IRS Didn’t Always Notify Tax Practitioners about Clients’ Tax Liens

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The Internal Revenue Service did not always follow its own internal guidelines for notifying taxpayer representatives of the filing of a Notice of Federal Tax Lien against their clients, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, noted that after filing Notices of Federal Tax Liens, the IRS must notify the affected taxpayers in writing, at their last known address, within five business days of the lien filings. However, the IRS did not always adhere to its own guidelines for notifying their representatives of the tax lien filing, which can cause additional burden to those taxpayers who rely on a representative to handle tax matters, TIGTA pointed out.

TIGTA released the audit report because it is required by law to determine annually whether lien notices issued by the IRS comply with the legal guidelines in Section 6320 of the Tax Code. For the audit, TIGTA reviewed a statistically valid sample of 133 Notices of Federal Tax Liens filed for the 12-month period ending June 30, 2012, and determined that the IRS mailed almost all lien notices in a timely manner as required by Section 6320.

IRS regulations require that taxpayer representatives be given copies of all correspondence issued to the taxpayer. However, for five of the 47 cases in the statistically valid sample in which the taxpayer had an authorized representative, the IRS did not notify the taxpayers’ representatives of the Notice of Federal Tax Lien filings. TIGTA estimated that 27,389 taxpayers may have been adversely affected because the IRS did not follow requirements to notify the taxpayers’ representatives of the taxpayers’ rights related to liens.

In addition, the IRS is not always following internal procedures for undelivered lien notices. IRS procedures require address verification and, if applicable, resolution of undelivered lien notices within 14 calendar days of receipt. TIGTA selected a sample of 248 undelivered lien notices returned to IRS campuses in Cincinnati and Fresno in October 2012, including 113 lien notices in Cincinnati and 135 in Fresno. For 102 of the 248 undelivered lien notices, employees did not perform the required research within 14 calendar days of receipt of the returned lien notice.

TIGTA recommended that the IRS revise the Notice of Federal Tax Lien request form to include a checkbox to indicate that a Power of Attorney is required to be sent a copy of the lien notice, and establish procedures to require the lien unit to verify all lien requests in which the checkbox is blank. TIGTA also recommended that the IRS establish controls that ensure that the Automated Collection System Support function received date for undelivered lien notices is properly documented and that undelivered lien notices are researched timely.

The IRS agreed with both of TIGTA’s recommendations. The IRS will revise the Notice of Federal Tax Lien request form and modify procedures for the Centralized Lien Operation’s processing of the form to include verification of missing Power of Attorney information. The IRS also will issue a Servicewide Electronic Research Program Alert and update its procedures to require the Automated Collection System Support function received date is documented. The Automated Collection System Support function will also begin using the Integrated Data Retrieval System feature for systemic generation of the Transaction Code 971 action code on undelivered liens.

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