TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Fiscal Year 2016 Statutory Review of Compliance with Notice of Federal Tax Lien Due Process Procedures 

Final Report issued on July 7, 2016

Highlights

Highlights of Reference Number:  2016-30-047 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.

IMPACT ON TAXPAYERS

After filing a Form 668(Y)(c), Notice of Federal Tax Lien (NFTL), the IRS must notify the affected taxpayers in writing, at their last known address, within five business days of the NFTL filings.  Taxpayers’ rights to timely appeal the NFTL filings may be jeopardized if the IRS does not comply with this statutory requirement.

WHY TIGTA DID THE AUDIT

TIGTA is required by law to determine annually whether lien notices issued by the IRS comply with the legal requirements set forth in Internal Revenue Code Section 6320(a).

WHAT TIGTA FOUND

TIGTA reviewed a statistically valid sample of 133 NFTLs filed for the 12-month period beginning July 1, 2014 and ending June 30, 2015, and determined that the IRS timely and correctly mailed the copy of NFTL filing and appeal rights to the taxpayers’ last known address, as required by Internal Revenue Code Section 6320(a).

However, tests of a judgmental sample of 162 undelivered lien notices identified nine cases for which lien notices were not timely sent to the taxpayers’ last known addresses because the lien notices were sent to the taxpayers’ old addresses even though IRS systems reflected their new addresses.  Among the nine, seven sampled lien notices were not sent to the secondary taxpayers’ last known addresses because employees did not identify separate addresses for taxpayers’ spouses.  Both notices were instead sent to the primary taxpayers’ addresses.  Although the IRS reissued lien notices for three of the cases upon receipt of the undelivered lien notices and subsequently reissued lien notices for the remaining six cases, all nine cases involve potential legal violations because the IRS did not meet its statutory requirement to timely send lien notices to the taxpayer’s last known address. 

IRS regulations require that taxpayer representatives be provided copies of all correspondence issued to the taxpayer.  However, for six of the 37 sample cases for which the taxpayer had an authorized representative, the IRS did not notify the taxpayers’ representatives of the NFTL filings.  TIGTA estimated that 22,866 taxpayers may have been adversely affected.

In addition, for 17 of 162 judgmentally sampled undeliverable lien notices, employees did not update the mail status of the lien notice with the appropriate transaction code and action code combination.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Director, Collection, Small Business/Self-Employed Division:  1) determine if programming changes are viable for the systemic upload and use of the secondary taxpayer’s last known address for mailing lien notices for NFTLs with joint liabilities, and require employees requesting an NFTL involving joint liability to research for the last known address of the secondary spouse; 2) make the procedures pertaining to courtesy copies of lien notices applicable to Automated Collection System employees; and 3) remind employees to update the mail status of the lien notice with the appropriate transaction code and action code combination.

In response to the report, IRS officials agreed with all three recommendations.

 READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treasury.gov/tigta/auditreports/2016reports/201630047fr.pdf.