The Internal Revenue Service mails lien notices to taxpayers in a timely manner as required by law, but does not always follow its own regulations for notifying taxpayer representatives and processing undelivered lien notices, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, reviewed a statistically valid sample of 105 Notices of Federal Tax Lien filed for the 12-month period ending June 30, 2011, and determined that the IRS mailed taxpayers lien notices in a timely manner as required.

However, the IRS did not always follow its own regulations for notifying representatives of the filing of the tax lien notices. IRS regulations require that taxpayer representatives be given copies of all correspondence issued to taxpayers. TIGTA estimated that 43,817 taxpayers may have been adversely affected because the IRS did not follow the requirements to notify the taxpayers’ representatives of the taxpayers’ rights related to liens.

In addition, when an initial lien notice is returned undelivered and a different address is available for the taxpayer, the IRS does not always meet its statutory requirement to send the lien notice to the taxpayer’s last known address. From a judgmental sample of 250 undelivered lien notices, TIGTA identified four cases for which a new lien notice should have been sent to the taxpayer’s updated address because IRS systems reflected that the address was updated prior to the NFTL preparation. These cases could involve legal violations because the IRS did not meet its statutory requirement to send lien notices to the taxpayer’s last known address.

“After filing Notices of Federal Tax Lien, the IRS must notify the affected taxpayers in writing, at their last known address, within five business days of the lien filings,” said TIGTA Inspector General J. Russell George in a statement. “However, as noted in previous audits, the IRS did not always follow its own internal guidelines for notifying taxpayer representatives of the filing of the NFTL. Therefore, the rights of some taxpayers may have been violated when the IRS did not notify their representatives of lien filings.”

In TIGTA’s fiscal year 2009 lien notice audit, it recommended that the IRS enhance its systems to ensure taxpayer representatives timely received lien notices. However, the IRS corrective action has not been implemented yet. In the report released publicly Thursday, TIGTA recommended that the IRS improve the controls and oversight for the processing of undelivered lien notices to ensure they are researched on a timely basis, and ensure the use of undelivered lien notice mail status codes is consistent in the procedures for the Automated Collection System and the Collection Field function.

The IRS agreed with TIGTA’s recommendations and plans to make changes to the respective internal guidelines to improve documentation and support the timely resolution of undeliverable notices, and evaluate the use of mail status codes against resource demands to determine if implementation is feasible.

The IRS disagreed that its actions jeopardized taxpayer rights. “We concur with your Outcome Measure relative to the number of taxpayer representatives that may not have been notified; however, we disagree that any failure to notify the representative jeopardizes the taxpayer rights,” wrote Faris R. Fink, commissioner of the IRS’s Small Business/Self-Employed Division. “In each of the four instances cited where the taxpayer’s representative was not provided a notice, the lien notice was timely sent to the taxpayer, thus affording their full rights of appeal.”

TIGTA countered that taxpayers have a right to have representatives notified of a lien filing. Treasury Department regulations provide that notices are required to be given to recognized taxpayer representatives. “We identified instances in which the IRS did not send a lien notice to taxpayer representatives, thereby resulting in a potential violation of the taxpayers’ right to have an authorized representative notified of the filing of a lien,” said the report.

In the case of the four taxpayers, TIGTA added that the IRS did not comply with the statutory requirement of providing a lien notice to the taxpayer’s last known address within five business days of filing the lien. Furthermore, the IRS did not reissue a lien notice to the four taxpayers’ more current address until TIGTA notified the IRS that the original lien notice was not sent to the taxpayers’ last known address.

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