oversight

IRS Seizures: Limited Progress in Eliminating Asset Management Control Weaknesses

Published by the Government Accountability Office on 1999-11-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman, Subcommittee
                on Oversight, Committee on Ways and
                Means, House of Representatives


November 1999

                IRS SEIZURES
                Limited Progress in
                Eliminating Asset
                Management Control
                Weaknesses




GAO/GGD-00-5
United States General Accounting Office                                                           General Government Division
Washington, D.C. 20548




                                    B-282991
                                    November 29, 1999

                                    The Honorable Amo Houghton
                                    Chairman, Subcommittee on Oversight
                                    Committee on Ways and Means
                                    House of Representatives

                                    Dear Mr. Chairman:

                                    This responds to your request for a report on whether IRS has made
                                    progress in eliminating internal control weaknesses in the management of
                                    property seized from delinquent taxpayers and sold by IRS to pay down
                                    their tax debts.
                                                                                                   1
                                    In 1992 testimony before your Subcommittee, we reported that IRS’
                                    controls over seized property were inadequate to protect against theft,
                                    waste, and misuse; and controls over sales practices did not necessarily
                                    assure the highest sales price at the lowest cost. Additionally, we
                                    commented that the asset management and sales functions could best be
                                    done by parties who specialize in those functions rather than as additional
                                    duties assigned to revenue officers, whose primary responsibility is to
                                    collect unpaid taxes.

                                    Since then, Congress enacted the IRS Restructuring and Reform Act of
                                         2
                                    1998, which among other things, required IRS to remove revenue officers
                                    from any participation in asset sales by July 22, 2000. The act also
                                    encouraged IRS to contract out this function.

                                    Accordingly, as agreed with the Subcommittee, this report describes IRS’
                                    progress in (1) implementing the Restructuring Act’s mandate to remove
                                    revenue officers from the asset sale function and (2) addressing other
                                    internal control weaknesses identified in our 1992 testimony. Also, as
                                    agreed with the Subcommittee, we did the work for this report as part of a
                                    broader review of IRS seizure actions already being done for the Senate
                                    Committee on Finance. A separate report on that review is also being
                                    issued at this time: IRS Seizures: Needed for Compliance but Processes for
                                    Protecting Taxpayer Rights Have Some Weaknesses (GAO/GGD-00-4, Nov.


                                    1
                                        See Tax Administration: IRS’ Management of Seized Assets (GAO/T-GGD-92-65, Sept. 24, 1992).
                                    2
                                        P.L. 105-206, July 22, 1998.




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                     29, 1999). Where appropriate, we make reference to this overall report as a
                     source of additional details.

                     As of October 1999, IRS had not finalized its plans for removing revenue
Results in Brief     officers from its process for selling seized assets. After the passage of the
                     Restructuring Act, IRS organized a study group to consider establishing a
                     specialist position for both managing and disposing of assets after they
                     were seized by revenue officers. The group has been meeting and is
                     considering the scope of the new position. However, the scope of the
                     position, including the extent to which private sector contractors may be
                     used to manage and sell seized property; a position description; or
                     procedures for governing the specialists actions, has not been finalized.

                     Our review of a representative sample of 1997 nationwide seizure cases,
                     selected as part of our overall review of weaknesses in IRS’ seizure
                     processes, showed that the fundamental internal control weaknesses we
                     identified in 1992 remained. More specifically, our review of case files
                     showed the following.

                   • Similar to 1992, sufficiently complete information to establish
                     accountability over assets (e.g., asset condition and identity information,
                     such as model number) was not always recorded by revenue officers when
                     assets were seized.
                   • As in 1992, IRS’ security arrangements for seized assets were, in some
                     instances, minimal or nonexistent.
                   • Similar to 1992, IRS’ sales practices provided little assurance that the
                     maximum possible sales proceeds were achieved.
                   • Although installed after 1992, IRS’ automated seizure information system
                     still did not provide IRS management with information useful for
                     establishing accountability over seized assets or monitoring the
                     management and sales of the assets.

                     Regardless of the results of IRS’ decisions on contracting out all or part of
                     the asset management and sales function, IRS will remain responsible for
                     assuring that assets are appropriately managed and sold (e.g., maintaining
                     a system of controls sufficient to protect against theft, waste, and misuse
                     and to assure the highest sales price at the lowest cost). In our overall
                     report, we made recommendations for dealing with these asset
                     management and sales weaknesses that we first identified in 1992. Those
                     recommendations are repeated at the end of this report.




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               IRS’ policy has long provided that, for taxpayers who are unwilling to pay
Background     their tax debts in a manner that is commensurate with their ability to pay,
               IRS revenue officers were to initiate enforced collection actions that could
               culminate in the seizure of their property. In fiscal year 1997, IRS revenue
               officers seized property from about 8,300 taxpayers who owed the federal
                                                                     3
               government an estimated $1 billion in unpaid taxes .

               When we first reviewed IRS’ management of seized assets in 1992, we
               concluded that IRS’ controls over seized assets were not adequate to
               protect against theft, waste, and misuse nor to assure that the highest sales
               prices at the lowest cost were obtained. These conclusions were based on
               the following control weaknesses.

             • Little accountability. We found that IRS did not (1) keep up-to-date records
               on property seized, (2) obtain receipts to document asset custody and
               storage location, (3) record physical condition of the property seized, or
               (4) conduct physical inventories of assets-on-hand to verify inventory
               records or check on the assets.
             • Inadequate security. We found that some seized assets had been stolen or
               were missing, and in many cases, the value of the property was not
               documented in the files. We also reported that by not documenting the
               condition and value of seized assets, IRS left itself open to claims of
               damage.
             • Sales not yielding highest price at lowest cost. We found that IRS could
               have attracted more buyers, and thus generated higher sales prices by
               holding consolidated sales of seized assets. Consolidated sales would also
               have allowed IRS to reduce sales costs, such as advertising. We also found
               that IRS did not always arrange for the lowest cost storage of assets.
             • Little oversight. We found that IRS did not know the total amount of
               property in its possession because it lacked an adequate information
               system. Moreover, IRS management knew very little about the assets
               seized, including the types of assets seized, the value or condition of those
               assets, or where the assets were located.



               3
                As noted in the Scope and Methodology section of this report, the results of our analyses of a random
               sample of taxpayers whose assets were seized by IRS are presented as estimates within certain
               intervals computed at the 95-percent confidence level. The estimates are cited in the report text and
               the confidence intervals in footnotes. For example, regarding the amount of taxes owed by these
               taxpayers, we can be 95-percent confident that the interval of $1.1 billion plus or minus about $300
               million contains the actual value of taxes owed. The format adopted for reporting confidence intervals
               in this report follows: 95-percent confidence interval: $800 million to $1.4 billion.




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              In conclusion, we commented that the asset management and sales
              functions could best be done by parties who specialize in those functions,
              such as other agencies or contractors, rather than as additional duties
              assigned to revenue officers, whose primary responsibility was to collect
              unpaid taxes. We also said that IRS needed far better information to
              oversee the management and sales of seized assets.

              To determine IRS’ progress in removing revenue officers from its process
Scope and     for selling seized assets, we interviewed IRS National and district officials
Methodology   concerning efforts to remove revenue officers from asset sales. We also
              reviewed the applicable provisions of the Restructuring Act, IRS
              interpretations of the act’s requirements, IRS procedures for selling seized
              assets, and seizure case files.

              To determine IRS’ progress in correcting internal control weaknesses, we
              discussed the 1992 findings with IRS National and district officials. We
              reviewed statutory and procedural requirements for conducting seizures
              and sales of taxpayer assets and examined collection case files to assess
              how those procedures were carried out.

              To make our case file review, we first selected a random sample of
              taxpayers who had property seized by IRS because of unpaid taxes. We
              selected the random sample from a population of about 8,300 taxpayers
                                                                  4
              who had property seized by IRS in fiscal year 1997. About 9,700 seizures
              were associated with these 8,300 taxpayers. This sample yielded
              sufficiently complete information on 115 taxpayers with a corresponding
              139 seizures to evaluate IRS’ management and control over assets seized.
              We followed procedures to express confidence in the precision of the
              results with a 95-percent confidence interval, separately computed for
              each estimate and reported as footnotes to the text of this report.

              Second, we randomly selected 16 cases with assets still in IRS’ possession
              from a population of 76 cases in 4 IRS district offices. Because this phase
              of our review involved examining the seized assets, possibly stored
              hundreds of miles from a district office, and reviewing the case file with
              the revenue officer in charge of the case, we established a maximum travel
              range of about 100 miles from our work locations in making our random
              selections.

              4
               The random sample of seizure cases was chosen from 1997 because it was the most recent year of
              closed collection case files that would have allowed sufficient time to elapse so that (1) case file
              information would be available on the disposition of the assets seized and (2) case files would be
              available to us at the time we started our case file review in late 1998. This random sample is the same
              sample used to prepare our report to the Senate Committee on Finance.




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                          Our work was done principally in IRS district offices located in Atlanta,
                          GA; Chicago, IL; St. Louis, MO; Oakland, CA; and the IRS National Office in
                          Washington, D.C. We did our work between January 1998 and August 1999
                          in accordance with generally accepted government auditing standards.

                          We obtained written comments from IRS on a draft of this report. We have
                          summarized those comments in this letter and reprinted the written
                          comments, in entirety, in appendix I.

                          As of October 1999, IRS had not finalized its plans for removing revenue
IRS Has Not Finalized     officers from any participation in selling seized assets. As a preliminary
Plans on How to           step to implement the Restructuring Act mandate, IRS collection managers
Remove Revenue            asked IRS Chief Counsel for a legal interpretation of the point at which
                          revenue officer involvement in a seized asset sale should end. Chief
Officers From Asset       Counsel concluded that many activities that take place before the actual
Sales                     sale, such as the determination of the minimum price that IRS would
                          accept for an asset, are “critical” to the sale of an asset and should be
                          considered as “involved” in the sale.

                          Accordingly, Chief Counsel concluded in its July 1999 interpretation that
                          revenue officer involvement should essentially end with the act of seizing a
                          taxpayer’s assets and may begin again after the sale of the assets has been
                                      5
                          completed. Chief Counsel also commented that an IRS study group would
                          have the best perspective to structure any new IRS position related to
                          asset sales.

                          Using Chief Counsel’s interpretation as a starting point, IRS convened a
                          study group of IRS staff and asset management and sales specialists from
                          other federal agencies. The group met in October 1999 to discuss issues
                          related to removing revenue officers from asset sales and structuring an
                          IRS asset management and sales specialist position. As part of its
                          discussions, the group recognized that any decisions reached would
                          require consideration of a number of issues, including the following.

                        • Seizure workload. Since enactment of the Restructuring Act, the number
                          of IRS asset seizures has dropped from about 10,000 per year to about 200
                          for 1999. As discussed in our overall report, IRS expects the number of
                          seizures to rebound as IRS staff become more familiar with the act’s
                          collection provisions. Considering the uncertainty regarding the workload
                          5
                           Specifically, Chief Counsel “. . . concluded that revenue officer involvement should cease after notice
                          of seizure has been provided to the taxpayer as required by section 6335(a) and may begin again, at the
                          earliest, after the sale has been completed. In addition, [Chief Counsel] strongly advise[d] that [IRS]
                          consider removing revenue officers from post-sale matters as well.”




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                              for a specialist position, the group discussed issues related to ensuring that
                              the number and location of specialist staff are commensurate with the
                              workload.
                            • Allocation of duties and responsibilities. Although the Restructuring Act
                              mandates that revenue officers are to be removed from any participation in
                              sales, the group considered whether a revenue officer or other IRS
                              employee, such as the specialist, should be present at all asset sales in
                              order to stop a sale from being consummated, if appropriate. For example,
                              a sale should be stopped if a taxpayer pays the tax debt or declares
                              bankruptcy—currently the responsibility of the revenue officers involved
                              in the seizures. The group also considered how the requirement for
                              removing revenue officers from sales would affect supervisory
                              responsibilities. Since many supervisory employees of the collection
                              function are revenue officers, the group considered whether it would be
                              permissible for those collection officials to supervise the specialists.
                            • Contracting out. The group considered the circumstances under which IRS
                              should use private sector contractors or other government agencies to
                              manage and sell assets. One option was for the specialists to determine, on
                              a case-by-case basis, whether it would be better for the specialist to
                              manage or sell the assets, assign the functions somewhere else in IRS, or
                              contract out the functions.

                              As of the end of October 1999, IRS’ Collection Division management was
                              continuing to review options for structuring the specialist position.

                              In our current review of IRS’ seized asset management and sales
Little Progress in            processes, we found little improvement from 1992 conditions in the 1997
Addressing Control            seizures we reviewed. As in 1992, we found (1) little accountability over
Weaknesses Identified         seized assets, (2) little or no security for some assets, (3) little assurance
                              that IRS’ sales produced maximum proceeds, and (4) little useful
in 1992                       management information for monitoring seized assets. The following
                              summarizes the problems found. Our overall report on weaknesses in IRS’
                              seizure processes contains additional details.

IRS’ Controls Over Seized     With respect to establishing accountability over seized assets, little had
                              changed from our review in 1992. As detailed in our overall report on
Assets Not Sufficient to      weaknesses in IRS’ seizure processes, asset control information
Assure Accountability         documented by revenue officers in their seizure case files was not as
                              comprehensive as the control information specified by federal financial




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                                       6
  management guidelines. Among other details, the guidelines explain that
  information should be sufficiently specific to allow the independent
  verification that each asset exists and that the recorded physical condition,
  geographic location, and asset value are accurate.

  We estimate, based on our review of sampled seizure cases, that revenue
  officers in preparing inventory documents omitted some information on
  the

• identity of assets seized in about 25 percent of seizure cases (i.e., asset
                                                                 7


  descriptions used by revenue officers were not detailed enough, such as by
  identifying make, model, or serial number, to differentiate the items seized
  from other like items);
• quantity of assets seized in about 15 percent of seizure cases;
                                                8


• condition of assets seized in about 74 percent of seizure cases;
                                                   9


• value of assets seized in about 12 percent of seizure cases;
                                             10


• location of assets seized in about 10 percent of seizure cases; and
                                                11


• custodian of assets seized in about 47 percent of seizure cases.
                                                   12




  Moreover, we estimate that revenue officers did not obtain receipts in 51
          13
  percent of the cases when the revenue officer file indicated that the
  seized assets were stored at contractor locations. Also, IRS did not make
  periodic physical inventories of assets in the possession of revenue
  officers or contractors.

  The omission of detailed information on assets (such as asset identity,
  quantity, or condition) reduces accountability. Even if IRS made physical

  6
   Joint Financial Management Improvement Program, Federal Financial Management System
  Requirements, Seized/Forfeited Asset System Requirements (FFMRS-4, 3/93). The program established
  uniform requirements for seized property systems operated by federal agencies, such as documenting
  the type of asset, value, physical condition, geographic location, and responsible custodian. The
  guidelines indicate that agencies may develop additional requirements as necessary to support unique
  mission requirements.
  7
      95-percent confidence interval: 18 to 32 percent.
  8
      95-percent confidence interval: 8 to 21 percent.
  9
      95-percent confidence interval: 65 to 82 percent.
  10
       95-percent confidence interval: 6 to 17 percent.
  11
       95-percent confidence interval: 6 to 15 percent.
  12
       95-percent confidence interval: 36 to 58 percent.
  13
       95-percent confidence interval: 35 to 66 percent.




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                          inventories, without such information, there would be little basis for
                          determining that all assets seized were still under IRS or third-party
                          custody or appropriately protected against loss or deterioration.

Little Assurance Some     Regarding asset protection, little has changed from our review in 1992. As
                          detailed in our overall report on weaknesses in IRS’ seizure processes, we
Assets Are Protected                                          14
                          found that an estimated 12 percent of seizure cases involved assets that
Against Loss              required safeguards but the revenue officers’ files did not indicate security
                          arrangements were made. For example, in one case, the revenue officer
                          file contained no documentation on where a taxpayer’s $17,000 vehicle
                          was stored or how the vehicle was safeguarded. In another case, the
                          revenue officer seized personal property—jewelry, furniture, and clothes
                          valued at about $10,000—but did not indicate how the assets were
                          protected against loss or damage.

                          Although we only found a few seizures that resulted in loss or alleged loss
                          or damage to property, we could not determine the magnitude of the loss
                          nor who bore responsibility for the loss because of limited documentation
                          in the revenue officers’ files. For example, a piece of seized artwork was
                          damaged while a storage company was moving the assets. The revenue
                          officer did not document the dollar amount of the damage or who was
                          liable for the loss. In another instance, a taxpayer complained that various
                          personal items located in seized real estate were missing. The revenue
                          officer’s file provided no further information on the amount of the alleged
                          loss.

Sales Practices Provide   Similar to our 1992 review, we found that IRS’ sales practices provided
                          little assurance that the maximum possible sales proceeds were achieved.
Little Assurance of       As detailed in our overall report, this is attributable to two reasons. First,
Maximum Proceeds          many assets were sold without competitive bidding, and second, IRS’
                          minimum acceptable price for an asset was often established in an
                          arbitrary manner.
                                                                             15
                          We estimate that about 51 percent of the sales attracted no more than one
                                                     16
                          bidder, and only 42 percent of the cases sold for more than the IRS-
                          established minimum price.



                          14
                               95-percent confidence interval: 6 to 17 percent.
                          15
                               95-percent confidence interval: 36 to 67 percent.
                          16
                               95-percent confidence interval: 29 to 56 percent.




                          Page 8                                                   GAO/GGD-00-5 IRS Seized Asset Management
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  In general, IRS did not do much to attract bidders. IRS did not hold
  consolidated asset sales that might attract more prospective buyers.
  Rather, revenue officers held separate sales for property seized from
  different taxpayers, mostly during weekday work hours, with minimal
  advertising (e.g., posting in two public places and a legal notice in a local
  paper). IRS seldom used professional auctioneers or commercial markets
  that specialize in selling pre-owned assets.

  In setting a minimum price, revenue officers followed a formula that
  provided for reducing the assets’ fair market value by up to 40 percent.

  Our assessment of the minimum price-setting formula, the revenue
  officers’ use of the formula, and exceptions to the formula, showed that
  minimum prices were often arbitrarily set.

• First, we found little documentation supporting revenue officer estimates
  of the fair market value of the assets seized—the starting point for
  computing the minimum acceptable price for the assets. We estimate that
                        17
  only about 4 percent were based on professional appraisals and about 71
          18
  percent of seizure case files contained no documentary evidence for the
  amounts recorded by the revenue officers. Moreover, as indicated by
                                                   19
  revenue officer file notations, about 35 percent of the recorded values
  were set on the basis of revenue officer judgment.
• Second, we found instances where the recorded estimates of asset fair
  market value were not used as the starting point in setting the minimum
  price. For example, a revenue officer noted in the case file that, on
  checking courthouse records, the value of the seized property was about
  $93,000. In computing the minimum acceptable price for the property,
  however, the revenue officer used a value of $80,000 without explanation.
  Without appraisals, neither IRS nor we can be certain of the value of the
  taxpayer property.
• Third, we found little justification for the maximum percentage reduction
  allowed in the formula used to compute the minimum price. National
  Office officials responsible for program guidance advised us that they were
  not aware of the origins of the reductions. And while the guidance
  suggested that these were maximum reductions that needed to be



  17
       95-percent confidence interval: 1 to 9 percent.
  18
       95-percent confidence interval: 62 to 80 percent.
  19
       95-percent confidence interval: 26 to 45 percent.




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                                 supported, revenue officers used the maximum reduction an estimated 69
                                          20
                                 percent of the time with little detailed justifications shown.
                               • Fourth, the percentage reductions used by the revenue officers did not
                                 necessarily reflect the different risks to buyers based on the type of asset.
                                 Often we found that revenue officers applied the same maximum
                                 reductions to both real property and personal property, yet the conditions
                                 associated with the sale of these assets varied substantially. For personal
                                 property, such as a car, ownership and control of the asset passed at sale.
                                 For real property, such as a taxpayer’s residence, the taxpayer had 6
                                 months to reclaim the asset after sale, and the purchaser usually did not
                                 have access to the property during the 6-month period.
                               • Fifth, IRS’ policies limited the minimum price to no more than the
                                 taxpayer’s tax liability plus the estimated expenses of seizure and sale.
                                 Under this policy, the minimum price could be set much lower than the
                                 formula’s maximum percentage reduction would allow. In one case that
                                 we reviewed, use of the tax debt amounted to another 20 percent
                                 reduction below the formula-determined price.

Little Information Available     After 1992, IRS installed an automated system to inventory and monitor
                                 the property seized from delinquent taxpayers. However, the new system
to Management to Monitor         still did not provide IRS management with information useful for
Seized Asset Program             establishing accountability over seized assets or monitoring the
                                 management and sales of the assets as envisioned by federal financial
                                                           21
                                 management guidelines. Moreover, the system was not Year 2000
                                 compliant and will not be used beginning January 2000. The first phase of a
                                 replacement system, currently under development, will not become
                                 operational until about July 2000. In the interim, IRS will rely on an as-yet-
                                 unspecified paper-based tracking system.

                                 As we detailed in our overall report on weaknesses in IRS’ seizure
                                 processes, IRS’ system to track seized assets did not include all the
                                 information set out by federal financial management guidelines, and the
                                 information it did contain was not always current or accurate. More
                                 specifically, the automated inventory system

                               • did not require the entry of the full description of assets as recorded by
                                 revenue officers in their case files;

                                 20
                                      95-percent confidence interval: 59 to 78 percent.
                                 21
                                    Federal financial management guidelines, in addition to specifying the types of information to be
                                 included in an inventory control system, also stated that the system should generate periodic reports
                                 that provide performance results so that management can monitor areas of concern, evaluate results,
                                 and take appropriate corrective action when necessary.




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             • did not provide data entry fields for capturing information on asset
               condition or custody;
             • did not provide a data entry field for theft, loss, and damage expenses;
             • did not consistently capture information on the value of the assets—in
               some instances valuing the assets at the amount of the taxpayer’s
               delinquency and in others, at the value of the taxpayer’s ownership interest
               in the assets;
             • did not always coincide with the revenue officers’ files or the actual
               property on hand (in comparing system records, revenue officers’ files,
               and our physical inspection of assets involving 16 seizures in 4 IRS district
               offices, we found discrepancies in 15 seizures); and
             • was not required to be updated in a timely manner.

               Given the above limitations, the system could produce little useful
               oversight information that management could use to monitor seized assets.
               Moreover, the system had limited information-reporting capabilities. It did
               not even have the capability to produce a report on the total inventory of
               seized assets held by IRS.

               IRS is in the process of developing a replacement information system,
               largely because the existing system was not Year 2000 compliant. Because
               of Year 2000 complications, IRS will cease using the existing system by
               January 2000 but does not plan to have a new system in place at that time.
               In designing the new system, for an estimated implementation in July 2000,
               IRS took into consideration the financial management guidelines and input
               from us. While IRS has not completed its system design work, IRS officials
               told us that the July implementation will not provide for information
               reporting beyond the limited capabilities of the existing system. They also
               said that any enhancements to these capabilities would follow in later
               phases of development of the system.

               Regardless of whether seized asset sales are done “in-house” by an IRS
Conclusion     specialist or contracted out to a private concern, IRS must have controls
               that provide for accountability over seized assets, security for assets, sales
               practices that protect the government’s and taxpayers’ interests, and
               information to allow for management oversight. Without such controls,
               taxpayers who have their assets seized are at risk of having their interests
               suffer—for example, from asset sales that fail to maximize net proceeds.
               To this end, we have made a number of recommendations in our overall
               report. This report summarizes the information supporting those
               recommendations.




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                        This report repeats the recommendations detailed in our overall report.
Recommendations         The recommendations are as follows.

                        To improve IRS’ process for controlling assets after seizure, we
                        recommend that the Commissioner fully implement federal financial
                        management guidelines to include

                      • ensuring that revenue officers document basic asset control information,
                        including detailed asset identity descriptions, asset condition, and custody
                        information;
                      • ensuring that basic control information is entered in a timely manner and
                        included in the revised automated inventory control system;
                      • ensuring asset security and accountability through scrutiny of decisions
                        regarding security and periodic reconciliation of inventory records to
                        assets-on-hand (periodic physical inventories); and
                      • requiring revenue officers to record and account for all theft, loss, and
                        damage expenses of each asset and document efforts to obtain
                        reimbursement for the expenses in collection case files.

                        To strengthen the sales process for assuring that the highest prices are
                        obtained from seized asset sales, we recommend that the Commissioner

                      • develop guidelines for establishing minimum asset prices to preclude the
                        use of arbitrary percentage reductions or the amount of the delinquency as
                        the minimum price and
                      • take the steps necessary to promote reasonable competition among
                        potential buyers during asset sales.

                        To strengthen oversight of seizure activities, we recommend that the
                        Commissioner establish a method for providing IRS senior managers with
                        useful information to monitor the use of seizure authority, including the
                        quality of asset management and disposal activities.

                        In written comments on a draft of this report, IRS agreed with the report’s
Agency Comments and     findings and said it was working to address them. More specifically, IRS
Our Evaluation          said that it needed to strengthen its requirements for documenting the
                        property seized and its process for marketing assets. IRS also noted that,
                        as discussed in our overall report, certain conditions associated with the
                        sale of seized assets (e.g., sale of assets in “where is” and “as is” condition)
                        may depress the price at which the assets may be sold. Additionally, IRS
                        acknowledged that, in the short term, it will not have an information
                        system that will provide IRS management with all of the asset management
                        information needed. But IRS said that it expects to expand the capabilities



                        Page 12                                 GAO/GGD-00-5 IRS Seized Asset Management
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of the management information system so that, in the long term, IRS will
have an automated system that will meet all of the federal financial
management guidelines. For additional comments on individual
recommendations, IRS referred to its response to our overall report. In
those comments, IRS generally agreed with most of the recommendations
but said it was impractical, at this time, to implement those associated
with monitoring the quality of seizure decisionmaking and the results of
seizures (see IRS Seizures: Needed for Compliance but Processes for
Protecting Taxpayer Rights Have Some Weaknesses, (GAO/GGD-00-4, Nov.
29, 1999)).

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from the
date of this letter. At that time, we will send copies to Representative
William J. Coyne, Ranking Minority Member, Subcommittee on Oversight,
House Committee on Ways and Means; the Honorable Charles O. Rossotti,
Commissioner of Internal Revenue; other interested congressional
committees; and other interested parties. We will also make copies
available upon request.

This work was done under the direction of Thomas M. Richards. Other
major contributors are listed in appendix II. If you have any questions, you
may contact me on (202) 512-9110.

Sincerely yours,




James R. White
Director, Tax Policy
 and Administration Issues




Page 13                                GAO/GGD-00-5 IRS Seized Asset Management
Appendix I

Comments From the Internal Revenue Service




              Page 14       GAO/GGD-00-5 IRS Seized Asset Management
Appendix I
Comments From the Internal Revenue Service




Page 15                                      GAO/GGD-00-5 IRS Seized Asset Management
Appendix II

GAO Contacts and Staff Acknowledgments


                  James R. White (202) 512-9110
GAO Contacts      Thomas M. Richards (202) 512-9110

                  In addition to those named above, Wendy Ahmed, Julie Cahalan, Sharon
Acknowledgments   Caporale, Kevin Daly, Sally Gilley, Leon Green, Mary Jankowski, Joseph
                  Jozefczyk, Stuart Kaufman, Ann Lee, Mary Jo Lewnard, John Mingus,
                  George Quinn, Julie Scheinberg, Sidney Schwartz, Samuel Scrutchins,
                  James Slaterback, Shellee Soliday, Clarence Tull, Margarita Vallazza, and
                  Thomas Venezia made key contributions to this report.




                  Page 16                              GAO/GGD-00-5 IRS Seized Asset Management
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