Originally Published in ACCOUNTINGTODAY.COM
The Internal Revenue Service did not always follow its own procedures when selling some of the property it seized for unpaid taxes, according to a new report.
The report, from the Treasury Inspector General for Tax Administration, found that over the past four fiscal years from 2011 through 2014, the IRS has received approximately $114 million in proceeds from the sale of seized taxpayer assets. However, personal items were not always properly documented when they were returned, and personal information such as GPS navigation data and garage door opener settings weren’t always removed from the systems installed in seized vehicles, posing a potential security risk.
The IRS Restructuring and Reform Act of 1998 required the IRS to implement a consistent process for the sales of seized property in order to protect taxpayers whose property is being sold to satisfy delinquent debts. The IRS’s property appraisal and liquidation specialists are supposed to ensure that taxpayers’ rights are protected when property is seized for unpaid taxes.
TIGTA auditors attended six IRS auctions of seized assets and reviewed a sample of 44 seizure cases. The report found that for the cases they sampled, the seized assets in general were properly inventoried, safeguarded and handled professionally.
However, the written sale plans developed by the specialists provided varying amounts of detail for the actions to be performed on the date of the sale. More consistent and specific sale plans could improve managerial oversight and ensure consistent treatment of seized assets, TIGTA noted.
Personal items found in seized assets were not always properly documented when they were returned to taxpayers. In addition, TIGTA found there is no requirement for removing taxpayer information from installed systems in vehicles. Such information could present a security risk if a third-party purchaser gained access to it.
If procedures are not followed, there is an increased risk that the completed sales will not be in the taxpayers’ or the IRS’s best interest, TIGTA cautioned.
TIGTA also identified several strategies that the IRS should consider to potentially increase the number of bidders when selling seized assets.
“The IRS Restructuring and Reform Act of 1998 (RRA 98) requires the IRS to implement a consistent process for the sales of seized property,” said TIGTA Inspector General J. Russell George. “The IRS needs to fully comply with this provision of RRA 98.”
TIGTA recommended that the IRS require the property appraisal and liquidation specialists, or PALS, to consistently prepare a detailed sale plan once custody of the seized property has been accepted, and ensure that the return of all personal items from seized vehicles is documented.
The IRS should also require the PALS to follow requirements in the Internal Revenue Manual for conducting a sale adjournment and recalculating the minimum bid, as well as ensure that any adjustments are supported by the facts of the situation and properly documented, said the report. IRS employees should also take the necessary actions to remove taxpayers’ personally identifiable information from seized vehicles such as resetting any navigation, garage door and similar installed systems, according to TIGTA.
In response to the report, IRS officials agreed with seven of the nine recommendations and said it has hired a consulting team to improve its procedures.
“We have engaged a lean six sigma to review and evaluate all aspects of our seizure and sale program and present proposals for improving the program,” wrote Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division. “Our goal is to further clarify our seizure and sales procedures while continuing to protect taxpayers’ rights.”
IRS officials disagreed with two recommendations to add guidance in the Internal Revenue Manual for indirect expenses of seizure sales that can be charged to the taxpayer and return of license plates from seized vehicles that are sold. Schiller pointed out that the IRM currently requires the return of personal items, which include license plates and documentation on Form 668-E if a taxpayer seeks personal items. She also pointed out that the manual and Treasury regulations already provide that the expenses allowed include the “actual expense incurred with the sale” in addition to expenses for the “protection and preservation of the property.” The expenses in TIGTA’s report related to expenses incurred at seizure sales for the safety and convenience of bidders.
TIGTA, however, maintains that the appropriate IRM sections should be updated to provide clear guidance for IRS managers and employees to follow.