oversight

Tax Administration: IRS' Use of Enforcement Authorities to Collect Delinquent Taxes

Published by the Government Accountability Office on 1997-09-23.

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

                     United States General Accounting Office

GAO                  Testimony
                     Before the Committee on Finance, U.S. Senate




For Release
on Delivery
Expected at
                     TAX ADMINISTRATION
9:00 a.m. EDT
Tuesday,
September 23, 1997
                     IRS’ Use of Enforcement
                     Authorities to Collect
                     Delinquent Taxes
                     Statement of Lynda D. Willis, Director, Tax Policy and
                     Administration Issues, General Government Division




GAO/T-GGD-97-155
Statement

Tax Administration: IRS’ Use of
Enforcement Authorities to Collect
Delinquent Taxes
               Mr. Chairman and Members of the Committee:

               I appreciate being invited here today to discuss the availability of
               information on the Internal Revenue Service’s (IRS) use of its enforcement
               authorities to collect delinquent taxes. In general, if taxes remain unpaid
               after IRS gives appropriate notice and demand for payment, IRS is
               authorized by the Internal Revenue Code to seize the delinquent taxpayer’s
               property either through direct action or through demand (referred to as a
               notice of levy) made on third parties, such as banks or employers, to turn
               over the taxpayer’s assets or earnings to IRS.1 IRS is also authorized to file
               liens against the delinquent taxpayer’s property.2

               According to data IRS pulled together from various internal management
               systems, in fiscal year 1996, IRS (1) filed about 750,000 liens against
               taxpayer property, (2) issued about 3.2 million levies on taxpayer assets
               held by third parties, and (3) completed about 10,000 seizures of taxpayer
               property. These enforcement actions can have severe financial
               consequences for taxpayers, and the potential exists for such actions to be
               taken in error or improperly. Accordingly, you asked us to determine if
               information existed that could be used to determine whether collection
               enforcement authorities were properly used.

               To determine whether information existed to evaluate IRS’ use of
               collection enforcement authorities, we (1) asked IRS to provide us with
               available basic statistics on its use, and misuse, of lien, levy, and seizure
               authority from 1993 to 1996; (2) reviewed a small and subjectively selected
               sample of seizure, revenue officer, appeals, and problem resolution case
               files to identify the types of information that may be available from those
               files; and (3) interviewed IRS employees involved in these areas to
               determine how and when collection enforcement authorities were used,
               the controls for preventing misuse of those authorities, and the results of
               taxpayer complaints about the inappropriate use of the authorities.

               In summary, while IRS has some limited data about its use, and misuse, of
               collection enforcement authorities, these data are not sufficient to show
               (1) the extent of the improper use of lien, levy, or seizure authority; (2) the
               causes of the improper actions; or (3) the characteristics of taxpayers

               1
                Under the Internal Revenue Code, levy is defined as the seizure of a taxpayer’s assets to satisfy a tax
               delinquency. IRS differentiates between the levy of assets in the possession of the taxpayer (referred
               to as a seizure) and the levy of assets such as bank accounts and wages that are in the possession of
               third parties such as banks and employers (referred to as a levy).
               2
               A lien is a legal claim that attaches to property to secure the payment of a debt. The filing of a lien
               would prevent the taxpayer from selling an asset, with clear title, without payment of the tax debt.



               Page 1                                                                               GAO/T-GGD-97-155
                        Statement
                        Tax Administration: IRS’ Use of
                        Enforcement Authorities to Collect
                        Delinquent Taxes




                        affected by improper actions. The lack of information exists because IRS’
                        systems—both manual and automated—have not been designed to capture
                        and report comprehensive information on the use and possible misuse of
                        collection authorities. Also, much of the data that are recorded on
                        automated systems cannot be aggregated without a significant investment
                        of scarce programming resources. Some information is available in manual
                        records, but—because collection enforcement actions can be taken by a
                        number of different IRS offices and records resulting from these actions
                        are not always linked to IRS’ automated information systems—this
                        information cannot be readily assembled to assess the use of enforcement
                        actions. Also, data are not readily available from other potential sources,
                        such as taxpayer complaints, because, in many circumstances, IRS does
                        not require that information on the resolution of the complaints be
                        recorded. IRS officials told us that collecting complete data on the use of
                        enforcement actions that would permit an assessment of the extent and
                        possible causes of misuse of these authorities is unnecessary because they
                        have adequate checks and balances in place to protect taxpayers.
                        However, IRS does not have the data that would permit it or Congress to
                        readily resolve reasonable questions about the extent to which IRS’
                        collections enforcement authorities are misused, the causes of those
                        occurrences, the characteristics of the affected taxpayers, or whether IRS’
                        checks and balances over the use of collection enforcement authorities
                        are working as intended.


                        The magnitude of IRS’ collection workload is staggering. As of the
Use of Liens, Levies,   beginning of fiscal year 1996, IRS reported that its inventory of unpaid tax
and Seizures in         assessments totaled about $200 billion. Of this amount, IRS estimated that
Collecting Taxes        about $46 billion had collection potential.3 In addition, during the fiscal
                        year, an additional $59 billion in unpaid tax assessments were added to the
                        inventory.

                        To collect these delinquent tax debts, IRS has established a graduated
                        enforcement process. The process starts once IRS identifies taxpayers




                        3
                         The $46 billion figure is based on IRS’ analysis of a sample of unpaid tax assessments that, according
                        to IRS’ financial statements, consist of balances due where IRS has demonstrated the existence of a
                        receivable through information provided directly from the taxpayer or through actions by IRS that
                        support or validate IRS’ claim, such as securing a taxpayer’s agreement. Excluded from the receivables
                        are financial write-offs, allowance for doubtful accounts, and compliance assessments where the
                        taxpayer has not responded to validate the claim, i.e., there is not an established claim with the
                        taxpayer.



                        Page 2                                                                           GAO/T-GGD-97-155
Statement
Tax Administration: IRS’ Use of
Enforcement Authorities to Collect
Delinquent Taxes




who have not paid the amount due as determined by the tax assessment.4
In the first stage of the process, a series of notices are to be sent to the
taxpayer from one of IRS’ service centers. Collectively, these notices are
to provide the taxpayer with statutory notification of the tax liability, IRS’
intent to levy assets if necessary, and information on the taxpayer’s rights.
If the taxpayer fails to pay after being notified, the Internal Revenue Code
authorizes a federal tax lien to be filed to protect the government’s interest
over other creditors and purchasers of taxpayer property.

The second stage of IRS’ collection process involves attempts to collect
the taxes by making telephone contact with the taxpayer. IRS carries out
this stage through its Automated Collection System (ACS) program.
During this stage, IRS may levy taxpayer assets and file notices of federal
tax liens.

In the final stage of the collection process, information about the tax
delinquency is referred to IRS’ field offices for possible face-to-face
contact with the taxpayer. During this stage, IRS may also levy taxpayer
assets and file notices of federal tax liens. Additionally, as a final
collection action, taxpayer property, such as cars or real estate, may be
seized. Attachment I presents a flowchart that provides additional detail
about the collection process.

At any time in the collection process, IRS may find that a taxpayer cannot
pay what is owed or does not owe the tax IRS assessed. In such situations,
IRS may enter into an installment agreement with a taxpayer, compromise
for an amount less than the original tax assessment, suspend or terminate
the collection action, or abate an erroneous assessment. Also, if the
taxpayer is having a problem resolving a collection action with the
initiating IRS office, the taxpayer may go to IRS’ Taxpayer Advocate or to
IRS’ appeals program for resolution. If an enforcement action is taken that
involves a reckless or intentional disregard of taxpayer rights by an IRS
employee, a taxpayer may sue for damages. In the case of an erroneous
bank levy, a taxpayer may file a claim with IRS for reimbursement of bank
charges incurred because of the levy in addition to a refund of the
erroneously levied amount. If a taxpayer believes that enforced collection
would be a hardship, the taxpayer may request assistance from the
Taxpayer Advocate.



4
 IRS tax assessments may result from a number of actions ranging from the self-assessment of taxes by
a taxpayer on a tax return filed voluntarily to an IRS assessment of a tax deficiency identified in an
audit.



Page 3                                                                          GAO/T-GGD-97-155
                        Statement
                        Tax Administration: IRS’ Use of
                        Enforcement Authorities to Collect
                        Delinquent Taxes




                        IRS produces management information reports that provide some basic
IRS Has Some Limited    information on tax collections and the use of collection enforcement
Data on the Use and     authorities, including the number of liens, levies, and seizures filed and, in
Misuse of Lien, Levy,   the case of seizures, the tax delinquency that resulted in the seizure and
                        the tax proceeds achieved. Also, some offices within IRS collect
and Seizure Authority   information on the misuse of these collection enforcement authorities, but
                        the information is not complete.

                        Overall, IRS’ management reports show that IRS’ collection program
                        collected about $29.8 billion during fiscal year 1996, mostly without taking
                        enforced collection action. In attempting to collect on delinquent
                        accounts, the reports show IRS filed about 750,000 liens against taxpayer
                        property, issued about 3.2 million levies on taxpayer assets held by third
                        parties, and completed about 10,000 seizures of taxpayer property.
                        Attachment II presents this overall information on IRS’ use of lien, levy,
                        and seizure authority during fiscal years 1993-96. Attachment III presents a
                        summary of the distribution of seizure cases by type of asset seized in
                        fiscal year 1996.

                        For the seizure cases completed in fiscal year 1996, the average tax
                        delinquency was about $233,700, and the average net proceeds from the
                        seizures was about $16,700. Although complete data were not available on
                        tax delinquencies and associated net proceeds for liens and levies, the best
                        information available from IRS indicates that about $2.1 billion of the
                        $29.8 billion was collected as a result of lien, levy, and seizure actions. The
                        remainder was collected as a result of contacts with taxpayers about their
                        tax delinquencies.

                        The best data that IRS has on the potential misuse of collection authorities
                        are from the Office of the Taxpayer Advocate.5 However, those data alone
                        are not sufficient to determine the extent of misuse. The data show that
                        about 9,600 complaints involving allegations of inappropriate, improper, or
                        premature collection actions were closed by the Advocate in fiscal year
                        1996, as were 11,700 requests for relief from collection actions because of
                        hardship. Although the Advocate does not routinely collect data on the
                        resolution of taxpayer complaints, it does collect data on the resolution of
                        requests for relief. According to the Advocate, during fiscal year 1996, the
                        requests for relief resulted in the release—either full or partial—from
                        about 4,000 levy and seizure actions and 156 liens.



                        5
                         The Office of Taxpayer Advocate is responsible for helping taxpayers to resolve problems they may
                        be having with any of IRS’ various offices, including Collections.



                        Page 4                                                                         GAO/T-GGD-97-155
Statement
Tax Administration: IRS’ Use of
Enforcement Authorities to Collect
Delinquent Taxes




These Taxpayer Advocate data are not sufficient to determine the extent
to which IRS’ initial collection actions were appropriate or not for several
reasons. First, the release of a lien could result from a taxpayer
subsequently paying the tax liability or offering an alternative solution, or
because IRS placed the lien in error. Although the Taxpayer Advocate
maintains an information system that accommodates collecting the data to
identify whether IRS was the cause of the taxpayer’s problem, the
Advocate does not require that such information be reported by the IRS
employee working to resolve the case or be otherwise accumulated. Thus,
about 82 percent of the taxpayer complaints closed in fiscal year 1996 did
not specify this information. Of the remaining 18 percent, about 9 percent
specified that IRS’ collection action was in error either through taking an
erroneous action, providing misleading information to the taxpayer, or
taking premature enforcement action.

In addition, the Advocate’s data do not cover the potential universe of
cases in which a collection action is alleged to have been made
improperly. The Advocate requires each complaint that is covered by its
information system to be categorized by only one major code to identify
the issue or problem. If a complaint had more than one problem, it is
possible that a collection-related code could be superseded by another
code such as one covering lost or misapplied payments. Also, complaints
that are handled routinely by the various IRS offices would not be
included in the Advocate’s data because that office was not involved in the
matter. For example, appeals related to lien, levy, and seizure actions are
to be handled by the Collection Appeals Program (effective April 1, 1996).

For fiscal year 1996, the Appeals Program reported that of the 705
completed appeals of IRS’ enforced collection actions, it fully sustained
IRS actions on 483 cases, partially sustained IRS in 55 cases, did not
sustain IRS actions in 68 cases, and returned 99 cases to the initiating
office for further action because they were prematurely referred to the
Collection Appeals Program. According to IRS Appeals officials, a
determination that Appeals did not sustain an IRS enforcement action
does not necessarily mean that the action was inappropriate. If a taxpayer
offered an alternative payment method, the Appeals Officer may have
approved that offer—and thus not sustained the enforcement
action—even if the enforcement action was justified. In any event, the
Collection Appeals Program keeps no additional automated or summary
records on the resolution of appeals as they relate to the appropriateness
of lien, levy, or seizure action.




Page 5                                                       GAO/T-GGD-97-155
                            Statement
                            Tax Administration: IRS’ Use of
                            Enforcement Authorities to Collect
                            Delinquent Taxes




                            IRS’ record-keeping practices limit both our and IRS’ ability to generate
Further Assessment          data needed to determine the extent or causes of the misuse of lien, levy,
of Extent or Causes of      and seizure authority. Neither IRS’ major data systems—masterfiles and
Misuse of Liens,            supplementary systems—nor the summary records (manual or automated)
                            maintained by the IRS offices responsible for the various stages of the
Levies, and Seizures Is     collection process systematically record and track the issuance and
Limited by IRS’             complete resolution of all collection enforcement actions, i.e., liens, levies,
                            and seizure actions. Moreover, the detailed records kept by these offices
Record-Keeping              do not always include data that would permit a determination about
Practices                   whether an enforcement action was properly used. But, even if collection
                            records contained information relevant to the use of collection
                            enforcement actions, our experience has been that obstacles exist to
                            retrieving records needed for a systematic review.


Major Information Systems   IRS maintains selected information on all taxpayers, such as taxpayer
Do Not Contain Data         identification number; amount of tax liability by tax year; amount of taxes
Necessary to Assess         paid by tax year; codes showing the event triggering the tax payment,
                            including liens, levies, and seizures; and taxpayer characteristics,
Enforcement Actions         including earnings and employment status, on its Individual and Business
                            Masterfiles. Also, if certain changes occur to a taxpayer’s account, such as
                            correction of a processing error in a service center, IRS requires
                            information to be captured on the source of the error, that is, whether the
                            error originated with IRS or the taxpayer.

                            Although some related data are recorded in the Masterfiles, those data are
                            currently not readily accessible because IRS does not have retrieval
                            programs and IRS officials told us that developing such programs would
                            take considerable time because scarce programming resources are
                            unavailable due to higher priority information management systems work.
                            Moreover, the data that are recorded do not include some key aspects of
                            enforcement actions. For example, the Masterfiles do not contain
                            information on attempted levies—IRS’ most frequently used enforcement
                            authority. Also, IRS does not maintain automated information showing all
                            tax payments received as a result of lien or levy actions taken. While IRS
                            procedures provide for coding tax payments according to the event
                            triggering the payment (which could include liens, levies, and seizures),
                            IRS advised us that controls are not in place to ensure that the automated
                            data are complete, and, in a recent limited review, IRS found wide
                            discrepancies between the automated information and actual collections.
                            As a result of the lack of such key data, IRS cannot readily produce data
                            on the overall use or misuse of its collection enforcement authorities or on



                            Page 6                                                        GAO/T-GGD-97-155
                                  Statement
                                  Tax Administration: IRS’ Use of
                                  Enforcement Authorities to Collect
                                  Delinquent Taxes




                                  the characteristics of affected taxpayers. The lack of such data also
                                  precludes us from identifying a sample of affected taxpayers to serve as a
                                  basis for evaluating the use or misuse of collection actions.


Offices With Authority to         As I noted earlier, the IRS tax collection process involves several steps,
Initiate Liens, Levies, and       which are carried out by different IRS offices that are often
Seizures Do Not Keep              organizationally dispersed. Since authorities exist to initiate some of the
                                  collection actions at different steps in the process, several different offices
Summary Records Related           could initiate a lien, levy, or seizure to resolve a given tax assessment. In
to Appropriateness of             addition, our examination of procedures and records at several of these
Actions                           offices demonstrated that records may be incomplete or inaccurate. For
                                  example, the starting point for a collection action is the identification of an
                                  unpaid tax assessment. The assessment may originate from a number of
                                  sources within IRS, such as the service center functions responsible for
                                  the routine processing of tax returns; the district office, ACS, or service
                                  center functions responsible for examining tax returns and identifying
                                  nonfilers; or the service center functions responsible for
                                  computer-matching of return information to identify underreporters.
                                  These assessments may not always be accurate, and as reported in our
                                  financial audits of IRS, cannot always be tracked back to supporting
                                  documentation.6 Since collection actions may stem from disputed
                                  assessments, determining the appropriateness of IRS actions would be
                                  problematic without an accurate tax assessment supported by
                                  documentation.

                                  Further, offices responsible for resolving taxpayer complaints do not
                                  always maintain records on the resolution of those complaints that would
                                  permit identification of instances of inappropriate use of collections
                                  authorities. We found several examples of this lack of data during our
                                  review.

                              •   If a taxpayer complains about enforced collection actions (other than
                                  allegations of criminal or serious administrative misconduct by specific
                                  IRS employees), the complaint is to be handled initially by the office
                                  responsible for the action. These offices do not routinely keep automated
                                  or other summary records on the complaints or on the appropriateness of
                                  lien, levy, or seizure actions taken. If this information is recorded, it would
                                  be included in the affected taxpayer’s collection case file and, as I will
                                  discuss later, systematically obtaining these files is impractical. Also, in

                                  6
                                   See Financial Audit: Examination of IRS’ Fiscal Year 1995 Financial Statements (GAO/AIMD-96-101,
                                  July 11, 1996) and Financial Audit: Examination of IRS’ Fiscal Year 1994 Financial Statements
                                  (GAO/AIMD-95-141, Aug. 4, 1995).



                                  Page 7                                                                        GAO/T-GGD-97-155
                              Statement
                              Tax Administration: IRS’ Use of
                              Enforcement Authorities to Collect
                              Delinquent Taxes




                              cases involving ACS, where an automated system is used for recording
                              data, specific information about complaints may not be maintained
                              because the automated files have limited space for comments and
                              transactions.
                          •   If a taxpayer complaint is not resolved by the responsible office, the
                              taxpayer may seek assistance from the Taxpayer Advocate. As noted
                              earlier, the Advocate has some information on complaints about the use of
                              collection enforcement authorities, but those data are incomplete. In
                              addition, starting in the last quarter of 1996, the Advocate was to receive
                              notification of the resolution of taxpayer complaints involving IRS
                              employee behavior (that is, complaints about IRS employees behaving
                              inappropriately in their treatment of taxpayers, such as rudeness,
                              overzealousness, discriminatory treatment, and the like.) These
                              notifications, however, do not indicate if the problem involved the
                              possible misuse of collection authority.
                          •   If a taxpayer’s complaint involves IRS employee integrity issues, the
                              complaint should be referred to IRS’ Inspection Office. According to
                              Inspection, that office is responsible for investigating allegations of
                              criminal and serious administrative misconduct by specific IRS employees,
                              but it would not normally investigate whether the misconduct involved
                              inappropriate enforcement actions. In any event, Inspection does not keep
                              automated or summary records on the results of its investigations as they
                              relate to appropriateness of lien, levy, or seizure actions.
                          •   Court cases are to be handled by the Chief Counsel’s General Litigation
                              Office. Internal Revenue Code sections 7432 and 7433 provide for
                              taxpayers to file a claim for damages when IRS (1) knowingly or
                              negligently fails to release a lien or (2) recklessly or intentionally
                              disregards any provision of law or regulation related to the collection of
                              federal tax, respectively. According to the Litigation Office, a total of 21
                              cases were filed under these provisions during 1995 and 1996. However,
                              the Litigation Office does not maintain information on case outcomes. The
                              Office has recently completed a study that covered court cases since 1995
                              involving damage claims in bankruptcy cases. As a part of that study, the
                              Office identified 16 cases in which IRS misapplied its levy authority during
                              taxpayer bankruptcy proceedings. IRS officials told us that the results of
                              this study led IRS to establish a Bankruptcy Working Group to make
                              recommendations to prevent such misapplication of levy authority.


Existing Records Cannot       Even if collection files included information relevant to an assessment of
Always Be Retrieved           the use of enforcement authorities, obstacles exist to the reconstruction of
                              records that would permit an assessment of the use or possible misuse of



                              Page 8                                                      GAO/T-GGD-97-155
                          Statement
                          Tax Administration: IRS’ Use of
                          Enforcement Authorities to Collect
                          Delinquent Taxes




                          collection enforcement authorities. As we have learned from our prior
                          work, IRS cannot always locate files when needed. For example, locating
                          district office closed collection files once they have been sent to a Federal
                          Records Center is impractical because there is no list identifying file
                          contents associated with the shipments to the Records Centers. On a
                          number of past assignments, we used the strategy of requesting IRS
                          district offices to hold closed cases for a period of time, and then we
                          sampled files from those retained cases. However, the results of these
                          reviews could not be statistically projected to the universe of all closed
                          cases because we had no way to determine if the cases closed in the
                          relatively short period of time were typical of the cases closed over a
                          longer period of time.


                          We discussed with IRS the feasibility of collecting additional information
IRS Officials Said That   for monitoring the extent to which IRS may have inappropriately used its
Collecting Data to        collection enforcement authorities, and the characteristics of taxpayers
Assess Enforcement        who might be affected by such inappropriate actions. IRS officials noted
                          that, although IRS does not maintain specific case data on enforcement
Actions Is Impractical    actions, they believed that sufficient checks and balances (e.g.,
and Unnecessary           supervisory review of collection enforcement actions, collection appeals,
                          complaint handling, and taxpayer assistance) are in place to protect
Because Taxpayers         taxpayers from inappropriate collection action. The development and
Are Protected             maintenance of additional case data are, according to IRS officials, not
Through Checks and        practical without major information system enhancements. The IRS
                          officials further observed that, given the potential volume and complexity
Balances                  of the data involved and the resources needed for data gathering and
                          analysis, they were unable to make a compelling case for compiling the
                          information.

                          We recognize that IRS faces resource constraints in developing its
                          management information systems and that IRS has internal controls, such
                          as supervisory review and appeals, that are intended to avoid or resolve
                          inappropriate use of collection authorities. We also recognize that the lack
                          of relevant information to assess IRS’ use of its collection enforcement
                          authorities is not, in itself, evidence that IRS lacks commitment to resolve
                          taxpayer collection problems after they occur. However, the limited data
                          available and our prior work indicate that, at least in some cases, these
                          controls may not work as effectively as intended.7


                          7
                           See Tax Administration: IRS Is Improving Its Controls for Ensuring That Taxpayers Are Treated
                          Properly (GAO/GGD-96-176, Aug. 30, 1996) and Tax Administration: IRS Can Strengthen Its Efforts to
                          See That Taxpayers Are Treated Properly (GAO/GGD-95-14, Oct. 26, 1994).



                          Page 9                                                                         GAO/T-GGD-97-155
Statement
Tax Administration: IRS’ Use of
Enforcement Authorities to Collect
Delinquent Taxes




IRS is responsible for administering the nation’s voluntary tax system in a
fair and efficient manner. To do so, IRS oversees a staff of more than
100,000 employees who work at hundreds of locations in the United States
and foreign countries and who are vested, by Congress, with a broad set of
discretionary enforcement powers, including the ability to seize taxpayer
property to resolve unpaid taxes. Given the substantial authorities granted
to IRS to enforce tax collections, IRS and the other stakeholders in the
voluntary tax system—such as Congress and the taxpayers—should have
information to permit them to determine whether those authorities are
being used appropriately; whether IRS’ internal controls are working
effectively; and whether, if inappropriate uses of the authorities are
identified, the problems are isolated events or systemic problems. At this
time, IRS does not have the data that would permit it or Congress to
readily determine the extent to which IRS’ collections enforcement
authorities are misused, the causes of those occurrences, the
characteristics of the affected taxpayers, or whether the checks and
balances that IRS established over the use of collection enforcement
authorities are working as intended.


Mr. Chairman, this concludes my prepared statement. I would be pleased
to answer any questions you may have.




Page 10                                                    GAO/T-GGD-97-155
Page 11   GAO/T-GGD-97-155
Appendix I

Flowchart of the Collection Process



Service Center Processing




                                                                                                                                                        ▲
     Taxes assessed but not paid.                                                                                                                           A.
      First collection notice sent.
                                                                                                                                                            B.
         Statutory lien arises.
                                                        No

                    ▲                                                       ▲

                                                 Does         Yes
                                No             taxpayer                    Does
                   Does                                                  taxpayer                                         Does          Yes
                                           response require                                        Information




                                                                                                                  ▲




                                                                                                                                                        ▲
                 taxpayer
                                      ▲




                                                                                            ▲
                                                                                                                        taxpayer                            C.
                   pay?                     IRS research to   ▲         agree with               is researched.
                                                                                                                          owe?
                                               proceed?                   amount       No
                                                                          owed?
                                                                                                                  No      ▲
              Yes                                                 Yes       ▲
                                                                                                                      Case closed.
                                                                   Cannot full pay.
                                                                   IA,OIC, or CNC
                                                                     considered.

                                                                            ▲

                    ▲
                                                                        Meets                                               IA,    Yes
                                                                                                        Case                                      Establish
                                                                                                                        OIC or CNC
                                                                                             ▲




                                                                                                                  ▲
                                                                   Service Center




                                                                                                                                           ▲
              Case closed.                                                                           processed.                                  IA, OIC or
                                                                     tolerance?            Yes                          approved?                  CNC.


                                                                            ▲   No                                                 No
                                                                                                 ▲




                                                                          Sent to

                                                                  Field              ACS




                                                                                                                                     (ACS Collection)

                                                                                                                                                        ▲
                                                                                                                                                            D.




                                                                                                                            (Field Collection)
                                                                                                                                                        ▲




                                                                                                                                                            E.




                                          Page 12                                                                                    GAO/T-GGD-97-155
                                                     Appendix I
                                                     Flowchart of the Collection Process




                                                                                                                                                     (ACS Collection)




                                                                                                                                                                        ▲
                                                                                                                                                                            D.
                                                                                                                                                                 ▲
A.
     ▲




B.
                                         ▲
                                                                                     Case closed.
                                                                                         ▲
                                                                                             Yes                    Does
                                   Does taxpaper
                                     have other                                                                   taxpayer
                                                     No        Other notices                        No            response         Yes
                                  delinquencies or                                    Taxpayer
                                                          ▲
                              ▲




                                                                                 ▲




                                                                                                         ▲
C.                                                             or telephone                                      require IRS
                                  otherwise meet                                       pays?
                                      criteria to                 contact                                        research to
                                    go to ACS or                attempted.                                        proceed?
                                        field?                Notices include
                                                              information on
                                                                 taxpayer                                              No
                                                                   rights.
                                             Yes


                                                                                    Notice of intent
                                                                                      to levy sent
                                                                                        certified
                                                                                     mail (statutory
                                                                           ▲




                                                                                                             ▲

                                                                                     requirement).
                                                                                Includes publication on
                                                                                    taxpayer rights.

                                                                                         ▲


                                                                                        Does                         Meets Yes (ACS Collection)
                                                                                                    No
                                                                                                                    criteria
                                                                                                             ▲




                                                                                      taxpayer
                                                                                        pay?                       for ACS?

                                                                                             Yes
                                                                                         ▲                                 No (Field Collection)

                                                                                     Case closed.
     (ACS Collection)
D.




         (Field Collection)                                                                                                                        (Field Collection)
                                                                                                                       ▲
                                                                                                                                                                        ▲




 E.                                                                                                                                                                         E.




                                                     Page 13                                                                                            GAO/T-GGD-97-155
                                                            Appendix I
                                                            Flowchart of the Collection Process




Automated Collection System                                                                                                                                      (Field Collection)

 D.




                                                                                                                                                                            ▲
                                                                                                                                                                                E.

                                          ▲


                                       Is levy                Research to               Are levy       No
                                                   No



                                                                                   ▲
                                    information                find levy                sources
                                                        ▲




                                     available?                sources.                 found?



                                                                                             Yes
                                          ▲




                                    Yes
                                          ▲



          Send final           No    Was final
                           ▲




           notice.                  notice sent?

              ▲
                                    Yes   ▲
                                                                    Does
                                                                                                            ▲
             Does                       Issue                     taxpayer         No
                           No                                                                          Attempt phone
                                                                                                   ▲




           taxpayer
                                ▲




                                                        ▲




                                       levies.                     or levy
             pay?                                                                                         contact.
                                                                   source
                                                                    pay?                                    ▲

                  Yes
                                                               Yes                                         Does
                                                                                           No
                                                                                                         taxpayer
                                                                                                           owe?


                                                                                                            ▲    Yes



                                                                                             Yes            Does
                                                                                                          taxpayer
                                                                                                            pay?
                                                                                                                                       ▲




                                                                                                                                           Issue levies if new
                                                                                                             ▲                               sources found.
                                                                                                                 No
                                                                                                                                                    ▲

                                                                                                             Does
                                                                                                           taxpayer                               Does
                                                                                                           response         No                  taxpayer
                                                                                                         require IRS
                                                                                                                                                  pay?
                                                                                                           research
                                                                                                         to proceed?
                                                                     ▲ ▲ ▲                                                       Yes
                                                                                                                                               No
                                                                      Case
                                                              ▲




                                                                                                                 Yes
                                                                     Closed.
                                                                               ▲




                                                                                                             ▲
                                                                                            Establish IA or OIC if taxpayer
                                                                                           cannot full pay, if taxpayer cannot
                                                                                                pay at all, then CNC.              ▲
      (Field Collection)                                                                       File lien, if appropriate.                  (Field Collection)
E.




                                                            Page 14                                                                                        GAO/T-GGD-97-155
                                                           Appendix I
                                                           Flowchart of the Collection Process




 Field Collection

                           Attempt
                 ▲




 E.                       taxpayer
                           contact.

                             ▲



                No           Does
                           taxpayer
                             owe?


                              ▲   Yes

                                                                                      Can
                             Does                    Obtain/analyze                 taxpayer         No
                Yes                       No        taxpayer financial                 pay                          Establish CNC. File
                                               ▲




                           taxpayer




                                                                                                                ▲
                             pay?                      information.                something?                       lien, if appropriate.


                                                                                 Yes
                                                                                         ▲


                                                                                       Can
                                                                                                     No
                                                                                    taxpayer                         Establish IA or OIC.
                                                                                                                ▲




                                                                                      pay in                        File lien, if appropriate.
                                                                                       full?


                                                                                 Yes     ▲


                                                                         Yes          Does
                                                                                    taxpayer
                                                                                      pay?


                                                                                         ▲     No

                                                                         Enforce collection. Issue levies if
                                                                                sources available.

                                                                                           ▲


                                                                                       Are taxes          No
                                                                                                                     Seize assets.
                                                                                                                ▲




                                                                                       fully paid?


                                                                                                                          ▲

  ▲ ▲       ▲▲
                                                                                                                                                        Continue enforced
                                                                                                          Yes                         No
       Case                                                                                                           Are taxes                      actions until paid or case
                                                                                                                                                 ▲
                      ▲




      Closed.                                                                                                         fully paid?                        otherwise closed.




Note: This is a summary level overview of IRS' process for collecting unpaid tax assessments. Some processing steps are not shown in detail. For instance,
a case may be diverted to problem resolution or the collection appeals program. In unusual cases, for example very large delinquencies, IRS may bypass
certain steps. Also, during any part of the collection process, IRS may file a lien if it is determined appropriate.

Source: GAO analysis of IRS procedures.
                                                           Page 15                                                                                        GAO/T-GGD-97-155
Appendix II

IRS Collection Enforcement Actions


Figure II.1: IRS Levies, Fiscal Years
1993 Through 1996                       Number of IRS levies issued nationwide


                                         3,500,000



                                         3,000,000



                                         2,500,000



                                         2,000,000



                                         1,500,000



                                         1,000,000



                                          500,000



                                                  0
                                                            1993                   1994   1995   1996


                                                             Collection field function

                                                             Automated call site



                                        Source: IRS data.




                                        Page 16                                                  GAO/T-GGD-97-155
                                       Appendix II
                                       IRS Collection Enforcement Actions




Figure II.2: IRS Liens, Fiscal Years
1993 Through 1996                      Number of IRS liens nationwide

                                       1,000,000




                                         800,000




                                         600,000




                                         400,000




                                         200,000




                                                 0
                                                           1993             1994   1995   1996


                                                             Filed
                                                             Released



                                       Source: IRS data.




                                       Page 17                                            GAO/T-GGD-97-155
                                          Appendix II
                                          IRS Collection Enforcement Actions




Figure II.3: IRS Seizures, Fiscal Years
1993 Through 1996                         Number of IRS seizures nationwide

                                          12,000



                                          10,000



                                           8,000



                                           6,000



                                           4,000



                                           2,000



                                               0
                                                              1993            1994   1995   1996




                                          Source: IRS data.




                                          Page 18                                           GAO/T-GGD-97-155
Appendix III

Distribution of Seizure Cases by Type of
Asset Seized, Fiscal Year 1996


               Type of asset                                                                          Percenta
               Personal residence                                                                          10.4
               Other real property                                                                         26.0
               Vehicles                                                                                    31.2
               Licenses                                                                                         3.7
               Cash register contents                                                                           7.4
               Office equipment/furniture                                                                       7.5
               Machinery                                                                                        8.0
               Inventory                                                                                        6.0
               Safe deposit boxes                                                                               1.4
               Other business property                                                                          7.1
               Other personal property                                                                          6.6
               a
                Percentages add to more than 100 because multiple types of assets may be involved in a single
               seizure case.

               Source: IRS data.




(268745)       Page 19                                                                      GAO/T-GGD-97-155
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