TIGTA Finds Instances of Untimely Lien Notices

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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.

Management's complete response to the draft report is included as Appendix IX.

If you have any questions, please contact me or Matthew A. Weir, Assistant Inspector General for Audit (Compliance and Enforcement Operations).

                            Table of Contents

The Internal Revenue Code (I.R.C.) has long required the IRS to notify taxpayers, in writing, of the filing of an NFTL; however, the IRS Restructuring and Reform Act of 1998⁴ expanded upon this notice requirement, creating I.R.C. Section (§) 6320 to give taxpayers additional rights.⁵ When the first NFTL is filed for a tax period, the notice must be issued within five business days of the filing of the NFTL and inform taxpayers of the right to elect a collection due process hearing (CDP hearing) wherein the taxpayer can raise any relevant issue, including spousal defenses, the appropriateness of the collection actions, and collection alternatives. The lien notice is used for this purpose and advises taxpayers that they have 30 calendar days, after that five-day period, to request a CDP hearing with the IRS's Office of Appeals.⁶ The lien notice indicates the date on which this 30-day period expires. By policy, the IRS generally suspends levy action for the tax periods on the NFTL from when the taxpayer requests the CDP hearing until the conclusion of the CDP hearing, including the period covering any request for judicial review.

The law also requires that the lien notice explain, in simple terms, the amount of unpaid tax, other administrative appeal rights available to the taxpayer, and provisions of the law and procedures relating to the release of the lien on the property. The lien notice must be given in person, left at the taxpayer's home or business, or sent by certified or registered mail to the taxpayer's last known address.

Depending on employee access and case status, NFTL requests can be generated using one of three IRS systems: 1) the Integrated Collection System (ICS), 2) the Automated Collection System (ACS), or 3) the Automated Lien System (ALS).⁷

In Fiscal Year 2011, the IRS implemented the Fresh Start initiative to provide aid to struggling taxpayers.⁸ This initiative increased the threshold for when NFTL filing determinations are generally made from $5,000 to $10,000, resulting in fewer NFTLs filed. In recent years, declining Collection program resources have also contributed to the downward trend of NFTL filings. Figure 1 shows the number of NFTLs filed for Fiscal Years 2011 through 2015 and that the number of NFTLs filed decreased from to 535,580 to 515,247 (4 percent) between Fiscal Years 2014 and 2015.

 

Figure 1: Number of NFTLs Filed for

 

Fiscal Years 2011 Through 2015

 

 

 

Also, I.R.C. § 6320(c) provides that for purposes of a taxpayer's appeal of an NFTL, certain paragraphs of I.R.C. § 6330 shall apply.⁹ Specifically, if a hearing is requested for the NFTL filing, policy is that levy actions generally shall be suspended for the period during which such hearing and appeals therein are pending.¹⁰

The Treasury Inspector General for Tax Administration (TIGTA) is required to determine annually whether the IRS complied with the law pertaining to CDP rights when filing NFTLs.¹¹ This is our eighteenth annual audit to determine whether the IRS complied with the legal requirements of I.R.C. § 6320(a) and its own related internal guidelines for issuing lien notices.¹² This year we are reporting that the IRS complied with the law of timely notifying taxpayers at their last known address (based on our review of a statistically valid random sample of lien notices) and that the IRS suspended or did not take any levy action that involved the same tax period as the NFTL under appeal (based on our review of a statistically valid random sample of Appeals cases). However, we identified nine instances in which taxpayers were not timely notified at their last known address during our review of a judgmental sample of undelivered lien notices.

In the previous five years, including this year, we have reported full compliance with the law of timely notifying taxpayers four times and once reported an error rate of 2 percent or less. In all five years, we reported that the IRS had not achieved full compliance with internal guidelines involving power of attorney notifications.

This review was performed at the Small Business/Self-Employed Division's Centralized Lien Processing Operation and the ACS Support function in Fresno, California, and Covington, Kentucky, and with information obtained from the Small Business/Self-Employed Division's Office of Collection Policy in New Carrollton, Maryland, during the period November 2015 through March 2016. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Detailed information on our audit objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.

Tests of a statistically valid random sample of 133 NFTLs from the 506,874 NFTLs filed between July 1, 2014, and June 30, 2015, showed that the IRS timely and correctly mailed a copy of the NFTL and notice of appeal rights to all 133 taxpayers' last known addresses, as required by I.R.C. § 6320(a). Although tests of the random sample of NFTLs did not identify any violations, tests of a judgmental sample of undelivered lien notices showed that the IRS did not always send lien notices to the taxpayer's last known address.¹³

We tested a judgmental sample of 162 undelivered lien notices and identified nine cases in which the IRS did not send the lien notice to the taxpayer's last known address. For the nine lien notices, the taxpayers' addresses on the IRS computer system were updated prior to the cycle the NFTLs were prepared in the ALS. The IRS subsequently sent the notices to the proper addresses; however, the taxpayers' rights were potentially violated because the IRS did not meet its statutory requirement to timely send each lien notice to the taxpayer's last known address when the NFTL was filed.¹⁴ Seven of these nine cases involved a spouse living at a different address. Although the IRS mailed each spouse a separate lien notice, they used the primary taxpayer's address for both spouses. As a result, these seven lien notices were returned to the IRS as undelivered. When there is a joint liability, each spouse should be sent the same notice in separate envelopes addressed respectively to each spouse at his or her last known address, including spouses who share the same address and spouses who reside at different addresses.¹⁵

Although IRS procedures instruct that joint liability taxpayers may have separate addresses and that lien notices must be sent to each spouse at his or her respective last known address, these procedures did not ensure that lien notices were sent to each spouse at his or her respective last known address.¹⁶ The ALS recognizes the joint liability and sends separate notices to each person, but by default the primary taxpayer's address is used to mail the lien notice to the secondary taxpayer. A lien notice is sent to the secondary taxpayer at his or her last known address only if the requestor knows that the secondary taxpayer has a different mailing address and they provide that information to the lien unit.

Recommendation

Recommendation 1: The Director, Collection, Small Business/Self-Employed Division, should 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. Also, revise applicable IRM sections to require employees requesting an NFTL involving joint liability to research Integrated Data Retrieval System (IDRS)¹⁷ for the last known address of the secondary spouse.

Tests of a random sample of 25 open NFTL appeal cases as of March 2016 showed that the IRS suspended or did not take any levy action that involved the same tax period as the NFTL under appeal, as generally required by policy.

The Internal Revenue Service Did Not Always Comply With Regulations for Notifying Taxpayer Representatives

Taxpayer representative information is contained on the Centralized Authorization File (CAF) that is located on the IDRS.¹⁸ Using the IDRS, employees can research the CAF to identify the types of authorizations given to taxpayer representatives. IRS regulations require that any notice or other written communication (or a copy thereof) required or permitted to be given to a taxpayer in any matter before the IRS must be given to the taxpayer and, unless restricted by the taxpayer, to the representative. More specifically, when an NFTL is filed, IRS regulations require that a copy of the lien notice be sent to the taxpayer's representative as soon as possible after the lien notice is sent to the taxpayer.¹⁹ Accordingly, IRS procedures require the requestor of an NFTL to ensure that he or she notifies the Centralized Lien Processing Operation of all powers of attorney that are to be notified. Tests of a statistically valid sample of 133 NFTLs included 37 taxpayers with representatives authorized to receive notifications at the time the NFTLs were filed. For six (16 percent) of 37 cases with an authorized representative, ALS records did not indicate that the IRS sent copies of the lien notices to the taxpayers' representatives.²⁰ Specifically:

• * * * 1 * * * NFTLs were initiated by revenue officers using the ICS, but the power of attorney information posted to the IDRS and was not communicated to the ALS before the lien notices were created for the taxpayers.²¹

• * * * 1 * * *.

• * * * 1 * * *.²²

                 Figure 2: Error Rates Reported on the

In our Fiscal Year 2013 report, we recommended that the IRS revise the NFTL request form to include a checkbox indicating whether a valid power of attorney is required to be sent a copy of the lien notice and establish procedures requiring the lien unit to verify all NFTL requests for which the checkbox is blank.²⁵ Form 12636, Request for Filing or Refiling Notice of Federal Tax Lien, was revised in August 2013 in accordance with our recommendation. In our Fiscal Year 2015 report, we recommended that the IRS establish procedures requiring the lien unit to verify all NFTL requests for which the checkbox on Form 12636, Line 4, is blank.²⁶ In January 2014, the appropriate procedures were revised to require the lien unit to verify all NFTL requests for which the checkbox on Form 12636, Line 4, was blank; however, the procedures could not be fully implemented at that time because the updates to programming for the use of revised Form 12636 were not completed until April 2015. All of the power of attorney exception cases in this year's audit occurred prior to April 2015, before the corrective action for last year's recommendation was completed. Because the corrective action is now in place, it will be evaluated during next year's statutory review. Accordingly, we are not making a recommendation this year.

Management Statement: Management stated that the errors identified were not from a statistically valid sample. As such, they did not agree with our projected outcome measure estimate of 22,866 taxpayers potentially burdened.

Office of Audit Comment: Management's assertion is incorrect. For the taxpayer representative notifications, we used a statistically valid sample approved by TIGTA's contract statistician. During the audit, IRS management stated their view that because not all taxpayers in TIGTA's sample had representatives (37 of 133 sampled taxpayers had representatives), this attribute was confined to a subset of the sample; therefore, projections could not be made. However, TIGTA's projection was based on the total number of taxpayers in the sample, not just the number of taxpayers in the sample who had representatives (6 errors / 133 sample size x 506,874 population = 22,866 taxpayers). It is common that some procedures are not applicable in a portion of cases sampled from a population of taxpayers. TIGTA has used the same methodology in prior years, and the IRS has agreed with the findings and associated outcome measures.

Procedures to Process Undelivered Lien Notices Were Not Always Followed

IRS procedures require that employees send taxpayers another lien notice to a new address if all of the following factors are present:

• The originally mailed notice is returned as undelivered mail.

• Research confirms that the original lien notice was not sent to the last known address.

• The new address was effective prior to the NFTL request.²⁷

We selected a judgmental sample of 162 undelivered lien notices returned to the Cincinnati (86 lien notices) and Fresno (76 lien notices) Campuses in November 2015.³⁰ The sample included returned lien notices identified as undelivered and excluded lien notices marked unclaimed or refused or that had multiple, conflicting return stamps. A test of 162 undelivered lien notices identified 23 lien notices for which the address on the IRS computer system and the original lien notice did not agree. For nine of the 23 notices, the address on the IRS computer system was updated prior to the cycle the NFTL was prepared in the ALS.³¹ Because of the timing of the address update, IRS procedures require that a lien notice be sent to these taxpayers using the updated addresses. However, a lien notice was only sent to three taxpayers using the updated addresses. When we brought this observation to management's attention, the IRS agreed to resend lien notices to the six other taxpayers using the updated addresses.

For the remaining 14 cases, the address on the IRS computer system was updated after the NFTL was requested. Therefore, no additional action was required. However, we determined that for three of the 14 taxpayers, the Cincinnati Campus sent a lien notice (courtesy copy) using the updated address. In July 2010, the IRS implemented procedures for Field Collection revenue officers intended to improve customer service to taxpayers. Specifically, the procedures allowed employees to send a courtesy copy of the lien notice to a taxpayer's new address if the new address was effective during the cycle after the original lien notice was issued. A courtesy copy was sent for three of the 14 notices. Management advised us that the courtesy copy procedures are located in the Field Collection IRM and not the ACS Support IRM.³² While the courtesy copy procedure is voluntary for Field Collection employees and not a statutory requirement, following the procedure provides better customer service to the taxpayer. Accordingly, adding these procedures to the ACS Support IRM would enable the ACS to provide better customer service to the taxpayer since ACS Support employees must already perform research for the last known address. As a result, the majority of work involved in sending a lien notice to the updated address is already being completed.

Internal procedures for undelivered NFTLs were not always followed

IRS procedures require address verification of the undelivered lien notices within 14 calendar days of receipt in the ACS Support function.³³ If the ACS Support function employees determine that a more current address is available, then they must request that the lien notice be reissued. For our judgmental sample of 162 lien notices, we reviewed computer system audit trails to assess whether IRS employees performed timely research to determine whether the addresses were correct on the originally mailed notices. We determined that 153 of the 162 cases were researched timely (nine cases were not researched timely) by ACS Support function employees.

In January 2012, IRS procedures were revised to require ACS Support function employees to document the date undelivered lien notices are received in the ACS Support function and the date research is completed.³⁴ Documentation should be noted in the ACS action history codes (if the taxpayer's account is still open) or in the Accounts Management System narrative history (if the taxpayer's account is closed).³⁵ While 153 cases were researched timely, 13 of the 162 cases were not properly documented.

Fresno Campus: All 76 sampled undeliverable lien notices were researched timely. The Fresno Campus ACS Support function properly documented the received date for 74 of the 76 cases (two of the 76 sampled cases were not properly documented).

Cincinnati Campus: Nine of the 86 sampled undelivered lien notices were not researched timely. The Cincinnati Campus ACS Support function properly documented the received date for 75 of the 86 cases (11 of the 86 sampled cases were not properly documented).

Without timely research of undelivered lien notices, the IRS cannot ensure that taxpayer rights are protected if the IRS did not send the lien notice to the taxpayer's last known address. The IRS is required to issue a new lien notice to the new address if this research determines that a lien notice was not sent to the taxpayer's last known address.³⁶

Procedures designed to monitor undelivered lien notices were not always followed

In August 2007, procedures for handling undelivered lien notices were revised so that:

• An undeliverable notice is returned directly to the requesting employee or function.

• Employees handling undelivered lien notices should input a specific IDRS transaction code with an appropriate action code. The transaction code signifies that the lien notice was returned, and the action code indicates the reason, e.g., undelivered, unclaimed, or refused.³⁷

In November 2013, the ACS Support function's IRM was updated requiring ACS Support function employees to use the ALS lien notice screen to prompt the input of this transaction code and action code combination.³⁹ For 145 of the 162 cases that were returned undeliverable, a transaction code and action code were input to the IDRS. For the 17 remaining cases, the ALS was not updated with the mail status to reflect that the lien notice was returned undelivered. Had the ALS been updated with the mail status, the IDRS would have automatically been updated with the required transaction code and action code combination.

Compliance with these procedures is important because IRS employees update the information in the Master File account for these taxpayers; otherwise, the information about the undelivered lien notice would be limited to only those employees working the undelivered mail. As a result, other IRS functional employees who use the Master File account to obtain information about the taxpayer, such as Taxpayer Assistance Center employees, would be unable to answer taxpayer questions about whether the lien notices were delivered.⁴⁰

Recommendations

Recommendation 2: The Director, Collection, Small Business/Self-Employed Division, should revise the IRM by making procedures pertaining to courtesy copies of lien notices applicable to ACS employees.

² I.R.C. § 6323.

³ See Appendix V for a synopsis of the IRS collection and NFTL filing processes. ⁴ Pub. L. No. 105-206, 112 Stat. 685.

⁵ I.R.C. § 6320.

⁶ Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320.

⁷ See Appendix VI for detailed descriptions of the IRS computer systems used in the filing of the NFTLs.

⁸ A fiscal year is any yearly accounting period, regardless of its relationship to a calendar year. The Federal Government's fiscal year begins on October 1 and ends on September 30.

⁹ I.R.C. §§ 6320(c), Conduct of hearing; review; suspensions, and 6330(e), Suspension of collections and statute of limitations.

¹⁰ I.R.C. § 6330(a)(3)(B).

¹¹ I.R.C. § 7803(d)(1)(A)(iii).

¹² See Appendix VIII for a list of the prior five TIGTA reports.

¹³ The complete description of this judgmental sample and our results can be found in a subsequent section of this report, entitled Procedures to Process Undelivered Lien Notices Were Not Always Followed.

¹⁴ I.R.C. § 6320. For example, in March 2010, the U.S. Tax Court found that an IRS lien notice was invalid because it was not mailed to the individual's last known address. Roberts v Comm'r, T.C. Summ. Op. 2010-21. The U.S. Tax Court, in a case filed March 1, 2010, found that the lien notice issued with respect to a taxpayer's Tax Year 2002 tax return was not mailed to the taxpayer's last known address, nor was it received, and, therefore, it is invalid. Consequently, the IRS is required, under the provisions of § 6320 and the accompanying regulations, to issue to the taxpayer a substitute lien notice and provide him or her with an opportunity to request a lien hearing.

¹⁵ Statutory requirement (I.R.C. § 6320) and applicable IRS procedure [Internal Revenue Manual (IRM) 5.12.6.3.5, (Oct. 14, 2013)].

¹⁶ IRMs 5.12.6.3.5, 5.12.6.3.7, (Oct. 14, 2013) and 5.19.4.6.2, (Dec. 23, 2015).

¹⁷ The IDRS is an IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer's account records.

¹⁸ The CAF contains information about the types of authorizations taxpayers have given their representatives for their tax returns.

¹⁹Conference and Practice Requirements, Statement of Procedural Rules, 26 C.F.R. § 601.506 (2009).

²⁰ The point estimate projection is based on a two-sided 90 percent confidence interval. We are 90 percent confident that the true percentage of taxpayers with representatives whose representative was not notified is between 6.11 percent and 26.32 percent.

²¹ Revenue officers are employees in the Collection Field function who attempt to contact taxpayers and resolve collection matters that have not been resolved through notices sent by the IRS campuses or the ACS. Campuses are the data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to taxpayer accounts.

²²Conference and Practice Requirements, Statement of Procedural Rules, 26 C.F.R. § 601.506 (2009).

²³ See Appendix VII for the confidence intervals pertaining to the notification of taxpayer representatives error rates reported during Fiscal Years 2011 through 2015.

²⁴ The projection is based on six (5 percent) of 133 randomly sampled cases. The point estimate projection is based on a two-sided 90 percent confidence interval. We are 90 percent confident that the range of potential violations is between 7,807 and 37,926.

²⁵ TIGTA, Ref. No. 2013-30-072, Fiscal Year 2013 Statutory Review of Compliance With Lien Due Process Procedures (July 2013).

²⁶ TIGTA, Ref. No. 2015-30-055, Fiscal Year 2015 Statutory Review of Compliance With Lien Due Process Procedures (June 2015).

²⁷ IRM 5.19.6.17.4, Undeliverable Notice of Federal Tax Lien (NFTL), (Nov. 4, 2013).

²⁸ IRM 5.19.6.17.4, (Nov. 4, 2013).

²⁹ IRM 5.19.6.17.4(5), Undeliverable Notice of Federal Tax Lien, (Nov. 4, 2013).

³⁰ A judgmental sample is a nonstatistical sample, the results of which cannot be used to project to the population.

³¹ Seven of these nine cases involved a spouse who lived at a different address, which was discussed previously in this report.

³² IRM 5.12.6.3.17, (Oct. 14, 2013).

³³ IRM 5.19.6.17.4, (Nov. 4, 2013).

³⁴ IRM 5.19.6.17.4, (Nov. 4, 2013).

³⁵ The Account Management System is a computer-based system used to answer and resolve all taxpayer account inquiries. It provides a common interface that allows users of multiple IRS systems to view history and comments from other systems.

³⁶ I.R.C. § 6320.

³⁷ IRM 5.19.6.17.4, (Nov. 4, 2013).

³⁸ The Master File is the IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.

³⁹ IRM 5.19.6.17.4, (Nov. 4, 2013).

⁴⁰ A Taxpayer Assistance Center is an IRS office with employees who answer questions, provide assistance, and resolve account-related issues for taxpayers face to face.

I. Determined whether lien notices issued by the IRS complied with legal requirements set forth in I.R.C. § 6320(a) and related internal guidelines.

Internal controls relate to management's plans, methods, and procedures used to meet their mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. We determined that the following internal controls were relevant to our audit objective: the Small Business/Self-Employed Division Collection function's policies, procedures, and practices for timely notifying taxpayers of NFTL filings and timely verifying addresses of undelivered lien notices. We evaluated these controls by reviewing samples of lien notices sent to taxpayers and lien notices returned to the IRS as undelivered.

² A judgmental sample is a nonstatistical sample, the results of which cannot be used to project to the population.

³ A campus is the data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to taxpayer accounts.

⁴ The IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.

Carl Aley, Director

Tim Greiner, Audit Manager

Meaghan Tocco, Lead Auditor

Charles Nall, Senior Auditor

Mark Willoughby, Senior Auditor

John Baxter, Auditor

Jon-Michael Socaris, Auditor

Heath Sollak, Auditor

Office of the Commissioner -- Attn: Chief of Staff

Deputy Commissioner for Services and Enforcement

Director, Collection, Small Business/Self-Employed Division

Director, Campus Collections, Small Business/Self-Employed Division

Director, Field Collection, Small Business/Self-Employed Division

Director, Headquarters Collection, Small Business/Self-Employed Division

Director, Collection Policy, Small Business/Self-Employed Division

Director, Office of Audit Coordination

Type and Value of Outcome Measure:

• Taxpayer Rights and Entitlements -- Potential; seven taxpayers were not timely provided Letters 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, resulting in potential legal violations of taxpayers' rights (see page 4).

In a judgmental sample of 162 undelivered lien notices, we determined that the IRS did not send notices to the taxpayer's last known address of nine taxpayers. Research was not properly conducted prior to mailing these lien notices to ensure that they were sent to each taxpayer at his or her last known address. Seven of these nine cases involved a spouse living at a different address. Although the IRS mailed each spouse a separate lien notice, they used the primary taxpayer's address for both spouses. As a result, these seven lien notices were returned to the IRS as undelivered. Taxpayer rights could be affected because a taxpayer not receiving a notice or receiving a late notice might be unaware of the right to appeal. * * * 1 * * *.¹

Type and Value of Outcome Measure:

• Taxpayer Burden -- Potential; 22,866 taxpayers whose representatives may not have been provided copies of Letters 3172 (see page 5).

From a statistically valid sample of 133 NFTL cases, we identified 37 cases with representatives authorized to receive notifications at the time the liens were filed. From those 37 cases, we identified six cases for which IRS employees did not provide notice to taxpayer representatives, resulting in potential taxpayer burden. The sample was selected based on a confidence level of 90 percent, a precision rate of ± 2 percent, and an expected rate of occurrence of 2 percent. We projected the error rate (six of 133 = 4.51 percent) to the total population (provided by the IRS) of 506,874 NFTLs generated by the ALS between July 1, 2014, and June 30, 2015, to arrive at 22,866 taxpayers whose representatives may not have been provided notification. We are 90 percent confident that the range of potential violations is between 7,807 and 37,926.

• IRS employees who make personal (face-to-face) contact with taxpayers are called revenue officers and work in various locations. The ICS is used to track collection actions taken on taxpayer accounts.¹

• IRS employees who make only telephone contact with taxpayers work in call sites. The ACS is used in the call sites to track collection actions taken on taxpayer accounts.

• The IRS has made an assessment and given the taxpayer notice of the assessment, stating the amount of the tax liability and demanding payment.

• The taxpayer has neglected or refused to pay the amount after the notice and demand for payment.

Most lien notices are mailed to taxpayers by certified or registered mail rather than delivered in person. To maintain a record of the notices, the IRS prepares a certified mail list (U.S. Postal Service Form 3877, Firm Mailing Book for Accountable Mail), which identifies each notice that is to be mailed. The lien notices and a copy of the certified mail list are delivered to the U.S. Postal Service. A U.S. Postal Service employee ensures that all notices are accounted for, date-stamps the list, and returns a copy to the IRS. The stamped certified mail list is the only documentation the IRS has that certifies the date on which the notices were mailed. IRS guidelines require that the stamped certified mail list be retained for 10 years after the end of the processing year.

² Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320.

Automated Lien System (ALS) -- a comprehensive database that prints the NFTLs, generates lien notices, stores taxpayer information, and documents all lien activity. Lien activities on both ACS and ICS cases are controlled on the ALS by Centralized Lien Operation functions at the Cincinnati, Ohio, Campus.¹ Employees at the Cincinnati Campus process the NFTLs and respond to taxpayer inquiries using the ALS.

Integrated Collection System (ICS) -- an IRS computer system with applications designed around each of the main collection tasks such as opening a case, assigning a case, building a case, performing collection activity, and closing a case. The ICS is designed to provide management information, create and maintain case histories, generate documents, and allow online approval of case actions. NFTL requests made using the ICS are uploaded to the ALS. The ALS generates the NFTL and related lien notices and updates the IRS's primary computer files to indicate the NFTLs have been filed.

Integrated Data Retrieval System (IDRS) -- an online data retrieval and data entry system that processes transactions entered from terminals located in campuses and other IRS locations. It enables employees to perform such tasks as researching account information, requesting tax returns, entering collection information, and generating collection documents. The IDRS serves as a link from campuses and other IRS locations to the Master File for the IRS to maintain accurate records of activity on taxpayers' accounts.²

² The Master File is the IRS database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data.

TIGTA, Ref. No. 2012-30-057, Problems Persist When Processing Undelivered Lien Notices and Notifying Taxpayers' Representatives (May 2012).

TIGTA, Ref. No. 2013-30-072, Fiscal Year 2013 Statutory Review of Compliance With Lien Due Process Procedures (July 2013).

TIGTA, Ref. No. 2014-30-061, Fiscal Year 2014 Statutory Review of Compliance With Notice of Federal Tax Lien Due Process Procedures (Sept. 2014).

TIGTA, Ref. No. 2015-30-055, Fiscal Year 2015 Statutory Review of Compliance With Notice of Federal Tax Lien Due Process Procedures (June 2015).

In tests of a judgmental (i.e., non-statistically valid) sample, you identified nine instances in which the IRS did not send the lien notice to the taxpayer's last known address. Most of these cases involved a spouse living at a different address. We agree with your recommendation to clarify procedures for identifying the address of the secondary taxpayer when requesting NFTLs on joint liabilities. As you noted, the IRS took corrective actions in all of these cases, reissuing lien notices for three of the cases upon receipt of the undelivered lien notices and subsequently reissuing lien notices for the remaining six cases.

In the interest of providing additional customer service to taxpayers, we agree with your recommendation to make existing procedures for Field Collection employees, pertaining to courtesy copies of lien notices, applicable to Automated Collection System (ACS) employees as well. To improve our procedures for undelivered lien notices, we also agree to remind ACS Support employees to follow procedures to update the mall status of the lien notice so the appropriate transaction code and action code combination are posted to the taxpayer's account.

Because none of the errors you found in this audit came from the statistically valid sample, we do not agree with the projection estimating a potential taxpayer burden of 22,866 taxpayers. While it is clear that errors do occur, the correct potential taxpayer burden figure based on the analysis you conducted is not known.

We will continue to work to improve our processes with regard to the issuance of lien collection due process notices in order to protect taxpayer rights. We appreciate your continued support and insight in this regard. Attached is a detailed response outlining our corrective actions to address your recommendations.

If you have any questions, please contact me, or a member of your staff may contact Scott Prentky, Director Collection at (954) 423-7318.

Attachment

The Director, Collection, Small Business/Self-Employed Division, should 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. Also, revise applicable IRM sections to require employees requesting a NFTL involving joint liability to research Integrated Data Retrieval System (IDRS) for the last known address of the secondary spouse.

CORRECTIVE ACTION:

We agree with this recommendation. We will contact the programmers of the impacted systems to discuss the changes needed for the systemic upload and use of secondary taxpayer address information when mailing lien notices. Programming changes will be requested, if feasible, but will be dependent on budgetary constraints, limited resources and competing priorities. Internal Revenue Manual (IRM) 5,12.7 and 5.19.4 will be revised to clarify procedures for identifying the address of the secondary taxpayer when requesting NFTLs on joint liabilities.

IMPLEMENTATION DATE:

July 15, 2017

RESPONSIBLE OFFICIAL(S):

Director, Collection Policy, Small Business/Self-Employed Division

CORRECTIVE ACTION MONITORING PLAN:

IRS will monitor this corrective action as part of our internal management system of controls.

RECOMMENDATION 2:

The Director, Collection, Small Business/Self-Employed Division, should revise the IRM, by making procedures pertaining to courtesy copies of lien notices applicable to ACS employees.

CORRECTIVE ACTION:

We agree with this recommendation. We will revise IRM 5.19.6.17.4(5) to reflect the language found in IRM 5.12.6.3.17(7).

IMPLEMENTATION DATE:

April 15, 2017

RESPONSIBLE OFFICIAL(S):

Director, Collection Policy, Small Business/Self-Employed Division

CORRECTIVE ACTION MONITORING PLAN:

IRS will monitor this corrective action as part of our internal management system of controls.

RECOMMENDATION 3:

The Director, Collection, Small Business/Self-Employed Division, should remind the ACS Support function's employees of the IRM requirement to use the ALS lien notice screen to update the mail status of the lien notice with the appropriate transaction code and action code combination.

CORRECTIVE ACTION:

We agree with this recommendation. Automated Collection System (ACS) Support employees in Cincinnati and Fresno will be reminded to follow the procedures in IRM 5.19.6.7.4(7) and the Automated Lien System (ALS) User Guide to update the mail status of the lien notice so the appropriate transaction code and action code combination will post to the taxpayer's account.

IMPLEMENTATION DATE:

January 15, 2017

RESPONSIBLE OFFICIAL(S):

Director, Collection Policy, Small Business/Self-Employed Division (SB/SE)

CORRECTIVE ACTION MONITORING PLAN:

IRS will monitor this corrective action as part of our internal management system of controls.