Revenue Service Has Not Fully Implemented Procedures to Notify Taxpayers Before Taking Their Funds For Payment of Tax

This report presents the results of our review to determine whether levies issued by the Internal Revenue Service (IRS) comply with the legal guidelines in 26 U.S.C. 6330 (1986). Beginning January 19, 1999, 26 U.S.C. 6330 (1986) requires the IRS to advise taxpayers of their right to have their case heard by the Appeals Office, and potentially a court, prior to the IRS taking money from taxpayers’ bank accounts, employers or other parties to pay delinquent taxes. The IRS must wait at least 30 calendar days from the date the taxpayer is notified before issuing a levy.

In summary, we found the IRS’ efforts to fully implement changes in 26 U.S.C. 6330 (1986) related to taxpayer levies were not effective in the offices we tested. The IRS did not consistently notify taxpayers of their appeal rights and of the intent to levy, as required by 26 U.S.C. 6330 (1986) and its own guidelines. As a result, taxpayers’ rights were potentially violated in some instances.

We recommended implementing additional safeguards to ensure the applicable legal and IRS procedures are followed when issuing levies. We also recommended that Collection and Customer Service management request an opinion from the IRS Chief Counsel on those levy cases where money may have been taken improperly, to determine if restitution to the taxpayers is warranted.

IRS management agreed with the majority of observations and findings and also concurred with all recommendations in this report. Management’s comments have been incorporated into the report where appropriate, and the full text of their comments is included as an appendix.

There were two areas where management offered comments. First, National Office management disagreed that eight levies printed by the Integrated Collection System were actually issued and that, therefore, no taxpayer rights were violated for those cases. During the audit fieldwork, we shared the results of our tests and obtained agreement on our conclusions with management in each local office. Management was given the opportunity and, in several instances, did provide additional information to support the actions taken by employees in the local offices. We accepted this information and changed our conclusions, when appropriate. However, for the eight cases in question, we have not received any additional information to support changing our conclusion.

Second, five of the Collection Field function notices of levy were issued at the request of the taxpayer or the taxpayer’s authorized representative. IRS management maintains that the Service can issue a levy without a 30-day notice if the taxpayer waives his/her right to a notice. IRS management has requested guidance from the IRS Chief Counsel on this matter. We agree that additional guidance is needed from IRS Counsel regarding whether the taxpayer (or his/her authorized representative) can waive his/her right to notification under 26 U.S.C. 6330 (1986). Since the law does not specifically allow this waiver, we showed these cases as exceptions in the draft report. We also included information in the draft report to show that the taxpayer requested that the IRS issue the levies, and that the IRS had requested an opinion from IRS Counsel to determine the legality of these actions.

Copies of this report are also being sent to the IRS managers who are affected by the report recommendations. Please contact me at (202) 622-6510 if you have any questions, or your staff may contact Maurice S. Moody, Associate Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs), at (202) 622-8500.

Table of Contents

Executive Summary

Objective and Scope

Background

Results

The Internal Revenue Service Did Not Always Follow
Legal Provisions and Its Own Procedures for Issuing Levies

Conclusion

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Outcome Measures

Appendix V – Example of Letter 1058 (DO) (Rev. 1-1999)

Appendix VI – Example of Letter 1058 (Rev. 01-1999) (LT11)

Appendix VII – Management’s Response to the Draft Report

Executive Summary

The collection of unpaid tax by the Internal Revenue Service (IRS) begins with letters to the taxpayer, generally followed by telephone calls and personal contacts by an IRS employee. When these efforts have all 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 procedure is commonly referred to as a "levy."

Beginning January 19, 1999, 26 U.S.C. 6330 (1986) requires the IRS to let taxpayers know of the intent to levy and of the taxpayers’ right to a 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 a hearing any time during the 30 days after the notification. In most instances, IRS procedures increase this time to 45 days to allow for mailing and processing. This extension of the required waiting period further protects the taxpayers’ right to a hearing. The IRS procedures also require employees to notify taxpayers of the intent to levy only when issuing a levy is imminent.

The Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) (referred to as RRA 98) added 26 U.S.C. 7803(d)(1)(A)(iv) (1986), which required the Treasury Inspector General for Tax Administration to determine if levies, issued by the IRS, comply with the legal guidelines in 26 U.S.C. 6330 (1986). We evaluated the IRS’ compliance with the new levy procedures by reviewing 284 taxpayer accounts involving 291 levies requested between mid-January and mid-April 1999. The offices reviewed include five district offices where IRS employees make personal visits to contact taxpayers, and four Automated Collection System (ACS) Call Sites where IRS employees use the telephone to contact taxpayers. ACS Call Sites are part of the Customer Service function.

Results

IRS management developed guidelines and procedures to comply with the new levy requirements. For example, new procedures require IRS employees to review taxpayer accounts to determine that levy is the next action to be taken before advising the taxpayer of the IRS’ intent to levy. New procedures were also provided to employees stating that the IRS cannot issue a levy unless the taxpayer is notified at least 30 days before the levy is issued. IRS employees must also advise taxpayers that they may request a hearing any time during the 30 days after the notice is issued.

New letters were developed to explain the taxpayers’ appeal rights. We were not able to evaluate the appeals process because, at the time of our review, none of the cases had completed the appeals process in the districts we visited. We plan to conduct a separate review in this area.

In addition, prior to enactment of 26 U.S.C. 6330 (1986), IRS computer systems automatically generated levies for mailing to employers and other parties for delinquent taxpayer accounts that met certain criteria. Because 26 U.S.C. 6330 (1986) required the IRS to notify taxpayers of the intent to levy prior to issuing a levy, IRS management developed procedures to prevent the mailing of levies that are automatically generated by computer systems.

Overall, the new procedures have not been effectively implemented in the IRS offices we tested. The IRS did not consistently notify taxpayers of their appeal rights and of the intent to levy, as required by 26 U.S.C. 6330 (1986) and its own guidelines. As a result, taxpayers’ rights were potentially violated in some instances, which could result in the IRS having to make restitution to some taxpayers.

In March 1999, we advised Customer Service management of initial problems we identified regarding compliance with legal and internal levy guidelines. Action was immediately taken to correct the problems. The volume of problems we identified may have been significantly higher if we had not advised IRS management early and they had not taken immediate corrective action. Also, in June 1999 we discussed the final results of this report with National Office Collection and Customer Service management officials. IRS management agreed with the facts presented in this report.

The Internal Revenue Service Did Not Always Follow Legal Provisions And Its Own Procedures for Issuing Levies

From our review of 284 taxpayer accounts, we determined that legal levy provisions in 26 U.S.C. 6330 (1986) were not followed in 92 accounts (32 percent) and IRS levy procedures were not followed in 88 accounts (31 percent). We expanded our analysis and identified an additional 112 accounts in which legal provisions in 26 U.S.C. 6330 (1986) were not followed, and an additional 20 accounts in which IRS levy procedures were not followed.

Legal Provisions Not Followed

  • Seventy-four taxpayers (26 percent) were not notified of their appeal rights or of the IRS’ intent to levy before the IRS issued levies.
  • Twelve taxpayers (4 percent) were notified of their appeal rights and of the IRS’ intent to levy after the levies were issued.
  • Six taxpayers (2 percent) were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued by the IRS prior to the expiration of the 30-day waiting period required by 26 U.S.C. 6330 (1986).
  • While conducting tests at 1 ACS Call Site, we also identified an additional
    112 business taxpayer accounts that had levies systemically generated and, per IRS local management, presumably mailed to levy sources without taxpayers being notified of their appeal rights and of the IRS’ intent to levy.

Internal Revenue Service Procedures Not Followed

  • Six taxpayers (2 percent) were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued prior to the expiration of the 45-day waiting period required by IRS procedures.
  • Twenty-one taxpayers (7 percent) did not have appropriate information added to their computer accounts to show the taxpayers had been notified of the IRS’ plans to levy.
  • Sixty-one taxpayers (21 percent) did not have appropriate information added to their computer accounts’ history to show the initially requested levy had been destroyed.
  • While conducting tests at 1 ACS Call Site, we also determined that 332 Notices of Intent to Levy and Notice of Your Right to a Hearing (LT11s) were automatically generated and mailed to taxpayers without the accounts being reviewed to determine if levy was the next action, as required. Our review of a judgmental sample of 41 of these accounts showed the IRS should not have mailed notices to 20 taxpayers because levy was not the next action that needed to be taken.

On March 12, 1999, we advised Customer Service management of potential levy due process issues we identified during our initial testing at the ACS Call Sites. The issues included LT11s and levies that had been issued without following provisions in 26 U.S.C. 6330 (1986) and without following instructions in a message sent on February 17, 1999, from the Assistant Commissioner (Customer Service). Customer Service management immediately initiated action to correct these problems. They issued instructions which required that all LT11s and levies be reviewed prior to mailing to ensure that all legal and internal procedures were followed.

Summary of Recommendations

Although the IRS has made some progress in correcting the problems identified in the Customer Service functions, additional actions are needed to ensure that all IRS employees comply with the levy provisions in 26 U.S.C. 6330 (1986) and the IRS’ own internal procedures. We recommend that Collection and Customer Service management develop additional safeguards to ensure that employees follow the applicable legal and IRS procedures for issuing levies. Also, Collection and Customer Service management should request an opinion from the IRS Chief Counsel on those levy cases in which money may have been taken improperly, to determine if restitution to the taxpayers is warranted.

Management’s Response: IRS management agreed to implement additional safeguards to ensure that employees comply with the levy provisions in 26 U.S.C. 6330 (1986) and the IRS’ own internal procedures. This will be accomplished by programming changes to computers systems and by allowing only the highest grade employees in the Customer Service functions to issue levies. IRS management also agreed to consult with IRS District Counsel to determine if restitution is appropriate for cases where levies were issued without following the law, and proceeds were received from the levy source.

Management’s complete response to the draft report is included as Appendix VII.

Objective and Scope

The overall objective of this review was to determine if levies issued by the Internal Revenue Service (IRS) comply with the legal provisions in 26 U.S.C. 6330 (1986). We also evaluated compliance with the IRS’ internal levy guidelines in the Internal Revenue Manual (IRM). We were not able to evaluate the appeals process because, at the time of our review, none of the cases had completed the appeals process in the districts we visited. We plan to conduct a separate review of this area.

We performed audit work in the IRS National Office; the Georgia, Gulf Coast, South Texas, Southern California, and Pennsylvania District Offices; and the Atlanta, Austin, Philadelphia, and Seattle Automated Collection System (ACS) Call Sites from January to June 1999. District offices are those in which IRS employees make personal (face-to-face) contact with taxpayers for collection purposes. These employees work in the Collection Field function (CFf). ACS Call Sites are part of the Customer Service function. Employees in ACS Call Sites use the telephone to contact taxpayers for collection purposes. We performed this audit in accordance with Government Auditing Standards.

To accomplish our objective, we:

  • Reviewed relevant legal and internal levy procedures.
  • Interviewed managers from the Collection, Appeals and ACS functions to identify procedures for complying with the new intent to levy notification provision of 26 U.S.C. 6330 (1986).
  • Analyzed 284 taxpayer accounts (involving 291 levies) for compliance with 26 U.S.C. 6330 (1986).1 This includes all levies issued in 5 district offices, all levies generated by employees in 4 ACS Call Sites, and a random sample of 60 of 2,358 levies systemically generated by computers in 1 ACS Call Site.
  • Reviewed a judgmental sample of 41 of 332 Notices of Intent to Levy and Notice of Your Right to a Hearing (LT11) systemically generated in 1 ACS Call Site for compliance with IRS levy procedures.

Details of our audit objective, scope, and methodology are presented in Appendix I. Major contributors to this report are listed in Appendix II.

Background

On July 22, 1998, the President signed into law the Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) (referred to as RRA 98). RRA 98 added 26 U.S.C. 7803(d)(1)(A)(iv) (1986), which requires the Treasury Inspector General for Tax Administration to annually evaluate the IRS’ compliance with levy provisions in 26 U.S.C. 6330 (1986).

Beginning January 19, 1999, 26 U.S.C. 6330 (1986) requires the IRS to advise taxpayers of their right to have their case heard by the Appeals Office, and potentially a court, prior to the IRS taking money from taxpayers’ bank accounts, employers or other parties to pay delinquent taxes. This taking of money is commonly referred to as a "levy." The IRS must wait at least 30 calendar days from the date the taxpayer is notified before issuing a levy. In most cases, the IRS routinely expands this waiting period to 45 days to allow for mailing and processing time.

There has been a drastic decrease in the number of levies issued by the IRS in the past three years.

LEVIES ISSUED BY IRS

Fiscal Year

ACS Levies

CFf Levies

1997

2,968,489

719,142

1998

2,029,928

473,481

19992

391,540

81,799

Synopsis of the IRS Collection Process

The collection of unpaid tax begins with a series of letters (notices) mailed to the taxpayer advising of the debt and asking for payment of the delinquent tax. The IRS computer systems are programmed to mail these notices when certain criteria are met. If the taxpayer does not respond to these notices, the account is transferred for either telephone or personal contact.

  • IRS employees who make telephone contact with taxpayers work in ACS Call Sites in Customer Service offices. The computer system used in these sites is known as the ACS.
  • IRS employees who make personal contact with taxpayers are called revenue officers (RO) and work in the CFf in IRS district offices. The computer system used in the district offices to track collection actions taken on taxpayer accounts is called the Integrated Collection System (ICS).

The ACS generates LT11s and levies by the following methods (see Appendix VI for an example of a LT11).

  • Systemic - IRS computers automatically analyze taxpayers’ accounts and systemically generate LT11s and levies for delinquent taxpayer accounts that meet certain criteria.
  • Manual - When levy is not the next action, the ACS computer assigns the taxpayer’s account to an employee within ACS, according to the type of work needed. The employee then completes the work, such as identifying taxpayer addresses or a levy source. When issuing a levy is the next action to be taken, the employee can manually generate the LT11, and after the required waiting period, can generate the levy.

Generally, the notices and levies requested in ACS are printed and mailed from the service center collection branch, which may be in another city or another location within the same city as the ACS Call Site.

In the CFf, ROs determine when issuing a levy should be the next action to take on a taxpayer’s account. The RO prepares a letter (L1058) and mails it to the taxpayer (see Appendix V for an example of a L1058). The RO is responsible for waiting 45 days from the date of the letter before mailing the levy to the taxpayer’s bank(s) and/or employer(s). There is no managerial review of this process before the notice or levy is mailed.

The following information explaining the taxpayers’ rights is mailed with both the L1058 and the LT11:

  • The IRS Collection Process (Publication 594).
  • Collection Appeal Rights (Publication 1660).
  • Request for a Collection Due Process Hearing
    (Form 12153).

In addition, certain codes are input to the IRS’ primary computer system for recording taxpayer account activity to indicate the levy notice was mailed and whether the taxpayer received the notice. This primary computer system is referred to as the Integrated Data Retrieval System (IDRS).

Codes are input to the ACS to show when levies are generated and when a request for a levy is cancelled. Comments are also input to the taxpayer’s account on IDRS, ACS and ICS to show actions taken on the case. In addition, certified mail listings can be used to determine whether LT11s were actually mailed to taxpayers.

Results

After passage of 26 U.S.C. 6330 (1986), IRS management developed guidelines and procedures to comply with the new levy requirements. For example:

  • Information was provided to IRS employees to ensure that taxpayers were advised of their right to a hearing and of the IRS’ intent to levy at least 45 days before levies were issued. This information explained changes in the law, as well as how employees are affected, and was disseminated through electronic mail, bulletin boards, voice mail, memoranda, and publications.
  • New letters were developed to explain the taxpayers’ rights and procedures were put in place to provide hearings to taxpayers who request them.
  • Customer Service management developed procedures to intercept (and not mail) LT11s automatically generated by computer systems when levy action was not imminent. Similar procedures were used to prevent a levy from being mailed before the taxpayer is notified that a levy would be issued.

However, the efforts to fully implement the changes in 26 U.S.C. 6330 (1986) related to taxpayer levies were not effective. As a result, in some instances taxpayers’ rights may have been violated, which could result in the IRS having to make restitution to some taxpayers.

IRS management’s planned efforts to suppress computer functions, which automatically generate and mail notices and levies from ACS, and additional employee training will help the IRS comply with levy provisions in 26 U.S.C. 6330 (1986). The remainder of this report addresses the specific results of our work.

The Internal Revenue Service Did Not Always Follow Legal Provisions and Its Own Procedures for Issuing Levies

New levy procedures have not been effectively implemented in the IRS offices that we tested. The IRS did not consistently notify taxpayers of their appeal rights and of the intent to levy as required by 26 U.S.C. 6330 (1986), and notices were mailed to taxpayers when levy action was not imminent. In both the CFf and the ACS Call Sites, whenever taxpayers were not notified of the intent to levy, they also were not sent important publications and forms explaining their rights related to the collection and appeals processes and how to request a hearing.

Because processes and procedures are different in the ACS Call Sites and the CFf, we are presenting the results of each function separately.

Automated Collection System Call Sites3

We analyzed 112 taxpayer accounts with manually requested levies and a sample of 60 taxpayer accounts with systemically generated levies. These levies were requested between mid-January and mid-April 1999 from four ACS Call Sites. We identified the following legal provisions and IRS procedures that were not followed:

Legal Provisions Not Followed

  • Thirty-five taxpayers’ accounts (31 percent) had levies manually requested by employees and mailed without notifying taxpayers of their appeal rights and of the IRS’ intent to levy. These issues were identified in two of the four ACS Call Sites we reviewed.
  • One taxpayer (1 percent) was advised of the appeal rights and the IRS’ intent to levy after the levy was manually requested and issued.
  • Four taxpayers’ accounts (7 percent) had levies systemically generated by the IRS’ computer program and mailed without notifying the taxpayers of their appeal rights and of the IRS’ intent to levy. These four accounts involved business taxpayers. We conducted further analysis and identified an additional 112 business taxpayer accounts with systemic levies. We did not analyze these levies to determine if they were mailed to taxpayers. However, ACS Call Site management agreed that these 112 levies were presumably mailed. This test was conducted in one ACS Call Site.

Internal Revenue Service Procedures Not Followed

  • Sixty-one of the 172 ACS taxpayers (35 percent) did not have their accounts updated to indicate that requested levies were not sent. These included taxpayers with systemically generated and manually requested levies. The levies were not sent because the taxpayers had not been properly notified of their appeal rights and of the IRS’ intent to levy.
  • While conducting work in 1 ACS Call Site, we also determined that 332 LT11s were automatically generated on two dates in early February 1999 and mailed to taxpayers without the accounts being reviewed to determine if levy was the next planned action, as required. We reviewed a judgmental sample of 41 accounts and determined that 204 LT11s would not have been mailed had the accounts been reviewed.
  • Nine taxpayers (22 percent) were issued LT11s, although the IRS did not have a levy source available for the taxpayers.
  • Seven taxpayers (17 percent) were making payments on their accounts when the LT11s were issued. One taxpayer had been making monthly payments since June 1995 and had missed only one payment in 1996. The most recent payment had posted to his account in the month prior to when the LT11 was issued.
  • Three taxpayers (7 percent) had been in contact with Customer Service employees and were attempting to resolve the unpaid tax prior to the issuance of the LT11.
  • Two taxpayers (5 percent) could have had their outstanding balances resolved by ACS Call Site employees rather than through the issuance of the LT11. For example, one taxpayer overpaid his current liability by enough to pay his outstanding balance. The transaction posted six days before the LT11 was sent.

The ACS Call Site terminated the issuance of the LT11s on February 25, 1999, when IRS management became aware that LT11s should no longer be systemically generated and mailed.

Customer Service management established various procedures to comply with the new levy provisions in 26 U.S.C 6330 (1986). However, these procedures were not always followed. For example:

  • Procedures were established to destroy all systemic levies and notices generated during a certain time period by IRS computers. However, due to a misunderstanding, systemic levies for business taxpayers were mailed instead of being destroyed.
  • Procedures were established for employees to update taxpayers’ accounts to show that levies initially requested were not mailed. However, employees did not always follow these procedures.
  • Procedures were established to review all systemically generated LT11s to determine if levy was the next planned action. However, these procedures were not always followed.

Another factor that may have contributed to the problems cited above is the fact that the ACS Call Sites do not have standard inventory listings to identify levies that are actually printed or mailed. As a result, ACS management does not have a way to easily identify inadvertent generation and mailing of levies, or what actions may or may not have been taken on taxpayers’ accounts.

Computer programming, when accomplished later this year, should suppress the systemic notices and levies from printing.

Collection Field Function5

We analyzed a sample of 112 taxpayer accounts in 5 district offices with levies requested between January 19 and February 28, 1999. Although IRS computer records indicated that these levies were generated without following the new legal procedures in 26 U.S.C. 6330 (1986), we determined that 60 taxpayer accounts had either valid reasons for issuing the levies, or the levies were printed but never mailed. However, 13 of the 60 were issued without following IRS procedures. Two of the accounts contained multiple procedural issues.

The remaining 52 of the 112 taxpayer accounts had levies issued without following the legal procedures in26 U.S.C. 6330 (1986). Twelve of the 52 accounts had levies issued without following IRS procedures. The legal and internal procedures that were not followed were identified in five offices and two offices, respectively. (NOTE: These 112 accounts are not the same accounts as those shown in the ACS section of the report.)

Legal Provisions Not Followed

  • Thirty-five taxpayers’ accounts (31 percent) had levies issued to levy sources by the IRS without the taxpayer being notified of their appeal rights and of the IRS’ intent to levy.
  • Eleven taxpayers (10 percent) were notified of their appeal rights and of the IRS’ intent to levy after the levies were issued.
  • Six taxpayers (5 percent) were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued to levy sources by the IRS prior to the expiration of the 30-day waiting period required by 26 U.S.C. 6330 (1986). In two of these cases, the taxpayers requested that the IRS issue the levy prior to the expiration of the waiting period. The IRS has requested an opinion from its Office of Chief Counsel to determine the legality of the actions in these two cases.

Internal Revenue Service Procedures Not Followed

  • Six taxpayers (5 percent) were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued prior to the expiration of the 45-day waiting period required by IRS procedures.
  • Twenty-one taxpayers’ (19 percent) IDRS accounts were not updated to show that the taxpayers were sent notification of their appeal rights and of the IRS’ intent to levy.

IRS procedures require employees to notify taxpayers of their appeal rights and of the IRS’ intent to levy and wait 45 days before issuing the levy. Procedures also require that codes be input to the IDRS computer system when a L1058 is issued to a taxpayer. However, these procedures were not always followed.

Taxpayers’ rights were potentially violated because the IRS did not fully comply with the levy provisions in 26 U.S.C. 6330 (1986). As a result, the IRS may have to make restitution to taxpayers for proceeds received from improper levies. Also, when taxpayers’ accounts are not properly updated to reflect actions taken, employees working those taxpayers’ accounts in the future will not have knowledge of all actions taken on the accounts.

Recommendations

Although the IRS has made some progress in correcting the above issues, additional actions are needed to ensure that all IRS employees comply with the levy provisions in 26 U.S.C. 6330 (1986) and the IRS’ own internal procedures. We recommend that IRS management in the Collection and Customer Service functions do the following:

  1. Develop methods to ensure taxpayers are notified of their right to a hearing and of the IRS’ intent to levy before a levy is issued. For example, after we identified levies that had been issued without first notifying the taxpayer, Customer Service management implemented a review of all levies before they are mailed to ensure the taxpayer was previously notified, as required.

    Management’s Response: CFf personnel changed ICS computers. Now, when a Revenue Officer is issuing a notice of levy, ICS checks whether a L1058 has been issued for the liabilities included on the levy. If the letter has not been issued, or if 30 days have not passed since it was issued, ICS will not allow the revenue officer to issue the levy.

    Customer Service officials made changes to ACS which prevent systemic generation of levies and LT11s, and they will make computer changes to prevent ACS computers from generating levies unless a due process notice was sent at least 30 days prior to the levy request.

  2. Develop safeguards, such as a quality review system, to prevent notices from being mailed to taxpayers unless issuing a levy is the next planned action on a case.

    Management’s Response: CFf management plans to have ICS computers check on whether there is a levy source when ROs ask for L1058s to be generated. If there is no levy source, a L1058 will not be printed. The computer will also ask "Is levy or seizure your next planned action?" If the RO answers no, the letter will not print.

    In June 1999, Customer Service management implemented changes that prevent ACS computers from issuing systemic LT11s. Also, in August 1999, Customer Service management separated pre-levy and levy actions into two processing units to provide better management control over these activities.

  3. Identify all levies that were issued without properly notifying the taxpayer and any resulting proceeds received from the levies. Determine, with advice from legal counsel, what steps the IRS should take regarding any money received as a result of issuing improper levies.

Management’s Response: Collection and Customer Service management plan to consult with IRS Counsel to determine if restitution is appropriate where legal requirements for levies were not satisfied and proceeds were received from taxpayers.

Conclusion

The IRS needs to improve its compliance with legal provisions and internal guidelines for informing taxpayers of their appeal rights before issuing levies. By not following levy procedures in 26 U.S.C. 6330 (1986) and its own guidelines, the IRS:

  • Potentially violated taxpayers’ rights by not informing them of planned levy actions prior to issuing levies.
  • Mailed LT11s when issuing a levy was not the next action.
  • Did not keep computer systems updated with current information.

As a result, the IRS:

  • May have to make restitution to taxpayers for proceeds received from improper levies.
  • May have caused taxpayers to have undue concern when they received improper notices.
  • May not have the most current information about taxpayer accounts on their computer systems.
  • Created additional work by issuing levies improperly.

Appendix I

Detailed Objective, Scope, and Methodology

The overall objective of this audit was to determine if levies issued by the Internal Revenue Service (IRS) comply with the legal guidelines in 26 U.S.C. 6330 (1986), which were added by the Restructuring and Reform Act, Pub. L. No. 105-206, 112 Stat. 685 (1998) (referred to as RRA 98). We performed the following work:

  1. Determined whether new notice and levy procedures mandated by 26 U.S.C. 6330 (1986) were in place for informing taxpayers of their appeal rights and ensuring that eligible taxpayers requesting a hearing were granted one, by discussing the requirements with IRS management in National Office Collection, Appeals, and Customer Service functions; Collection management in five districts; Appeals management in six districts; and Automated Collection System (ACS) management in four ACS Call Sites.
  2. Determined whether levies issued by the Collection Field function were preceded by the Notice of Intent to Levy and Notice of Your Right to a Hearing (L1058) by performing the following steps:
    1. Obtained an Integrated Collection System (ICS) listing of all levies issued between January 19 and February 28, 1999, from the Assistant Commissioner (Collection). We could not identify an independent method to validate the listings received from the Assistant Commissioner (Collection). Therefore, we accepted the information as provided by IRS management and did not validate whether these were all the levies issued. We did not include a sample of levies issued in the 12 IRS district offices that are not using the ICS to track collection actions because neither we nor IRS management could determine a way to easily identify levies issued in those districts.
    2. Analyzed all 112 taxpayers’ accounts obtained from the ICS listing in step II.A. above for the Georgia, Gulf Coast, Pennsylvania, Southern California, and South Texas Districts using the ICS history and Integrated Data Retrieval System (IDRS) information.
      1. Determined whether the new L1058 was issued to taxpayers at least 30 calendar days prior to issuing the levy by reviewing the ICS history and other account information of the taxpayers.
      2. Determined whether the new L1058 was issued to taxpayers at least 45 calendar days prior to issuing the levy by reviewing the ICS history and other account information of the taxpayers.
      3. Determined whether appropriate codes were input to the taxpayers’ accounts if the L1058 was issued.
      4. Determined whether subsequent codes were input to the taxpayers’ accounts to show whether the L1058s were delivered to the taxpayers, refused by the taxpayers, or returned undelivered.
      5. Determined whether appropriate publications and forms explaining taxpayer rights were mailed to the taxpayers.
  3. Determined whether levies issued by the ACS Call Sites were preceded by the appropriate Notice of Intent to Levy and Notice of Your Right to a Hearing (LT11) by performing the following steps:
    1. Obtained computer extracts of all taxpayer accounts with an indication that a levy was requested between mid-January and mid-April 1999 from the Atlanta, Seattle, Philadelphia, and Austin ACS Call Sites. We could not identify an independent method to validate the information received from the call sites. Therefore, we accepted the information provided by IRS management and did not validate whether these were all the levies issued.
    2. Analyzed all 112 taxpayers’ accounts with a manual levy request identified by the extract in step III.A. above using the ACS history and taxpayer account information from the IDRS computer system. (NOTE: These 112 accounts are not the same accounts as those shown in step II.B. above.)
      1. Determined whether the new LT11 was issued to the taxpayers at least 30 calendar days prior to requesting the levy by reviewing the ACS history and other account information of the taxpayers.
      2. Determined whether the new LT11 was issued to the taxpayers at least 45 calendar days prior to requesting the levy by reviewing the ACS history and other account information of the taxpayers.
      3. Determined whether appropriate computer codes were input to taxpayers’ accounts if the LT11 was issued.
      4. Determined whether subsequent codes were input to show whether the LT11s were delivered to the taxpayers, refused by the taxpayers, or returned undelivered.
      5. Determined whether appropriate publications and forms explaining taxpayer rights were mailed to the taxpayers.
    3. Analyzed a sample of 60 of 2,358 taxpayers’ accounts with systemically generated levies in 1 ACS Call Site. The sample of accounts was selected from random number tables using discovery sampling techniques. We used the ACS history and taxpayer account information from the IDRS computer system to complete the analysis.
      1. Determined whether the new LT11 was issued to the taxpayers at least 30 calendar days prior to requesting the levy by reviewing the ACS history and other account information of the taxpayers.
      2. Determined whether the new LT11 was issued to the taxpayers at least 45 days prior to requesting the levy by reviewing the ACS history and other account information of the taxpayers.
      3. Determined whether appropriate computer codes were input to taxpayers’ accounts if the LT11 was issued.
      4. Determined whether subsequent codes were input to show whether the LT11s were delivered to the taxpayers, refused by the taxpayers, or returned undelivered.
      5. Determined whether appropriate publications and forms explaining taxpayer rights were mailed to taxpayers.
    4. Analyzed a judgmental sample of 41 of the 332 computer generated LT11s from 1 ACS Call Site using the ACS history and other account information to determine if levy was the next action to be taken.
  4. Analyzed levy due process appeals cases received from January 19 to March 31, 1999, to determine if the cases were processed in accordance with 26 U.S.C. 6330 (1986). (NOTE: This step was not completed. Please see impairment statement on page 1 of the report.)

 

Appendix II

Major Contributors to This Report

Maurice S. Moody, Associate Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

M. Susan Boehmer, Director

Thomas H. Black, Acting Director

Deborah H. Glover, Audit Manager

Alan D. Lund, Acting Audit Manager

Edmond G. Watt, Audit Manager

Gary L. Young, Audit Manager

Philip D. Adams, Senior Auditor

Thomas W. Dalton, Senior Auditor

Deadra M. English, Senior Auditor

Kenneth C. Forbes, Senior Auditor

Gerald T. Hawkins, Senior Auditor

Joanola Rose, Senior Auditor

D. Hal Schultz, Senior Auditor

Dale E. Schulz, Senior Auditor

James M. Traynor, Senior Auditor

Richard J. Viscusi, Senior Auditor

Doug C. Barneck, Auditor

Debra D. Dunn, Auditor

Cari D. Fogle, Auditor

Jackie E. Forbus, Auditor

Steve Gibson, Auditor

Cindy J. Harris, Auditor

David L. Hartman, Auditor

Erin K. Kaauwai, Auditor

Kristi L. Larson, Auditor

Frank I. Maletta, Auditor
George E. Millard, Auditor
Tina M. Parmer, Auditor
Craig L. Pelletier, Auditor
Susan A. Price, Auditor
Bonnie G. Shanks, Auditor
Jeffery A. Smith, Auditor

Steven D. Stephens, Auditor

Ronnie Summers, Auditor

Esther M. Wilson, Auditor

David B. Yorkowitz, Auditor

Appendix III

Report Distribution List

Deputy Commissioner for Operations C:DO

Chief Operations Officer OP

Assistant Commissioner (Collection) OP:CO

Assistant Commissioner (Customer Service) OP:C

Assistant Commissioner (Program Evaluation and Risk Analysis) M:OP

National Director for Legislative Affairs CL:LA

Office of Management Controls M:CFO:A:M

Audit Liaisons:

Chief Operations Officer

Assistant Commissioner (Collection)

Assistant Commissioner (Customer Service)

Appendix IV

Outcome Measures

This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to the Congress.

Finding and recommendation:

The Internal Revenue Service (IRS) did not always follow legal provisions and its own procedures for issuing levies. As a result, the IRS may have to make restitution to taxpayers for proceeds received from improper levies. We recommend that Collection and Customer Service management develop additional safeguards to ensure that employees follow the applicable legal and IRS procedures for issuing levies. Also, Collection and Customer Service management should request an opinion from the IRS Chief Counsel on those levy cases in which money may have been taken improperly to determine if restitution to the taxpayers is warranted.

Legal Provisions Not Followed – The IRS did not consistently notify taxpayers of their appeal rights and of its intent to levy 30 calendar days prior to issuing a levy, as required by 26 U.S.C. 6330 (1986). From a review of 284 taxpayer accounts, we determined that provisions in 26 U.S.C. 6330 (1986) were not followed in 92 of the accounts (32 percent). The legal provisions that were not followed included 74 taxpayers (26 percent) who were not notified of their appeal rights or of the IRS’ intent to levy; 12 taxpayers (4 percent) who were notified of their appeal rights and of the IRS’ intent to levy after the levies were issued; and 6 taxpayers (2 percent) who were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued by the IRS prior to the expiration of the 30-day waiting period. (Pages ii and iii)

We also identified an additional 112 business taxpayer accounts that had levies automatically generated by IRS computers and presumably mailed to levy sources without the taxpayers being notified of their appeal rights and of the IRS’ intent to levy. (We did not analyze these levies to determine if they were mailed to taxpayers; however, IRS management agreed that the levies were presumably mailed on these accounts.) These levies were mailed due to a misunderstanding of procedures which required that the levies be destroyed. (Pages 7 and 9)

Internal Revenue Service Procedures Not Followed – The IRS did not consistently follow its own procedures for issuing levies. These procedures are found in the IRS’ Internal Revenue Manual. From a review of 284 taxpayer accounts, we determined that 6 taxpayers (2 percent) were notified of their appeal rights and of the IRS’ intent to levy, but levies were issued by the IRS after 30 calendar days but prior to the expiration of the 45-day waiting period required by IRS procedures; 21 taxpayers (7 percent) did not have appropriate information added to their computer accounts to show the taxpayers had been notified of the IRS’ plans to levy; and 61 taxpayers (21 percent) did not have appropriate information added to their computer account history to show the initially requested levy had been destroyed. (Page iii)

In addition, in 1 office, 332 Notices of Intent to Levy and Notice of Your Right to a Hearing (LT11) were automatically generated by IRS computers and mailed to taxpayers without the accounts being reviewed to determine if levy was imminent. Our review of a judgmental sample of 41 of these notices showed that 20 notices should not have been mailed because issuing the levy was not the next action needed on these cases. (Page 8)

Type of Outcome Measure: Taxpayer Rights and Entitlements

This is a potential outcome measure.

Value of the Benefit:

We determined that the IRS issued levies to levy sources for 204 taxpayers which potentially violated the taxpayers’ rights and the levy provisions in 26 U.S.C. 6330 (1986). Since only a court of law or a legal expert can determine if the taxpayer’s rights were actually violated, this is a potential outcome. Also, because of the IRS methods used to apply levy proceeds to taxpayers’ accounts, we could not accurately determine the potential proceeds received from improper levies issued in the sample of cases we reviewed.

Methodology Used to Measure the Reported Benefit:

We determined whether levies issued by the Collection Field function (CFf) and by Automated Collection System (ACS) Call Sites were preceded by the appropriate due process notice advising taxpayers of their right to appeal, and of the IRS’ intent to levy, by performing the following steps.

Collection Field Function – We obtained an Integrated Collection System (ICS) listing of all levies issued between January 19 and February 28, 1999, from the Assistant Commissioner (Collection). We did not include a sample of levies issued in the 12 IRS district offices that are not using the ICS to track collection actions because neither we nor IRS management could determine a way to easily identify levies issued in those districts.

We analyzed all 112 taxpayers’ accounts from the ICS listing for the Georgia, Gulf Coast, Pennsylvania, Southern California, and South Texas Districts using the ICS history and Integrated Data Retrieval System (IDRS) information. We determined whether the new Notice of Intent to Levy and Notice of Your Right to a Hearing (L1058) was issued to taxpayers at least 30 calendar days prior to issuing the levy, by reviewing the ICS history and other account information for the taxpayers.

Automated Collection System – We obtained computer extracts of all taxpayer accounts with an indication that a levy was requested between mid-January and mid-April 1999 from the Atlanta, Seattle, Philadelphia, and Austin ACS Call Sites. We analyzed all 112 taxpayers’ accounts with a manual levy request, using the ACS history and taxpayer account information from the IDRS computer system. (NOTE: These 112 accounts are not the same accounts as those shown for the CFf.) We determined whether the new LT11 was issued to the taxpayers at least 30 calendar days prior to requesting the levy.

We also expanded our work in two areas.

  • We analyzed a sample of 60 of 2,358 taxpayers’ accounts with systemically generated levies in 1 ACS Call Site. The sample of accounts was selected from random number tables using discovery sampling techniques. We determined whether the new LT11 was issued to the taxpayers at least 30 calendar days prior to requesting the levy using the ACS history and taxpayer account information from the IDRS computer system.
  • We analyzed a judgmental sample of 41 of 332 LT11s automatically generated and mailed to taxpayers on 2 dates in early February 1999 from 1 ACS Call Site. We determined whether levy was imminent and whether the LT11s should have been mailed to taxpayers.

Appendix V

 

Example of Letter 1058 (DO) (Rev. 1-1999)

Internal Revenue Service Department of the Treasury

Letter Number: 1058 (DO)

Letter Date:

Social Security Number or

Employer Identification Number:

Person to Contact:

CERTIFIED MAIL – RETURN RECEIPT Contact Telephone Number:

 

FINAL NOTICE

NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING

PLEASE RESPOND IMMEDIATELY

Your federal tax is still not paid. We previously asked you to pay this, but we still haven’t received your payment. This letter is your notice of our intent to levy under Internal Revenue Code (IRC) Section 6331 and your right to receive Appeals consideration under IRC Section 6330.

We may file a Notice of Federal Tax Lien at any time to protect the government’s interest. A lien is a public notice to your creditors that the government has a right to your current assets, including any assets you acquire after we file the lien.

If you don’t pay the amount you owe, make alternative arrangements to pay, or request Appeals consideration within 30 days from the date of this letter, we may take your property, or rights to property, such as real estate, automobiles, business assets, bank accounts, wages, commissions, and other income. We’ve enclosed Publication 594 with more information, Publication 1660 explaining your right to appeal, and Form 12153 to request a Collection Due Process Hearing with Appeals.

To prevent collection action, please send your full payment today. Make your check or money order payable to U.S. Treasury. Write your social security number or employer identification number on your payment. Send your payment to us in the enclosed envelope with a copy of this letter. The amount you owe is:

Form

Number

Tax

Period

Unpaid Amount

From Prior Notices

Additional

Penalty & Interest

Amount You Owe

 

 

 

(over) Letter 1058 (DO) (Rev. 1-1999)

Cat. No. 40488S

 

If you have recently paid this tax or you can’t pay it, call us immediately at the telephone number shown at the top of this letter and let us know.

The unpaid amount from prior notices may include tax, penalties and interest you still owe. It also includes any credits and payments we’ve received since we sent our last notice to you.

Sincerely Yours,

 

 

District Director

 

 

 

 

 

 

 

 

 

 

Enclosures:

Copy of this letter

Pub 594

Pub 1660

Form 12153

Letter 1058 (DO) (Rev. 1-1999)

Cat. No. 40488S

Appendix VI

Example of Letter 1058 (Rev. 01-1999) (LT11)

Date:

Taxpayer Identifying Number:

Contact Telephone Number:

TOLL FREE: 1-800-XXX-XXXX

Best Time to Call: 7:30 am to 3 pm

Expect Answer Delays: 4 pm to 6 pm

Department of the Treasury

Internal Revenue Service

P.O. Box XX-XX

Anytown, U.S.A. 00000

Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing

Please Respond Immediately

You have not paid your federal tax. We previously asked you to pay but we still haven’t received full payment. This letter is your notice of our intent to levy under Internal Revenue Code Section (IRC) 6331 and your notice of a right to receive Appeals consideration under IRC 6330. PLEASE CALL US IMMEDIATELY at the numbers shown above if you recently made a payment or can’t pay the amount you owe.

We may file a Notice of Federal Tax Lien at any time to protect the government’s interest. A lien is public notice to your creditors that the government has a right to your interests in your current assets and assets you acquire after we file a lien.

If you don’t pay this amount, make alternative arrangements to pay, or request Appeals consideration within 30 days from the date of this letter, we may take your property or rights to property such as real estate, automobiles, business assets, bank accounts, wages, commissions, and other income to collect the amount you owe. See the enclosed Publication 594, Understanding the Collection Process, for additional information about this and see Publication 1660 which explains your right to a hearing. The enclosed Form 12153 is used to request a hearing.

To prevent enforced collection actions, please send us full payment today for the amount you owe shown on the back of this letter. Make your check or money order payable to the United States Treasury. Write your social security number or employer identification number and the tax year on your payment. Send your payment in the enclosed envelope with a copy of this letter.

Enclosures:

Copy of letter

Form 12153

Publication 594 Chief, Automated Collection Branch

Publication 1660

Envelope

 

Letter 1058 (Rev. 01-1999)(LT11)

Account Summary

Type of

Tax

Period Ending

Assessed

Balance

Statutory Additions

Total

Total Amount Due $

Type of

Tax

Period Ending

Name of Return

Department of the Treasury – Internal Revenue Service

Appendix VII

 

Management’s Response to the Draft Report

 

Response has been removed due to its size. To see the complete Response, please go to the Adobe PDF version of this report.

 

 

Copyright Chris Hansen

By: Chris Hansen
Last revision: August 14, 2009 08:07 AM
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