IRS Misrouted Tax Lien Notices

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The Internal Revenue Service sent notices of federal tax liens to old addresses of some taxpayers even when it had a more current address, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, is an annual report on the IRS’s compliance with due process procedures for federal tax liens. TIGTA reviewed a statistical sample of 133 tax lien notices filed between July 1, 2014 and June 30, 2015. In the majority of cases examined for fiscal year 2016, the report found the IRS correctly mailed a copy of the notice of federal tax lien filing and appeal rights to taxpayers’ last known addresses on a timely basis, as required by Section 6320(a) of the Tax Code.

However, tests of a sample of 162 undelivered lien notices found nine cases where the lien notices were not sent to the taxpayers’ last known addresses in a timely manner because the lien notices were sent to the taxpayers’ old addresses even though the IRS’s systems had their new addresses. Among the nine, seven of the lien notices did not get sent to a secondary taxpayer’s last known addresses because IRS employees did not identify the separate addresses for the taxpayers’ spouses. Both notices instead went to the primary taxpayers’ addresses. The IRS reissued lien notices for three of the cases when it received undelivered lien notices and later reissued lien notices for the remaining six cases. However, TIGTA pointed out that 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 also require that taxpayer representatives, such as CPAs and other tax practitioners, receive 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 Notice of Federal Tax Lien, or NFTL, filings. TIGTA estimated 22,866 taxpayers may have been adversely affected.

In addition, TIGTA found that for 17 of the 162 undeliverable lien notices in the sample, IRS employees did not update the mail status of the lien notice with the appropriate transaction code and action code combination.

TIGTA recommended the IRS determine if it can make programming changes to account for the secondary taxpayer’s last known address for mailing lien notices where couples have joint liabilities, and require employees requesting an NFTL involving joint liability to search for the last known address of the secondary spouse. The IRS should also make the procedures relating to courtesy copies of lien notices apply to Automated Collection System employees, the report suggested, and remind IRS employees to update the mailing status of the lien notice with the appropriate transaction code and action code combination. In response, IRS officials agreed with all three of the report’s recommendations.

“We concur that the timely and proper issuance of NFTL collection due process notices is of utmost importance,” wrote Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division. “While this is the fourth time in five years you found no errors in the sample of taxpayer notices, we continue to explore ways to enhance our systemic processes to ensure notices are sent, as required, to the most current addresses of taxpayers and, pursuant to policy, to authorized representatives.”

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Tax practice