The Internal Revenue Service does not always follow statutory requirements that it notify taxpayers on a timely basis when it files tax liens against them, and it does not always follow its own regulations for notifying taxpayers’ representatives of the filing of lien notices, according to a new report from the Treasury Inspector General for Tax Administration.

J. Russell George

A federal tax lien is created on balance-due cases in which the taxpayer has received a notice demanding payment and has neglected or refused to pay. The IRS files a Notice of Federal Tax Lien to protect its claims against taxpayers who owe delinquent taxes. These lien notices establish the IRS’s priority among secured creditors for the taxpayers’ property.

The IRS must notify the affected taxpayers in writing, at their last known address, within five business days of the lien filings. However, as noted in previous TIGTA audits, the IRS has not always complied with this statutory requirement and it does not always follow its own internal guidelines for timely notifying taxpayer representatives of the filing of lien notices.

The TIGTA report reviewed a sample of 125 federal tax liens filed during the 12-month period ending June 30, 2009, and found that the IRS mailed all but two lien notices to taxpayers in a timely manner. However, the report noted that the errors could result in violations of taxpayer rights. TIGTA estimated that 15,169 lien notices filed during the same period could have been mailed late.

In addition, the IRS did not always follow its own regulations for notifying taxpayers’ representatives of the filing of lien notices. IRS regulations require taxpayer representatives be given copies of all correspondence issued to the taxpayer. For eight of the 31 cases in the statistically valid sample where the taxpayer had an authorized representative, the IRS did not notify the taxpayer’s representative of the lien filing.

The IRS does not have an automated process that updates taxpayer representative information directly to the system that generates the lien notices. TIGTA estimated that 60,675 taxpayer representatives may not have been provided lien notices, resulting in potential violations of taxpayers’ right to have their representative notified.

“This is a serious matter,” said TIGTA Inspector General J. Russell George in a statement. “Because of this problem, some taxpayers’ rights to appeal the lien filings may have been jeopardized, and others may have had their rights violated when the IRS did not notify their representatives of the lien filings.” TIGTA recommended that the IRS identify any actions necessary to correct the potential taxpayer violations for the untimely lien notices and ensure compliance with undelivered lien notices procedures.

IRS officials agreed with the recommendations and are planning corrective actions.