IRS Seizures: Needed for Compliance but Processes for Protecting Taxpayer
Rights Have Some Weaknesses (Chapter Report, 11/29/1999, GAO/GGD-00-4).

Pursuant to a congressional request, GAO reviewed the Internal Revenue
Service's (IRS) use of seizure authority, focusing on whether: (1) IRS
targeted the most noncompliant taxpayers; (2) IRS brought affected
taxpayers into compliance; (3) IRS exercised appropriate discretion in
conducting seizures; and (4) IRS' implementation of the IRS
Restructuring and Reform Act of 1998 would address any weaknesses found
in the pre-Restructuring Act seizure process.

GAO noted that: (1) IRS' use of seizure authority produced mixed results
in terms of targeting the most noncompliant taxpayers and then bringing
them into compliance; (2) GAO's review of a sample of fiscal year 1997
seizures showed the following: (a) seizures targeted the more
noncompliant taxpayers; (b) seizures were as much as 17 times more
likely to occur for delinquent individual taxpayers in some IRS district
offices than others; (c) many seizures improved compliance with the tax
laws; and (d) some seizures produced little revenue to the government
and contributed little to resolving the taxpayers' delinquencies; (3) in
reviewing 115 sample seizure cases, GAO found examples in which IRS
revenue officers' use of discretion in deciding whether and how to
conduct a seizure was questionable; (4) GAO recognizes that some revenue
officer discretion is necessary and that the adversarial nature of
seizure cases can limit the information available to revenue officers
when making seizure decisions; (5) nevertheless, some of the decisions
made by revenue officers were questionable; (6) IRS' use of seizure
authority is in transition while IRS adapts to the Restructuring Act
requirements; (7) revenue officers have expressed concerns about a lack
of guidance on when to make seizures in light of the act, and the number
of seizures has declined about 98 percent; (8) IRS officials expect the
number of seizures to rebound as changes to the seizure program are
implemented and revenue officers adapt to the new requirements; (9)
GAO's review of IRS' processes for protecting taxpayer rights and
interests in planning and conducting seizures identified implementation
breakdowns and, in some instances, inadequate process requirements; (10)
breakdowns and inadequate processes were also identified in the
postseizure processes for controlling assets, selling assets, and
reviewing actions taken; (11) because of the severe impact that seizures
may have on taxpayers, GAO views any breakdown in the seizure process as
a weakness; (12) GAO's comparison of the weaknesses found in the
pre-Restructuring Act seizure program with the changes IRS is making
shows that some significant weaknesses are not being fully addressed;
(13) with respect to controlling the use of seizure authority, it is
unclear whether continued reliance on manual reviews of revenue officer
case files, which failed to prevent process departures in the past,
would be sufficient to prevent departures from process requirements in
the future; and (14) only limited guidance is being provided to revenue
officers on how to carry out and document some of the new seizure
guidelines.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-4
     TITLE:  IRS Seizures: Needed for Compliance but Processes for
	     Protecting Taxpayer Rights Have Some Weaknesses
      DATE:  11/29/1999
   SUBJECT:  Taxpayers
	     Search and seizure
	     Delinquent taxes
	     Voluntary compliance
	     Tax law
	     Tax nonpayment
	     Internal controls
	     Assets
	     Debt collection
IDENTIFIER:  IRS Asset Control System
	     IRS Automated Inventory Control System
	     IRS Automated Collection System

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United States General Accounting Office
GAO

Report to the Chairman, Committee on Finance,

U.S. Senate

November 1999

GAO/GGD-00-4

IRS SEIZURES
Needed for Compliance but Processes for

Protecting Taxpayer Rights Have Some Weaknesses

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Contents
Page 141GAO/GGD-00-4 IRS' Use of Seizure Authority
Executive Summary                                                           2
                                                                             
Chapter 1                                                                  18
Introduction
                           Background                                      19
                           Objectives, Scope, and Methodology              24
                                                                             
Chapter 2                                                                  30
Many Seizures Increased
Compliance, But Use
Varied by Location, and
Some Were Questionable
                           Extent of Noncompliance and Location            31
                           Were Determinants of Seizure
                           Likelihood
                           Many Seizures Produced Taxpayer                 35
                           Compliance and Millions of Dollars
                           Seizures for About One in Five                  38
                           Taxpayers Achieved Little Compliance
                           Examples of Questionable Seizures               40
                           Sharp Decline in IRS' Use of Seizure            42
                           Authority
                           Conclusions                                     44
                                                                             
Chapter 3                                                                  45
Weaknesses in IRS' Pre-
Restructuring Act
Seizure Processes for
Protecting Taxpayer
Rights and Interests
                           Most, But Not All, Affected Taxpayers           45
                           Were Provided the Required
                           Opportunities to Resolve Tax Debts
                           Before Seizure
                           Some Seizures Approved Based on                 50
                           Limited Information
                           IRS Generally Complied With Procedures          55
                           for Conducting Seizures
                           Weak Controls Over Assets Seized                56
                           Asset Sales: Little Assurance That              62
                           Maximum Returns Were Achieved
                           Limited Management Oversight of Use of          69
                           Seizure Authority
                           Conclusions                                     74
                                                                             
Chapter 4                                                                  76
IRS' Implementation of
Restructuring Act
Requirements: Taxpayer
Safeguards Strengthened
But Some Weaknesses
Remain
                           Continuing Seizure Process Weaknesses           76
                           Conclusions                                     85
                           Recommendations to the Commissioner of          85
                           Internal Revenue
                           Agency Comments and Our Evaluation              87
Appendixes                 Appendix I: Statistical Analysis of             90
                           Delinquent Taxpayers With and Without
                           Seized Assets
                           Appendix II: Confidence Intervals for           97
                           Tables
                           Appendix III: Comments From the                104
                           Internal Revenue Service
                           Appendix IV: GAO Contacts and Staff            111
                           Acknowledgments
                                                                             
Tables                     Table 2.1: Delinquency Characteristics          31
                           of Individual Taxpayers With and
                           Without Seized Assets
                           Table 2.2: Delinquency Characteristics          33
                           of Business Taxpayers With and
                           Without Seized Assets
                           Table 2.3: Percentage of Delinquencies          36
                           Resolved Through Seizures
                           Table 2.4: Delinquency Amounts, Days            37
                           in Collection, and Revenue Officer
                           Collection Results
                           Table 3.1: Key Requirements for Giving          47
                           Taxpayers an Opportunity to Resolve
                           Their Delinquent Tax Debts
                           Table 3.2: Key Steps in Developing              51
                           Information for Assessing Taxpayers'
                           Ability to Pay
                           Table 3.3: Required Elements for                53
                           Estimating Seizure Results
                           Table 3.4: Documented Reasons for               54
                           Taking Seizure Action
                           Table 3.5: Key Steps Taken to Protect           55
                           Taxpayer Rights During the Seizure
                           Process
                           Table 3.6: Completeness of Inventory            57
                           Descriptions
                           Table 3.7: Adherence to Basic Taxpayer          63
                           Protections in Cases That Went to
                           Sale
                           Table 3.8: Type of Taxpayer Complaint           73
                           Table 3.9: Resolution of Taxpayer               73
                           Complaints
                           Table I.1: Logistic Regression                  92
                           Analysis of the Probability of
                           Seizure for Individual Taxpayers
                           Table I.2: Logistic Regression                  94
                           Analysis of the Probability of
                           Seizure for Business Taxpayers
                           Table II.1: Confidence Intervals for            97
                           Percentage of Tax Delinquencies
                           Resolved
                           Table II.2: Confidence Intervals for            98
                           Delinquency Amounts, Days in
                           Collection, and Revenue Officer
                           Collection Results
                           Table II.3: Confidence Intervals for            99
                           Key Requirement for Giving Taxpayers
                           an Opportunity to Resolve Their Tax
                           Debts
                           Table II.4: Confidence Intervals for            99
                           Assessing Taxpayers' Ability to Pay
                           Table II.5: Confidence Intervals for           100
                           Estimating Seizure Results
                           Table II.6: Confidence Intervals for           100
                           Reasons for Taking Seizure Action
                           Table II.7: Confidence Intervals for           101
                           Protecting Taxpayer Rights During the
                           Seizure Process
                           Table II.8: Confidence Intervals for           101
                           Completeness of Inventory
                           Descriptions
                           Table II.9: Confidence Intervals for           102
                           Adhering to Basic Taxpayer
                           Protections in Cases That Went to
                           Sale
                           Table II.10: Confidence Intervals for          102
                           Types of Taxpayer Complaint
                           Table II.11 Confidence Intervals for           103
                           Resolution of Taxpayer Complaints
                                                                             
Figures                    Figure 2.1: Trends in IRS' Use of               43
                           Seizure Authority
                                                                             

IRS SEIZURES  Needed for Compliance but Processes for Protecting Taxpayer Rights
Have Some Weaknesses                                                                GAO/GGD-00-4

Page 2              GAO/GGD-00-4 IRS' Use of Seizure Authority

B-278956

November 29, 1999

The Honorable William V. Roth, Jr.
Chairman, Committee on Finance
United States Senate

Dear Mr. Chairman:

This report discusses the Internal Revenue Service's (IRS) use
of seizure authority, including which taxpayers were targeted
for seizure; whether appropriate discretion was exercised in
conducting seizures and protecting taxpayer rights; whether
IRS properly managed and disposed of seized assets; and
whether IRS' implementation of the IRS Restructuring and
Reform Act of 1998 will address any weaknesses found in the
pre-Restructuring Act process.

This report was prepared at your request because of concerns
over the adequacy of taxpayer protections during the seizure
process that were identified during hearings held by the
Committee in September 1997.

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 Senator Daniel P. Moynihan,
Ranking Minority Member, Committee on Finance, and to other
congressional committees as appropriate. We will also send
copies of this report to the Honorable Charles O. Rossotti,
Commissioner of Internal Revenue, and we will make copies
available to others upon request.

This work was done under the direction of Thomas M. Richards.
Other major contributors to this report are acknowledged in
appendix IV.  If you have any questions, please call me or Mr.
Richards on (202) 512-9110.

Sincerely yours,

James R. White
Director, Tax Policy and
 Administration Issues

Executive Summary

Page 13 GAO/GGD-00-4 IRS' Use of Seizure Authority
Purpose
     To collect unpaid taxes, in fiscal year 1997,
Internal Revenue Service revenue officers seized
property from about 8,300 delinquent taxpayers who
owed the federal government about $1.1 billion. In
making these seizures, revenue officers were
required to follow statutory and IRS procedural
requirements established to protect taxpayer
interests.

     Although a relatively small number of
delinquent taxpayers are affected by seizures, the
impact on these taxpayers can be severe.
Delinquent taxpayers have lost their homes and
businesses for nonpayment of taxes.

     Because of concerns over the adequacy of
taxpayer protections during the seizure process,
the Senate Finance Committee held a series of
hearings beginning in September 1997. These
hearings, at which GAO testified,1 contributed to
the passage of the IRS Restructuring and Reform
Act of 1998. In part, the act was designed to
better protect taxpayers from unwarranted
collection actions, such as the seizure of their
property, if other collection alternatives were
available. IRS has begun implementing these
additional protections.

     Given congressional concerns over taxpayer
protections, the Chairman asked GAO to review IRS'
use of seizure authority as documented in a random
sample of closed collection case files predating
the Restructuring Act and to gather information
that could indicate whether IRS' implementation of
Restructuring Act process changes would fully
address any weaknesses found. Accordingly, the
objectives of GAO's review were to

ï¿½    determine whether IRS, in exercising seizure
authority, (1) targeted the most noncompliant
taxpayers, (2) brought affected taxpayers into
compliance, and (3) exercised appropriate
discretion in conducting seizures;
ï¿½    assess IRS' pre-Restructuring Act processes,
and any departures from those processes, for
protecting taxpayer rights and interests in
planning and conducting seizures; and
ï¿½    determine if the changes being made to the
seizure process pursuant to the Restructuring Act
would address any weaknesses found in IRS' pre-
Restructuring Act seizure process.

GAO reviewed a representative sample of seizures
initiated in fiscal year 1997 with assets sold or
returned to the taxpayers by mid-1998. As agreed
with the Committee staff and IRS, these cases were
selected because they were the most recent closed
cases available for this review.

Results in Brief
IRS' use of seizure authority produced mixed
results in terms of targeting the most
noncompliant taxpayers and then bringing them into
compliance. GAO's review of a sample of fiscal
year 1997 seizures showed the following:

ï¿½    Seizures targeted the more noncompliant
taxpayers-statistically, the greater the amount of
unpaid taxes or the number of outstanding tax
delinquencies, the greater the likelihood of
seizure.
ï¿½    The likelihood of seizure varied by
location-seizures were as much as 17 times more
likely for delinquent individual taxpayers in some
IRS district offices than others. Investigating
the causes for the variation was outside the scope
of this report.
ï¿½    Many seizures improved compliance with the
tax laws-for example, 42 percent of taxpayers had
their full tax liability resolved after having
assets seized, largely by the taxpayers producing
funds to pay all of their outstanding tax
liabilities and having their property returned.
ï¿½    Some seizures produced little-for 22 percent
of affected taxpayers, the seizures produced
little revenue to the government and contributed
little to resolving the taxpayers' delinquencies.

In reviewing 115 sample seizure cases, GAO found
examples in which IRS revenue officers' use of
discretion in deciding whether and how to conduct
a seizure was questionable. GAO recognizes that
some revenue officer discretion is necessary and
that the adversarial nature of seizure cases can
limit the information available to revenue
officers when making seizure decisions.
Nevertheless, some of the decisions made by
revenue officers were questionable. For example,
in one case IRS seized two assets from a taxpayer,
both of which were disproportionately greater in
value than the outstanding tax liability. Given
that identifying questionable decisions is
inherently subjective, GAO noted some clear-cut
cases but did not attempt to estimate the overall
number of questionable decisions.

IRS' use of seizure authority is in transition
while IRS adapts to the Restructuring Act
requirements. Revenue officers have expressed
concerns about a lack of guidance on when to make
seizures in light of the act, and the number of
seizures has declined by about 98 percent, from
roughly 10,000 per year (1990-97) to about 200 for
fiscal year 1999. IRS officials expect the number
of seizures to rebound as changes to the seizure
program are implemented and revenue officers adapt
to the new requirements.

     GAO's review of IRS' processes for protecting
taxpayer rights and interests in planning and
conducting seizures identified implementation
breakdowns and, in some instances, inadequate
process requirements. Specifically, GAO identified
departures from requirements in IRS' preseizure
processes for controlling the use of seizure
authority where, for example, an estimated 9
percent of taxpayers with seized assets were not
sent all of the required written notices.
Breakdowns and inadequate processes were also
identified in the postseizure processes for
controlling assets, selling assets, and reviewing
actions taken. One example is that about one-half
of asset sales attracted no more than one bidder.

     Because of the severe impact that seizures
may have on taxpayers, GAO views any breakdown in
the seizure process as a weakness. Additionally,
GAO found numerous instances of incomplete
documentation in seizure files. The lack of
documentation did not allow managers to properly
review revenue officer actions, leaving the
potential that taxpayer protections were not fully
considered.

     GAO's comparison of the weaknesses found in
the pre-Restructuring Act seizure program with the
changes IRS is making shows that some significant
weaknesses were not being fully addressed. With
respect to controlling the use of seizure
authority, it is unclear whether continued
reliance on manual reviews of revenue officer case
files, which failed to prevent process departures
in the past, would be sufficient to prevent
departures from process requirements in the
future. In addition, only limited guidance is
being provided to revenue officers on how to carry
out and document some of the new seizure
guidelines.

     With respect to controlling and selling
assets after seizure, existing and proposed
controls do not establish accountability over
seized assets nor have processes been put in place
to provide assurance that assets are sold for the
maximum possible price.

     With respect to management review of seizure
actions, changes being made to implement the act
will not give IRS' management the information it
needs to monitor seizure results, including the
uniform use of seizure authority across the
country, appropriate use of discretion in seizure
decisionmaking, or resolution of taxpayer
complaints.

     Because the impact of seizures on taxpayers
can be severe and the number of seizures are
likely to increase in the future, GAO is making
recommendations to deal with weaknesses that
persist in IRS' collection process.

Background
IRS has long operated a graduated collection
process (i.e., sending taxpayers written
notifications requesting payment, followed by
telephone contacts and personal visits). Under IRS
procedures, for taxpayers who were unwilling to
pay their tax debts in a manner that was
commensurate with their ability to pay, IRS was to
initiate enforced collection actions. The actions
could culminate in the seizure of the taxpayers'
property by IRS revenue officers-IRS' field staff
responsible for collecting taxes from delinquent
taxpayers.

IRS policies defined the general conditions that
were to be met before a seizure action was
considered appropriate. The policies specified
that all taxpayers were expected to pay their
taxes in full. If that was not possible, taxpayers
were to be required to pay an amount that was
determined by IRS to be reasonable. However, if
taxpayers resisted complying or did not show a
good-faith effort to comply, enforced collection
action, up to and including asset seizure, was to
be promptly taken. The IRS policy recognized that
"good judgment" was needed to make such decisions.

IRS policies specify that decisions to seize were
the most sensitive decisions that revenue officers
were called upon to make. As such, the Internal
Revenue Manual emphasized that revenue officer
decisions regarding the taxpayers' ability to pay
(as determined by an analysis of their income and
expenses and equity in assets2) and taxpayers'
efforts to resolve their tax liabilities should be
reviewed by collection managers. Also, before
taking seizure action, the Internal Revenue Manual
required that all relevant statutory and
procedural requirements be met.

With enactment of the IRS Restructuring Act in
July 1998, additional taxpayer protections were
incorporated into the graduated collection process
that IRS had operated for years. For example, IRS
was mandated to make a number of changes to the
seizure process. These changes included requiring
IRS to

ï¿½    notify taxpayers of newly established rights
to appeal collection issues and
ï¿½    discipline revenue officers and collections
managers, including terminating their employment,
for not adhering to statutory or IRS procedural
requirements.

Principal Findings

Principal Findings
IRS' Use of Seizure Authority Produced
Mixed Results and Was Questionable in Some Cases
     IRS' use of seizure authority and processes
for protecting taxpayers' interests and rights
produced mixed results in terms of targeting the
most noncompliant taxpayers and bringing taxpayers
into compliance with the tax law.

ï¿½    GAO's analyses of seizure data showed that
seizures were targeted, on average, to the more
noncompliant taxpayers. Individuals whose assets
were seized, on average, owed about 2.6 times more
unpaid taxes than those whose assets were not
seized. In a statistical analysis, GAO determined
that each additional outstanding tax debt
increased an individual taxpayer's odds of seizure
by 13 percent, while each $1,000 of unpaid taxes
increased the odds by 1 percent.
ï¿½    After controlling for noncompliance and other
factors, such as income, the likelihood of a
delinquent taxpayer's assets being seized varied
substantially by IRS district office. For
individual taxpayers, the likelihood of a seizure
was as much as 17 times higher in some district
offices than others. Investigating the causes for
the variation was outside the scope of this
report.
ï¿½    GAO estimates that 42 percent of taxpayers in
seizure cases had their full tax liability
resolved after having their assets seized. Almost
9 out of 10 of these taxpayers produced funds to
fully pay their total tax liabilities and thus had
their property returned. The funds were produced
after the seizure and after the taxpayers had been
unresponsive to other preseizure tax collection
efforts, including letters, personal visits, and
levies of bank accounts and wages.
ï¿½    GAO estimates that the seizure of property
from 22 percent of the affected taxpayers
contributed little to reducing their tax debt. The
seizure of these taxpayers' property produced less
than IRS' estimate of the overall administrative
cost of making a seizure (about $2,0003) and
resolved less than 5 percent of each taxpayer's
outstanding tax debt. Moreover, these seizures had
little or no prospect for inducing further
payments because the taxpayers' delinquent
accounts were classified as "currently-not -
collectible" after the seizure.

In addition, in reviewing 115 sample seizure
cases, GAO identified examples where IRS revenue
officers' use of discretion in deciding whether
and how to conduct a seizure was questionable.
These cases included

ï¿½    seizure of property with a value
disproportionate to the tax debt,
ï¿½    unwillingness to work with a taxpayer to
resolve the delinquency,
ï¿½    superficial investigative work before
seizure,
ï¿½    little advance warning of seizure, and
ï¿½    non-arms-length sale of assets.

For example, a revenue officer seized taxpayer
property valued at about $90,000 from a taxpayer
who owed about $9,000 in unpaid taxes and then
subsequently seized another piece of property
valued at about $38,000.4 The taxpayer fully paid
the liability, and IRS returned the property.
Given the unique characteristics of seizure cases
and the subjective nature of determining what
constitutes a "questionable" seizure, GAO did not
attempt to estimate the number of questionable
actions in the entire population of seizures.

IRS' use of seizure authority is in transition
while it adapts to Restructuring Act requirements
for providing greater taxpayer protections. During
this transition, the number of seizures has
declined by about 98 percent, from roughly 10,000
seizures per year (1990-97) to about 200 for
fiscal year 1999. Revenue officers in the four
district offices visited by GAO said that seizures
have nearly stopped because of their uncertainty
regarding the Restructuring Act's new and what
they viewed as complex rules with potentially
severe penalties for not following those rules.
The revenue officers were concerned that
unintentional errors in implementing the act's
provisions related to seizures could possibly lead
to disciplinary actions, including termination of
employment.

Collection officials in IRS' National Office
indicated that they expect the number of seizures
to rebound as changes to the program are
implemented and revenue officers adapt to the new
requirements. However they indicated that the
anticipated level would be less than the previous
level of about 10,000 seizures per year.
Anticipating a rebound is consistent with GAO's
analyses of fiscal year 1997 seizures. For
example, GAO estimates that about 3,000 taxpayers
waited until after a seizure to fully pay their
tax liability despite numerous collection contacts
by revenue officers over extended periods of time.5

Pre-Restructuring Act Process Weaknesses
GAO's review of fiscal year 1997 cases identified
a number of weaknesses in IRS' pre-Restructuring
Act processes for protecting taxpayer rights and
interests. Weaknesses appear in the preseizure
processes for controlling the use of seizure
authority and in the postseizure processes for
controlling and selling assets and for reviewing
the actions taken.

Before seizure, most but not all taxpayers were
given numerous warnings of possible seizure
action. GAO estimates that, on average, delinquent
taxpayers received 15 written notices in the 3
years before seizure and 5 personal contacts by
revenue officers in the year before seizure.
However, IRS' controls did not prevent departures
from notification requirements. For example, GAO
estimates that about 9 percent of taxpayers whose
assets were seized were not sent all required
written notices. Also, GAO estimates that revenue
officers did not attempt to personally contact
about 4 percent of taxpayers before seizing their
property.

GAO's file review also showed that seizures were
frequently made without all the information
required to justify the seizure. For example, GAO
estimates that 39 percent of seizures were made
without complete information on the expected
financial results of the seizure-18 percent lacked
estimates of asset fair market value, 20 percent
lacked estimates of asset encumbrances necessary
for estimating taxpayer equity in the assets, and
32 percent lacked estimates of seizure and sale
costs. GAO recognizes that, because of the
adversarial nature of seizure proceedings,
estimates of expected financial results from
seizures may be uncertain. IRS did routinely ask
taxpayers for financial information before
seizure, however, GAO estimates that approximately
90 percent of the taxpayers did not provide
complete and accurate information when asked.
Nevertheless, such information is required to
comply with the tax code's prohibition on
uneconomical seizures.

With respect to postseizure controls, GAO found
weaknesses in IRS' asset control system.

ï¿½    First, the asset control information
documented by revenue officers in their case files
was not as comprehensive as the control
information required by federal financial
management guidelines. For example, GAO estimates
that asset description and asset custody
information was incomplete for about 25 percent
and 47 percent of the seizure files, respectively.
ï¿½    Second, GAO estimates that for 12 percent of
the seizures involving assets requiring security,
such as jewelry, the case files did not document
whether any security arrangements were made.
ï¿½    Third, IRS' automated inventory control
system did not capture some of the basic asset
control information documented by revenue
officers, was not always accurate, was not always
updated in a timely manner, and was not
periodically reconciled to revenue officer files
or actual assets-on-hand through physical
inventories. In one case, taxpayer equity as shown
in the automated system and revenue officer files
differed by more than $2 million.

GAO's review showed that IRS had little assurance
that it sold seized assets for the maximum
possible price. An estimated 51 percent of the
asset sales attracted no more than one bidder.
Nor, absent strong competition, did IRS controls
establish an adequate basis for evaluating the
reasonableness of sales proceeds or guard against
self-interest sales. IRS' basic control, the
minimum acceptable sales price, was frequently
computed in an arbitrary manner. GAO estimates
that values for only about 4 percent of the seized
assets were based on a professional appraisal.

GAO's review also showed that IRS' seizure
monitoring systems did not provide senior
management with information useful for overseeing
the use of seizure authority. The systems did not
provide information on (1) seizure results,
including the uniformity of seizure use across the
country, and costs; (2) seizure quality, such as
compliance with process requirements and
appropriateness of seizure decisionmaking; and (3)
the resolution of taxpayer complaints.

Comparing Pre-Act Weaknesses to Post-Act Changes
GAO's comparison of pre-Restructuring Act
weaknesses in IRS' processes for protecting
taxpayer rights and interests to changes being
made to implement the act shows that not all
significant weaknesses have been fully addressed.

Because IRS' controls were not sufficient to
prevent departures from pre-act process
requirements, it is unclear whether the continued
reliance on manual reviews of revenue officer case
file information would be sufficient to prevent
future departures from requirements. GAO looked
for a relatively "fail-safe" check that could stop
a collection case from advancing to seizure if a
requirement was not met. An IRS automated field
collection system was identified that could be
modified to make such checks and thus allow
managers to focus their reviews on judgmental
areas, such as revenue officer's use of
discretion.

Given the Restructuring Act's requirement for IRS
to make judgments regarding taxpayer's ability to
pay and the expected seizure proceeds and the
difficulty of collecting the needed information
from uncooperative taxpayers, GAO expected to see
clearly delineated preseizure procedures and
documentation requirements. To implement the act,
IRS is requiring revenue officers before a seizure
to make a risk analysis that would consider such
factors as the taxpayer's financial condition.
However, only limited guidance has been provided
on how to carry out the risk analysis. For
example, the guidance does not specify the lengths
that revenue officers are expected to go to obtain
and document financial information for
uncooperative taxpayers. GAO found that IRS' new
procedures regarding seizure decisionmaking did
not clearly depict conditions under which a
seizure would be warranted or specify senior
management's responsibilities for ensuring seizure
authority was appropriately exercised.

With respect to controlling and selling assets
after seizure, the Restructuring Act requires IRS
to remove revenue officers from any participation
in the sale of seized assets and consider
"outsourcing" asset sales. IRS has convened a
study group to develop plans and guidance for
removing revenue officers from the asset sale
process and to consider outsourcing. The group's
decisions were not finalized at the time we
published our report but were expected by late
1999.

Regardless of who sells the assets, controls must
be sufficient to establish accountability and
safeguard assets and to provide assurance that
assets are sold for the maximum amount possible.
However, IRS' existing and proposed controls do
not provide such assurance. For example, proposed
asset controls do not require the use of receipts
to document responsibility for asset custody.

The Restructuring Act mandated a number of changes
to improve oversight of the seizure program, such
as an annual review of seizure cases by the
Department of the Treasury's Inspector General for
Tax Administration to ensure compliance with
statutory requirements. However, changes being
made to implement the act will not give IRS
management the information it needs on seizure
results and costs, the appropriate use of
discretion by revenue officers and their
supervisors in deciding whether and how to conduct
a seizure, and the resolution of taxpayer
complaints.

Recommendations
The tax system depends on taxpayers voluntarily
paying their taxes, a practice dependent on
taxpayers having confidence that their neighbors
or competitors are also complying. The use of
seizure authority is a necessary part of a tax
enforcement program that is intended to provide
this confidence. Taxpayers with substantial
amounts of delinquent taxes, long-standing
delinquencies, repeated failures to respond to
nonseizure collection actions, and substantial
assets cannot be allowed to evade payment without
putting the credibility and fairness of the tax
system at risk. However, the protection of
taxpayers' rights and interests is also crucial to
a credible and fair tax system. In this regard,
IRS' seizure process has a number of
weaknesses-weaknesses that are not all addressed
by changes being made pursuant to the
Restructuring Act.

ï¿½    To strengthen IRS' processes for ensuring
that seizure authority is appropriately exercised
and when warranted is exercised, GAO is making
four recommendations aimed at clarifying when
seizure actions ought to be taken, preventing
departures from process requirements established
to protect taxpayer interests, and delineating
senior managers' responsibilities for ensuring
that seizures are made when justified.
ï¿½    To improve IRS' process for controlling
assets after seizure, GAO is making four
recommendations for improving accountability and
safeguards over seized assets, including periodic
physical inventories.
ï¿½    To strengthen the sales process for assuring
that the maximum prices are obtained from seized
asset sales, GAO is making two recommendations for
promoting reasonable competition at sales and
improving methodologies for determining the
minimum acceptable prices.
ï¿½    To strengthen the oversight of seizure
activities, GAO is making two recommendations for
providing IRS senior managers with useful
information to monitor the use of seizure
authority and resolution of taxpayer complaints.

The recommendations appear at the end of chapter
4.

Agency Comments
In written comments on a draft of this report, IRS
generally agreed with the report's findings and
recommendations, although it said that some
recommendations appeared impractical to implement
at this time. IRS also said it will use the report
to help improve the seizure process. In its
letter, IRS emphasized three points made in the
report.

ï¿½    First, while additional guidance needs to be
provided to IRS employees about how to conduct
seizures, that guidance needs to allow room for
employees to exercise judgment to address
individual taxpayer situations.
ï¿½    Second, predicting seizure results is
extremely difficult.
ï¿½    Third, the wide variation in the use of
seizure authority by district offices can be
attributable to a number of factors.

IRS further said that the procedural changes being
implemented were expected to eliminate a number of
seizures that would otherwise provide little or no
proceeds.

In an enclosure to the letter, IRS commented on
each recommendation. With respect to the two
recommendations to strengthen oversight of seizure
activities, IRS commented that, at this time, it
appeared impractical to monitor the
appropriateness of seizure decisionmaking. IRS'
comments indicated that existing case file
handling and selection criteria preclude seizure
cases from entering IRS' overall program for
assessing work quality and that feedback from
required Inspector General reviews was more
comprehensive. GAO agrees that current IRS
procedures preclude seizure cases from entering
the review process established to assess the
quality of collection work, including the
appropriateness of decision-making. But, because
of the impact that seizures may have on taxpayers,
GAO believes that the procedures should be
reconsidered so that an appropriate number are
selected for review. Moreover, as discussed in the
report, the Inspector General reviews have focused
on compliance with seizure process requirements
and not on the quality of seizure work in terms of
the appropriateness of seizure decisionmaking.
This reinforces the need for seizure cases to be
included in the quality review process.

In comments on the oversight recommendation for
monitoring seizure results (e.g., use of seizure
authority by district offices and resolution of
taxpayer complaints), IRS commented that useful
information could only be developed through
detailed case-by-case analyses. In part, GAO
agrees, and that is why GAO had recommended that
IRS' quality review of collection cases include
seizures. Also, GAO continues to believe that
effective oversight is necessary for IRS to have
assurance that collection authority is both
appropriately and uniformly applied across the
country. To this end, a monitoring system
comprised of seizure results data (including data
on the use of seizure authority by district
offices and the resolution of taxpayer complaints)
together with quality indicators could provide
senior management with the kind of data that would
be useful in identifying potentially troublesome
areas that may need management's attention. The
information on complaints resolved in the
taxpayers' favor may be particularly useful. But,
contrary to IRS' comments, GAO sees no need to
channel all complaints through a single process in
order to have complaint resolution information
reported to management.

_______________________________
1See Tax Administration: IRS' Use of Enforcement
Authorities to Collect Delinquent Taxes (GAO/T-GGD-
97-155, Sept. 23, 1997).
2Under the Internal Revenue Code, IRS' seizure
authority only extends to a taxpayer's actual
ownership interest (i.e., equity) in an asset. For
example, a delinquent taxpayer may "own" a
relatively expensive car. However, the taxpayer
may owe almost as much to a secured creditor as
the car's fair market value, perhaps owing $23,000
on a $25,000 car. Given that a prospective
purchaser of such property from IRS would be
responsible for resolving the secured debt, the
maximum that IRS could expect to realize from the
sale of such an automobile would be $2,000, the
taxpayer's equity in the car.
3IRS has data on out-of-pocket costs, such as
third-party moving and storage costs, but does not
have data on the overall costs associated with
making a seizure. IRS Internal Audit has estimated
the total costs of a seizure at about $2,000,
which includes revenue officer time, indirect
overhead, and processing costs.
4Values cited are the taxpayer's ownership rights
to the property (i.e., equity in the property) as
determined by IRS.
5GAO estimates that the fiscal year 1997 seizures
resolved about $235 million (about 22 percent) of
the taxpayers' outstanding tax debts. Because IRS
generally has up to 10 years to collect delinquent
taxes and because some seizures did not bring in
significant revenue, it is unclear what the
transition to a new seizure program means in terms
of tax collections.

Chapter 1
Introduction
Page 23 GAO/GGD-00-4 IRS' Use of Seizure Authority
     To collect unpaid taxes in fiscal year 1997,
IRS revenue officers seized property (e.g.,
residences, automobiles, and business assets) from
about 8,300 taxpayers who owed the federal
government about $1.1 billion.1 In making these
seizures, revenue officers were required to follow
statutory and procedural requirements established
to protect taxpayer interests.

     Because of concerns over the adequacy of
taxpayer protections, the Senate Finance Committee
held a series of hearings beginning in September
1997. These hearings, at which we testified,2
contributed to the passage of the IRS
Restructuring and Reform Act of 1998.3 In part,
the act was designed to better protect taxpayers
from unwarranted collection actions (e.g., the
seizure of taxpayer property when other collection
alternatives were available). IRS has begun
implementing these additional protections.

     Given congressional concerns over taxpayer
protections, the Chairman asked us to review IRS'
use of seizure authority as documented in a random
sample of closed collection case files and to
determine whether IRS' adoption of Restructuring
Act process changes would fully address any
problems found. Accordingly, the objectives of
this review were to

ï¿½    determine whether IRS, in exercising seizure
authority, (1) targeted the most noncompliant
taxpayers, (2) brought affected taxpayers into
compliance, and (3) exercised appropriate
discretion in conducting seizures;
ï¿½    assess IRS' pre-Restructuring Act processes,
and any departures from those processes, for
protecting taxpayer rights and interests in
planning and conducting seizures; and
ï¿½    determine if the changes being made to the
seizure process pursuant to the Restructuring Act
would address any weaknesses found in IRS' pre-
Restructuring Act seizure process.

 The random sample of 1997 seizure cases that we
selected for this review were drawn from cases in
which IRS seizure action was initiated in fiscal
year 1997 and collection action was completed,
including the sale of the seized assets, by mid-
1998. This was the most recent year of closed
collection case files available at the time we
started our review.

Background
To collect delinquent taxes, IRS has long operated
a graduated process that could culminate in the
seizure of taxpayer assets. With passage of the
Restructuring Act, the graduated process was
retained, but a number taxpayer protections were
added. These protections included requiring IRS to
redefine its mission statement to place greater
emphasis on meeting taxpayer needs; establishing
"due process" in collections by requiring IRS to
provide taxpayers with notice and opportunity for
a hearing before seizure; expanding the
availability and consideration to be given to
alternative collection methods, such as
installment agreements; requiring more senior
level review and approval of seizure decisions;
and mandating disciplinary actions against IRS
employees, including revenue officers, for certain
acts or omissions.

Overview of Pre-Restructuring Act Collection
Process
and Policies
The collection process started once IRS had
identified taxpayers who had not paid the amount
due as determined by their tax assessment and
payment history. These tax assessments resulted
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.

After determining that a tax was due and unpaid,
IRS was required to send the taxpayer a notice of
deficiency. This notice gave the taxpayer 90 days
(150 days for a taxpayer outside the United
States) to file a petition with the Tax Court
contesting the deficiency. Upon expiration of the
90 days or a determination by the Tax Court that
the deficiency existed, IRS was authorized to
officially assess the tax and within 60 days send
the taxpayer a notice and demand for payment of
the tax. If these requirements were met and the
tax was still unpaid, IRS was authorized to
initiate enforced collection action.

The collection process was grounded on the
principle that a tax system based on voluntary
assessment and payment of taxes would not be
viable without enforcement processes to ensure
compliance. Accordingly, IRS was responsible for
taking all appropriate actions provided by law,
including the seizure of taxpayer property, to
compel noncompliant taxpayers to pay their taxes.

Stages of the Process
In the first stage of the collection process, IRS
service centers were required to send a series of
notices demanding payment from the delinquent
taxpayers. Collectively, these notices also were
to provide the taxpayers with statutorily required
notifications of their tax liabilities, IRS'
intent to levy4 assets if necessary, and
information on the taxpayers' rights.

Under the Internal Revenue Code, if the taxpayers
did not pay after being notified of their tax
delinquencies, a federal tax lien5 was
automatically established on the taxpayers'
property to protect the government's interest over
other creditors and purchasers of the taxpayers'
property. The lien, however, was not generally
enforceable until IRS recorded it in the
jurisdiction where the property resided.6

In the second stage of the collection process,
which included the Automated Collection System,
IRS employees were to make telephone contact with
the delinquent taxpayers. During this stage, if
taxpayers did not make arrangements to pay their
taxes and information was available on the
taxpayers' assets, IRS was authorized to record
the liens on the taxpayers' property and send
notices to levy the taxpayers' wages, bank
accounts, and other financial assets held by third
parties. Unresolved tax delinquencies exceeding
certain thresholds were to be referred to the
third and final stage of the collection process.
Also, tax delinquencies exceeding certain
thresholds were generally to be referred directly
to the final stage, bypassing the second stage.

In the final stage of the collection process
(known as field collections), information about
the tax delinquencies was referred to IRS' field
offices for possible face-to-face contact with the
delinquent taxpayers and for possible in-depth
investigation of the taxpayers' ability to pay
their tax debts. To compel compliance, field
offices were authorized to seize taxpayers'
property when a number of specific requirements
were met. For example, IRS was prohibited from
making uneconomical seizures in which the amount
of the expenses estimated at the time of seizure
exceeded the fair market value of the property at
the time of seizure. (See chs. 3 and 4 for
detailed analyses of taxpayer protection
requirements.) The field offices were also
authorized to record liens on taxpayer property or
levy wages, bank accounts, and other financial
assets held by third parties, depending on the
need for such actions following those taken during
the second stage of the collection process.

At any stage in the collection process, IRS might
find that taxpayers cannot pay what is owed or do
not owe what IRS records show as the unpaid tax
assessment. In such situations, IRS could abate
erroneous assessments, enter into installment
agreements with the taxpayers for full payment of
the assessments, compromise for amounts less than
the delinquent assessments, and suspend or
terminate the collection actions.

Also, if a taxpayer was having a problem reaching
agreement on a collection action with the
initiating IRS office, the taxpayer could have
contacted IRS' Taxpayer Advocate or IRS'
Collection Appeals Program for resolution. The
Taxpayer Advocate had the authority to order
relief if the enforced collection would be a
hardship for the taxpayer. If an enforcement
action involved a reckless or intentional
disregard of taxpayer rights by an IRS employee, a
taxpayer could sue for damages.

Property that had been seized by IRS may in turn
have been sold once IRS had given notice to the
taxpayer and advertised the sale. In preparing to
sell the property, IRS was required to set a
minimum price for which the property may be sold.
If no person offered the minimum price, IRS could
have bought the property at that price or returned
the property to the taxpayer. Taxpayers could also
have had their property returned by paying the
amount of the tax due together with IRS' expenses.
Also, for real property, taxpayers had up to 180
days after the sale to buy back their property at
a price equal to the sales amount plus interest.

IRS Seizure Policies
IRS' seizure authority only extended to a
taxpayer's actual ownership interest (i.e.,
equity) in an asset. For example, a delinquent
taxpayer may have a relatively expensive car, but
the taxpayer may owe almost as much to a secured
creditor as the car's fair market value, perhaps
owing $23,000 on a $25,000 car. Given that a
prospective purchaser of such property from IRS
would be responsible for resolving the secured
debt, the maximum that IRS could expect to realize
from the sale of such an automobile would be
$2,000, the taxpayer's equity in the car.

IRS policies defined the general conditions that
must be met before seizing taxpayer assets could
be considered appropriate. The policies specified
that all taxpayers were expected to pay their
taxes in full. If that was not possible, taxpayers
were to be required to pay an amount that was
reasonable. However, if taxpayers resisted
complying or did not show a good-faith effort to
comply, enforced collection action, up to and
including asset seizure, was to be promptly taken.
The IRS policy recognized that "good judgment" was
needed to make a decision to seize assets.

The authority for initiating the decision to seize
was vested in IRS' frontline collection employees
(i.e., revenue officers), subject to certain
management reviews. The revenue officers, working
out of IRS field offices, were responsible for day-
to-day collection actions. This included
contacting taxpayers by phone or in writing;
making field visits to the taxpayers; advising
taxpayers of their rights and obligations;
demanding payment of taxes; requesting financial
statements; investigating the completeness of
those statements, if appropriate; and if
warranted, negotiating settlements or initiating
enforced collection actions. This was to be done
under the supervision of a group manager.

IRS recognized that decisions to seize were the
most sensitive decisions that revenue officers
were called upon to make. As such, the Internal
Revenue Manual emphasized that revenue officer
decisions should be reviewed regarding the
taxpayers' (1) ability to pay as determined by an
analysis of their income and expenses, (2) equity
in assets, and (3) efforts to resolve their tax
liabilities. Also, before taking seizure action,
the Internal Revenue Manual required that all
relevant statutory and procedural requirements be
met (e.g., those established to ensure that
taxpayers have been provided with opportunities to
resolve their tax delinquencies) and that
appropriate approvals within IRS be obtained.
(These are discussed in detail in chs. 3 and 4.)

The 1998 Act Mandated Changes in the Collection
Process
The Senate Committee on Finance held a series of
hearings on taxpayer abuse beginning in September
1997, at which we testified.7 Following those
hearings, Congress enacted the IRS Restructuring
and Reform Act of 1998-in part to better protect
taxpayers from inappropriate IRS use of collection
enforcement actions. The act also codified in law
some protections already required under IRS
procedures.

The act retained the graduated collection process
that IRS had operated for years, but a number of
taxpayer protections were added. The act included
the following provisions.

ï¿½    Redefined IRS' overall mission. The act
required IRS to review and restate its mission to
place greater emphasis on serving the public and
meeting taxpayer needs.
ï¿½    Established "due process" in collections. The
act required IRS to provide taxpayers with
additional notifications of IRS' intent to take
enforced collection actions and expanded taxpayer
rights to appeal such decisions. The act required
that IRS give the taxpayer written notice within 5
business days after filing a lien and an
additional notice 30 days before initiating a levy
or seizure action. The act also required these
notices to state that taxpayers are entitled to a
hearing before IRS' Capitol Office of Appeals.  At
these hearings, the act authorized taxpayers to
raise relevant issues related to the unpaid tax,
including the appropriateness of collection
actions and collection alternatives, such as
whether an installment agreement would be a more
appropriate collection alternative than a seizure.
Further, if the dispute could not be resolved
within IRS, the act established the right for the
taxpayer to appeal IRS' determination to the Tax
Court or to a U.S. district court.
ï¿½    Increased supervision of enforced collection
actions. The act emphasized the importance of IRS
staff complying with procedures for reviewing
proposed enforced collection actions. Under the
act, an IRS supervisor is required, where
appropriate, to review any proposed lien, levy, or
seizure of property. As part of this review
process, the act also stated that IRS employees
may certify that they have reviewed the taxpayer's
information, verified the balance due, and
affirmed that the collection action proposed is
appropriate considering the taxpayer's
circumstances, the amount due, and the value of
the property.
ï¿½    Required investigation and consideration of
collection alternatives before seizure. The act
prohibited any levy on property, including
seizure, until IRS has verified the taxpayer's
liability and determined that the expenses of
seizing the property do not exceed the property's
fair market value; the taxpayer's equity in the
property is sufficient to yield net proceeds to
apply to the tax liability; and alternative
collection methods were considered. Additionally,
the act codified existing IRS procedures
guaranteeing the availability of installment
agreements to individuals for satisfying tax
delinquencies of less than $10,000 provided that a
number of other requirements are met, such as
payment of all taxes during the previous 5 years.
ï¿½    Increased review of residence and business
property seizures. The act established additional
reviews of seizures for residences and businesses.
Seizures of a principal residence were to be
allowed only if the taxpayer's delinquency
exceeded $5,000 and a U.S. district court judge or
magistrate approved the seizure in writing.
Seizures of certain business assets were to be
allowed if an IRS district director or assistant
district director approved the seizure in writing.
In order to approve the seizure of business
assets, the IRS official was required to determine
that the taxpayer's other assets subject to
collection were insufficient to pay the taxes due
plus the expenses of the proceedings.
ï¿½    Expanded rights to damages for unauthorized
collection actions. The act allowed taxpayers and
third parties to sue IRS if its employees
negligently disregarded Internal Revenue Code
provisions when collecting taxes due. Both
taxpayers and third parties must exhaust their
administrative remedies within IRS before suing
for damages.
ï¿½    Mandated disciplinary actions against IRS
employees. The act required that the Commissioner
terminate the employment of an IRS employee if
there is a final administrative or judicial
determination that the employee committed any 1 of
10 acts or omissions. These acts include the
willful failure to obtain the required approval
signatures on documents authorizing the seizure of
a taxpayer's home, personal belongings, or
business assets or violations of the Internal
Revenue Code, Treasury regulations, or IRS
policies for the purpose of retaliating against or
harassing a taxpayer, taxpayer representative, or
other IRS employee.

Most provisions were effective on enactment, July
22, 1998. However, provisions for appeal rights
and asset sales were delayed until February 1999
and July 2000, respectively. (The effect of the
Restructuring Act changes on IRS' use of seizure
authority is discussed in ch. 4.)

Objectives, Scope, and Methodology
     As mentioned above, the objectives of this
review were to

ï¿½    determine whether IRS, in exercising seizure
authority, (1) targeted the most noncompliant
taxpayers, (2) brought affected taxpayers into
compliance, and (3) exercised appropriate
discretion in conducting seizures;
ï¿½    assess IRS' pre-Restructuring Act processes,
and any departures from those processes, for
protecting taxpayer rights and interests in
planning and conducting seizures; and
ï¿½    determine if the changes being made to the
seizure process pursuant to the Restructuring Act
would address any weaknesses found in IRS' pre-
Restructuring Act seizure process.

As part of our work, the Chairman asked that we
review (1) the basis for the tax assessments that
lead to seizures; (2) the timing of seizures,
including when taxpayers were notified of
impending seizures and provided with opportunities
to resolve their tax debts; (3) whether key
procedures were followed by IRS district offices;
(4) how seized assets were protected, managed,
returned to taxpayers, or sold; (5) the dollar
amount recovered by IRS when seized assets were
sold compared to the value of the assets and the
taxpayers' tax liabilities; (6) when taxpayers
were notified of the sale of their assets and the
amount credited to their accounts; (7) any
problems associated with IRS' use of seizure
authority; (8) whether some district offices used
seizure authority more than others; and (9)
whether there are any trends regarding the use of
seizure authority against certain taxpayers.

     To respond to the Committee's request, we
reviewed the statutory and regulatory requirements
governing IRS' use of seizure authority and
interviewed IRS National Office and district
office officials regarding the implementation of
those requirements. We identified and reviewed
relevant seizure statistics maintained by IRS. We
also identified the databases within IRS that
contained seizure-related information and
ascertained the practicality of extracting data
from those systems. Also, given the changing
nature of seizure requirements initiated after the
start of this assignment, we interviewed National
Office and district office officials and reviewed
procedural changes so that any conclusions drawn
on case file information could also take those
changes into consideration.

     Given the limited availability of
quantitative data on IRS' use of seizure authority
and the absence of qualitative data, we determined
that it was necessary to do extensive file reviews
to develop the type of data necessary to respond
to the Committee. We also determined that since
the data should be national in scope, we would
employ statistical sampling techniques, given the
impracticability of reviewing the population of
cases. The starting point for selecting seizure
cases was IRS' Automated Workload Control
System-an inventory of IRS seizure cases. We also
made arrangements to augment the case information
with data that were extractable from other IRS'
automated files, including IRS' individual and
business masterfiles.

     Although we used data from IRS automated
systems to identify seizure cases for analyses and
to obtain data on the affected taxpayers, we did
not make an assessment of the reliability of those
information systems, except for certain aspects of
the Automated Workload Control System. On that
system, we tested the reliability of data related
to the value and type of assets seized and seizure
outcomes. The results of our analyses are reported
in chapter 3, and recommendations for system
improvements are in chapter 4.

     As described in the following paragraphs, we
selected six random samples and developed
standardized data collection instruments that we
could use to extract data in a consistent form.
The first, our overall sample, was designed to
provide the primary baseline data for responding
to all objectives in the Chairman's request,
except for responding to the seizure targeting
issue, which was addressed by our taxpayer
characteristics sample. The remaining samples were
selected to provide information to augment our
overall sample and provide insights into (1)
seizures that produced little proceeds, (2)
problems that taxpayers were experiencing as
indicated by complaints they raised to the
Taxpayer Advocate or Collection Appeals, (3) IRS
district office use of seizures and types of
taxpayers affected, and (4) accountability over
assets in IRS' possession.

Overall Sample
     First, we selected a random sample from a
population of about 8,300 taxpayers who had
property seized by IRS in fiscal year 1997 because
of unpaid taxes. About 9,700 seizures were
associated with these 8,300 taxpayers. The
population of taxpayers was identified by taxpayer
identification number and type of taxpayer (e.g.,
individual or business) from IRS' automated
workload control system. The random sample of
seizure cases was chosen from fiscal year 1997
because it was the most recent year that the case
file information would be available on the
disposition of the assets seized and files would
be available to us at the time we started our
review of them in late 1998.

     In designing the sample, we partitioned the
population of taxpayers into groups, or strata.
This was done to ensure that the final sample
included both high-dollar and low-dollar seizures
in terms of the value of the assets seized and the
proceeds from the sale or other disposition of the
assets. The dollar threshold separating the strata
was $2,000. We used this amount based on estimates
made by IRS' Internal Audit that the average cost
of making a seizure and disposing of the assets,
taking into account staff time and expenses, was
roughly about $2,000. We also included strata to
cover seizures that produced no proceeds. The data
obtained from the sampled seizures was then
weighted to reflect their appropriate
representation in the population.

This first sample yielded sufficiently complete
information on which to evaluate IRS' use of
seizure authority to collect delinquent taxes from
115 taxpayers who had experienced 139 seizures.
These were collection cases for which IRS had
completed collection actions against the taxpayers
or had suspended further collection action as of
the time we were selecting case files for review
in mid-1998.8

     To review this sample, we developed a
standardized data collection instrument designed
to (1) profile the taxpayers, (2) document the
extent of IRS' preseizure collection efforts, and
(3) document seizure results and IRS' compliance
with key pre-Restructuring Act taxpayer protection
requirements governing the various phases in a
seizure case. These phases include planning,
approving, and conducting seizures; managing and
disposing of seized assets; and crediting proceeds
to taxpayer accounts. In short, the data
collection instrument was designed to gather
primary baseline data for responding to all
objectives in the Chairman's request (except for
responding to the seizure targeting issue) and the
nine specific issues raised by the Committee.

     The sample was designed to produce
statistically reliable estimates on the
characteristics of taxpayers subject to seizure
actions in fiscal year 1997 and IRS' compliance
with taxpayer safeguard requirements in effect at
the time of the seizure. Given that IRS was only
able to locate about 53 percent of the files we
requested, we compared the characteristics of the
seizure cases not located, using data available
from IRS' information systems, to the
characteristics of the located cases. These
characteristics included the total dollar amount
received from the sale of the assets, the expense
of the sales, the net proceeds from the sales, the
minimum sales price IRS set for the assets, and
the type of assets seized. We found no significant
difference in characteristics between the cases
that we located and those that we did not locate.
We also selected five other samples to augment the
information collected in our overall sample.

Low-Dollar Sample
     The low-dollar sample was selected to ensure
that we had sufficient representation and analyses
of low-proceed seizures to respond to the
Committee's specific interest in the dollar amount
recovered by IRS when assets were sold. The
primary purpose for selecting this sample was to
learn more about why IRS engaged in seizure
actions that either involved property valued at
less than $2,000 or resulted in proceeds amounting
to less than $2,000. We used $2,000 as the
criterion for a low-dollar case because, according
to IRS Internal Audit estimates, that is the
approximate cost (i.e., revenue officer time,
indirect overhead, and processing costs) of
seizing and selling taxpayer property.

     To make our analyses, first, we collected
additional data about such seizures whenever they
appeared in our overall random sample. Second, we
supplemented this sample by collecting information
about the same kinds of seizures from randomly
selected taxpayers whose total seized property
during fiscal year 1997 was valued at less than
$2,000 or for whom any one seizure yielded less
than $2,000 in proceeds.

     This low-dollar sample yielded information on
120 taxpayers and 139 low-dollar seizures. As with
the overall sample, we developed a standardized
data collection instrument designed to ensure
consistent data collection and provide for
computer analysis of the collected data.

Taxpayer Complaint Samples
     We randomly selected 83 case files from IRS'
Office of the Taxpayer Advocate and 74 case files
from IRS' Collection Appeals Program. These cases
were selected from a population of 982 cases
closed by the Taxpayer Advocate in fiscal year
1997 that carried a designator as a seizure-
related case and from the entire population of 361
cases closed by Collection Appeals in fiscal year
1997. We selected these cases to obtain an
understanding of the types of problems taxpayers
were experiencing in fiscal year 1997 and the type
of resolution they were getting to their
complaints in order to more fully respond to the
Committee's specific interests in the
identification of any problems associated with
IRS' use of seizure authority. As with the overall
sample, we applied a standardized data collection
instrument designed to ensure consistent data
collection and computer analysis of the collected
data.

Assets-on-Hand Sample
     We randomly selected a total of 16 cases from
4 district offices (Atlanta, Chicago, St. Louis,
and Oakland) from a population of 76 seizure cases
in which these district offices had assets-on-
hand-that is, assets were still in the district's
possession. The primary purpose of this sample was
to test-check the accuracy of information in IRS'
Automated Control System on its seized asset
inventory. As this involved examining the seized
assets, which could be stored hundreds of miles
from the district office visited, we established a
maximum travel range of about 100 miles from our
work location in making our random selections.
Also, as with the overall sample, we developed a
standardized data collection instrument designed
to ensure consistent data collection and computer
analysis of the collected data.

Taxpayer Characteristic Sample
     From IRS' database on taxpayers who were in
field collections at the end of fiscal year 1997,
we selected a random sample of taxpayers whose
assets had not been seized by IRS during fiscal
year 1997 for comparison with taxpayers whose
assets were seized during the year. We also used
IRS databases to obtain information about these
taxpayers' delinquencies, such as the number and
total amount owed; about other taxpayer
characteristics, such as income source and filing
status; and the district office where the seizure
took place. We selected this sample principally to
provide the basis for meeting the objective of
determining whether IRS, in exercising seizure
authority, targeted the most noncompliant
taxpayers and to respond to the Committee's
specific interests in whether some district
offices use seizure authority more than others and
the types of taxpayers affected. We did not
determine the causes for any variations identified
by this analysis as such work was outside the
scope of the assignment.

     To determine the likelihood that taxpayers
would have property seized, we used logistic
regression analysis. This statistical method
measures the separate effect of each of the
taxpayer's characteristics (e.g., noncompliance or
district office location) on the likelihood of
seizure while controlling for the effects of the
other characteristics that we included in the
analysis. We did not determine the causes for
variations identified in this part of our analysis
as such work was outside the scope of this
assignment.

     In summary, the logistic regression analyses
enabled us to determine the extent to which the
odds of seizure varied across taxpayers with
different characteristics. A more detailed
explanation of these analyses is described in
appendix I.

Sampling Error
     For our overall sample, low-dollar sample,
and taxpayer complaint samples, we followed
procedures to express our confidence in the
precision of the results at a 95-percent
confidence interval separately computed for each
estimate. The sampling errors account for the
stratified nature of sample design. For the sample
results cited in the text, the sampling errors are
reported as footnotes. For sample results cited in
report tables, see appendix II.

     For the taxpayer characteristic sample, we
tested whether the characteristics had a
statistically significant effect on the likelihood
of seizure. In order to perform this test, we
computed the 95-percent confidence interval for
our estimate of the odds of seizure associated
with each characteristic. Appendix I reports on
the results of the test.

Work Locations
     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 performed our work between January 1998
and August 1999 in accordance with generally
accepted government auditing standards.

Agency Comments
     We obtained written comments from IRS on a
draft of this report. We have summarized those
comments at the end of chapter 4 and reprinted the
written comments, in entirety, in appendix III.

_______________________________
1As described in the Objectives, Scope, and
Methodology section of this report, the results of
our analyses of the 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.
2See Tax Administration: IRS' Use of Enforcement
Authorities to Collect Delinquent Taxes (GAO/T-GGD-
97-155, Sept. 23, 1997).
3P.L. 105-206, July 22, 1998.
4Under 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). Before seizing
or levying taxpayer property, however, IRS must
give the taxpayer 30 days' notice of its intent.
5A lien is a legal claim that attaches to property
to secure the payment of a debt.
6The recording of a lien would prevent the
taxpayer from selling an asset to an unrelated
party, with clear title, without payment of the
tax debt.
7See Tax Administration: IRS' Use of Enforcement
Authorities to Collect Delinquent Taxes (GAO/T-GGD-
97-155, Sept. 23, 1997).
8To compensate for the selection of IRS collection
files that might not be located, we oversampled,
requesting files on 219 taxpayers. From this
request, IRS was able to locate sufficiently
complete files for us to analyze collections from
115 taxpayers.

Chapter 2
Many Seizures Increased Compliance, But Use Varied
by Location, and Some Were Questionable
Page 44 GAO/GGD-00-4 IRS' Use of Seizure Authority
In fiscal year 1997, IRS revenue officers seized
the assets of about 8,300 taxpayers who owed the
federal government an estimated $1.1 billion1 in
unpaid taxes. The seizures resolved an estimated
$235 million2 (about 22 percent3) of the
taxpayers' tax debts. These affected taxpayers
represented a small fraction of the taxpayers with
unpaid tax debts. As of the end of fiscal year
1997, IRS revenue officers were working to collect
about $12.7 billion in unpaid taxes from about
463,000 delinquent taxpayers.

Our analyses of the characteristics of the
taxpayers whose assets were seized by IRS revenue
officers and those whose assets were not seized
and the end results of the seizure actions showed
that, in general, IRS' discretionary use of
seizure authority

ï¿½    targeted, on average, the more noncompliant
taxpayers;
ï¿½    was more likely to be used by some district
offices than others;
ï¿½    was instrumental in bringing into compliance
(i.e., full-pay status) many delinquent taxpayers
who had been unresponsive to other tax collection
efforts; and
ï¿½    produced little revenue to the government and
contributed little to the resolution of the tax
delinquencies for an estimated 22 percent4 of
affected taxpayers.

Also, in reviewing 115 sampled seizure cases, we
identified examples where IRS' use of
discretionary authority was questionable. The
questionable actions included seizure of taxpayer
property disproportionate to the tax debt,
unwillingness to work with the taxpayer,
superficial investigation work, little advance
warning provided to the taxpayer, and a non-arms-
length sale of assets.

In summary, IRS' discretionary use of seizure
authority was instrumental in ensuring tax
compliance, but controls were not sufficient to
prevent some questionable seizures. At the time
our review concluded, IRS' discretionary use of
seizure authority was in a period of transition as
IRS adapted to Restructuring Act requirements for
providing greater taxpayer protections. IRS
officials expected the use of seizure authority to
rebound from a 98-percent decline as changes to
the program are implemented and revenue officers
adapt to the new requirements.

Extent of Noncompliance and Location Were
Determinants of Seizure Likelihood
Our analysis of the characteristics of taxpayers
who had undergone collection actions as of the end
of fiscal year 1997 showed that the extent of
noncompliance and location were determinants of
the likelihood of seizure. After controlling for
other factors that might affect seizure
likelihood, our statistical analysis showed that
both delinquent individuals and businesses were
more likely to have assets seized if they were
more noncompliant than others as indicated by the
number of tax delinquencies and the amount of
unpaid taxes. Our analysis also showed that the
likelihood of seizure varied by location, with
individuals as much as 17 times more likely and
businesses as much as 14 times more likely, to
have property seized in some IRS districts than in
others.

For Individuals, the Amount of Unpaid Taxes,
Repeated Noncompliance, and Location Were
Determinants of Seizure Likelihood
A comparison of delinquent individual taxpayers
with and without seized assets shows that
taxpayers with seized assets tended, on average,
to be more noncompliant. As table 2.1 shows,
taxpayers with seized assets had larger unpaid tax
liabilities, larger amounts of penalties and
interest, and a greater number of delinquencies.
The table also shows that, while their
delinquencies were not as old as those of
taxpayers whose assets were not seized, taxpayers
with seized assets spent more time in field
collections. On average, delinquencies involving
seizures spent 38 percent of the time since the
original assessment in field collections, while
the delinquencies not involving seizures spent 22
percent of the time in field collections.

Table 2.1: Delinquency Characteristics of
Individual Taxpayers With and Without Seized
Assets
Tax delinquency                  Mean amount
characteristic
                           Taxpayers     Taxpayers
                                with       without
                              seized seized assets
                              assets
Assessed taxes               $67,547       $25,961
uncollected
Assessed penalties and       $81,087       $30,359
interest uncollecteda
Accrued penalties and        $56,942       $23,848
interest uncollectedb
Number of delinquencies          4.6           3.5
Days since original            1,031         1,102
assessment
Days in field collections        396           246
aPenalties and interest that have been assessed to
the delinquent taxpayer's account.
bPenalties and interest that have accrued but have
not been assessed to the delinquent taxpayer's
account.
Source: GAO analysis of IRS data.

In addition to this comparison, we analyzed
seizures using a statistical technique that
allowed us to measure the effect of a
characteristic, such as the number of
delinquencies, on the likelihood of seizure while
controlling for the effects of other
characteristics. Using this technique, we
estimated the odds of seizure for taxpayers of a
particular category relative to taxpayers of other
categories, and we estimated how the odds change
when a particular characteristic changes. Tables
I.1 and I.2 in appendix I contain detailed
descriptions of the analysis and results.

Holding other characteristics constant, our
analysis showed that individual taxpayers with
larger unpaid tax delinquencies and with a greater
number of delinquencies were more likely to have
assets seized by IRS. We estimated that each
additional delinquency increased the odds of
seizure by 13 percent, and each additional $10,000
of unpaid taxes increased the odds by 1 percent.
After controlling for the amount of tax owed and
the age of the delinquency, our analysis showed
that the amount of penalties and interest owed by
taxpayers had no separate effect on the likelihood
of seizure.

The age of the tax delinquency affected the odds
of seizure in two ways. On the one hand,
delinquencies that ultimately involved seizures
were moved more quickly into field collections.
These delinquencies were "younger"-had less time
elapse since the original assessment-than those of
taxpayers without seized assets. Our analysis
showed that each month that elapsed since original
assessment decreased the odds of seizure by 2
percent. On the other hand, once these
delinquencies were in field collections, they took
longer to resolve. The delinquencies of taxpayers
with seized assets spent more time in field
collections than those of taxpayers without seized
assets. Our analysis showed that each month that
the delinquencies spent in field collections
increased the odds of seizure by 4 percent.

Our analysis showed considerable variation across
IRS districts in the likelihood that taxpayers
would have assets seized. We estimated that
taxpayers in the Boston district had the greatest
likelihood of seizure. They were twice as likely
to have property seized as taxpayers in St. Paul,
and 17 times as likely as taxpayers in San Jose.
Although Boston had the largest estimated odds of
seizure, the odds of some other districts were not
statistically different from Boston. These
districts, which together with Boston formed the
group of districts with the greatest likelihood of
seizure, were Cincinnati, Indianapolis, Austin,
and Oklahoma City. Because our analysis controls
for other delinquency and taxpayer
characteristics, it shows that taxpayers in these
districts had a greater chance of having property
seized than taxpayers with the same
characteristics (the same number of delinquencies,
the same amount of unpaid taxes, etc.) but who
resided in other IRS districts.

Taxpayers who received their income from wages
were less likely to have property seized than
those with income from other sources. We estimated
that self-employed taxpayers were twice as likely
as wage earners to have property seized, as were
those with income classified as "other"-largely
income from rents, royalties, partnerships, and
other businesses. Those with income from
dividends, interest, and capital gains were 50
percent more likely than wage earners to have
assets seized. Wages differ from the other sources
of income because, in many cases, they represent a
more easily identifiable stream of income, which
could be a candidate for levy rather than seizure.
According to IRS officials, it is expected that
the self-employed have the greater likelihood of
seizure because alternatives to seizure, such as
levies of wages, are frequently not available when
dealing with the self-employed.

We also estimated how the odds of seizure were
affected by other characteristics of taxpayers,
such as their total income and filing status.
Appendix I contains detailed descriptions of these
estimates.

For Businesses, the Amount of Unpaid Taxes,
Repeated Noncompliance, and Location Were
Determinants of Seizure Likelihood
A comparison of delinquent business taxpayers with
and without seized assets shows a pattern of
greater noncompliance for taxpayers whose assets
were seized that is similar to that of the
individual taxpayers. As table 2.2 shows, business
taxpayers with seized assets had, on average,
larger unpaid tax liabilities, larger amounts of
penalties and interest, and a greater number of
delinquencies. They also had delinquencies that
were not as old as those of taxpayers whose assets
were not seized, and business taxpayers with
seized assets spent more time in field
collections. On average, delinquencies involving
seizures spent 55 percent of the time since the
original assessment in field collections, while
the delinquencies not involving seizures spent 31
percent of the time in field collections.

Table 2.2: Delinquency Characteristics of Business
Taxpayers With and Without Seized Assets
Tax delinquency                  Mean amount
characteristic
                            Taxpayers    Taxpayers
                                 with      without
                               seized       seized
                               assets       assets
Assessed taxes uncollected    $46,116      $29,651
Assessed penalties and        $23,714      $15,495
interest uncollecteda
Accrued penalties and         $18,211      $14,207
interest uncollectedb
Number of delinquencies           8.3          6.5
Days since original               546          881
assessment
Days in field collections         298          277
aPenalties and interest that have been assessed to
the delinquent taxpayer's account.
bPenalties and interest that have accrued but have
not been assessed to the delinquent taxpayer's
account.
Source: GAO analysis of IRS data.

In addition to this comparison, we also analyzed
business seizures using the same statistical
technique that controls for the effects of other
characteristics on the likelihood of seizure as we
used for individual taxpayers. Our analysis showed
that, like the individual taxpayers, business
taxpayers with larger unpaid tax delinquencies and
with a greater number of delinquencies were more
likely to have assets seized by IRS. We estimated
that each additional $10,000 of unpaid taxes
increased the odds by 1 percent, and each
additional delinquency increased the odds of
seizure by 4 percent. Our analysis also showed
that the amount of penalties and interest owed by
taxpayers had no separate effect on the
probability of seizure.

The age of the tax delinquency also affected the
probability of seizure. In a pattern very similar
to individual taxpayers, each month that the
delinquency spent in field collections increased
the odds of seizure by 4 percent, while each month
that elapsed since the original assessment
decreased the odds by 3 percent. Like the
delinquencies of individuals, the delinquencies of
business taxpayers with seized property had less
time elapse since original assessment, but spent
more time in field collections. The delinquencies
that ultimately involve seizures were moved more
quickly into field collections, but once there,
took longer to resolve.

Our analysis shows considerable variation across
IRS districts in the probability of seizure. For
business taxpayers, Newark was the district with
the greatest likelihood of seizure. We estimated
that, controlling for other factors that affect
the likelihood of seizure, taxpayers in Newark
were 14 times more likely to have property seized
than taxpayers in Fort Lauderdale, the district
which had the smallest probability of seizure.
Newark's greater likelihood of seizure may be due
to a program it adopted during 1997 in which
seizures were used in an attempt to increase
collections of employment tax delinquencies from
business taxpayers.

Finally, our analysis showed that the type of
business had no effect on the probability of
seizure. Corporations, partnerships, and other
business types had no greater chance of having
assets seized than sole proprietors.

Many Seizures Produced Taxpayer Compliance and
Millions of Dollars
Many of the seizures IRS made in fiscal year 1997
brought delinquent taxpayers into tax compliance
(i.e., full-pay status) or collected relatively
large amounts of delinquent taxes. In general, we
estimate that the seizures resulted in resolving
about $235 million5 or about 22 percent6 of the
tax liabilities of those taxpayers whose assets
IRS seized. Moreover, an estimated 42 percent7 of
those taxpayers essentially became fully tax
compliant.

Most compliance occurred in cases where following
the seizures, the taxpayers produced funds to
fully pay their total tax liabilities and thus had
their property returned. Given the taxpayers'
histories of not paying taxes before the seizures
and given IRS' attempts to collect the unpaid
taxes before the use of seizure authority, the tax
delinquencies would likely not have been
significantly resolved without the seizure
actions. In addition, some of the compliance
achieved was through the seizure of rather low-
value assets that, by themselves, would not have
resolved the taxpayer's tax debt.

Most Compliance Achieved Through Payments From
Delinquent Taxpayers
As shown in table 2.3, we estimate that fiscal
year 1997 seizures essentially resolved the full
tax delinquencies of about 42 percent8 of the
taxpayers whose assets IRS seized. Most of this
compliance (an estimated 85 percent9) was
attributable to taxpayers who, following the
seizures, produced funds to fully pay their total
tax liabilities and thus had their property
returned.10 A much smaller portion (an estimated 6
percent11) resulted from IRS' sale of the assets
seized.

Also as indicated by table 2.3, the fiscal year
1997 seizures resolved more than an
inconsequential portion of the tax delinquencies
of an additional 26 percent of taxpayers12 whose
assets were seized. But for 32 percent of
taxpayers,13 the seizures resolved a very small
portion of their tax delinquencies.

Table 2.3: Percentage of Delinquencies Resolved
Through Seizures
Seizure result         Percentage of taxpayers'  
                             debt resolved
                       Less     5    50    95%    Tot 
                       than   to   to    or   al
                         5%  49%  94%  more
Taxpayers paid, and       4 %   9 %   0     36 %  49 %
IRS returned the
assets
Taxpayers did not         9    13     2 %    3    26 
pay, and IRS sold the
assets
Taxpayers did not pay     7     0     0      0     7 
but IRS could not
sell the assets and
returned them
Othera                   12     1     1      4    17 
Total                    32    23     3     42    100 
Note 1: Confidence intervals for the estimates in
this table are found in table II.1 of app. II.
Some of these confidence intervals may be large.
Note 2: Percentages may not add due to rounding.
aThis covers taxpayers who could be categorized
under more than one category because they had
multiple assets seized or experienced multiple
seizures and not all assets had the same
disposition or payment status.
Source: GAO analysis of IRS case files.

Without Seizures, This Level of Compliance Would
Likely Not Have Occurred
In general, the delinquent taxpayers whose assets
were seized voluntarily paid very little on their
tax liabilities before the seizure, and IRS had
generally been unsuccessful in using its authority
to levy wages or bank accounts to enforce their
compliance, as shown in table 2.4. We estimate
that about 15 percent14 of the dollar value of the
taxpayers' delinquencies was resolved before
seizure. Additionally we estimate that 24 percent15
of taxpayers resolved none of their delinquencies
before seizure.

These collection results, taken together with the
number of collection contacts, levies of taxpayer
wages and bank accounts, and the amount of time
that had elapsed (see table 2.4), indicate that if
the seizure had not taken place, the tax
delinquencies would likely not have been
significantly resolved. For example, our review of
collection case files showed the following:

ï¿½    A taxpayer owed about $81,000 in employment
taxes, dating back over a 2-year period. The
revenue officer seized the business assets,
estimated to be worth about $18,000, after making
four unsuccessful collection attempts over a 7-
month period. Within 2 hours of the seizure, the
taxpayer fully paid the tax liability, and IRS
released the assets back to the taxpayer.
ï¿½    A taxpayer was a chronic delinquent, owing
about $24,000 in employment taxes from 1993
through 1996. Over a 12-month period, the revenue
officer contacted the taxpayer 20 times and levied
the taxpayer's bank account. These collection
efforts garnered about $500. After seizing about
$2,000 of the taxpayer's business property,
however, the taxpayer fully paid the tax
liability, making full payment on the same day as
the seizure.
ï¿½    A taxpayer was a chronic delinquent, owing
about $16,000 in employment taxes, some dating
back to 1992. After repeated unsuccessful
collection attempts over a 15-month period, the
revenue officer seized a vehicle from the taxpayer
in January 1997. The taxpayer subsequently fully
paid the tax liability, and IRS returned the
vehicle to the taxpayer.
ï¿½    A taxpayer had self-reported a net worth of
about $850,000, wages of about $140,000, and
unpaid tax of about $75,000 overdue about 2 years.
After repeated-but unsuccessful-collection
attempts over about a 1-year period to have the
taxpayer fully pay the liability, the revenue
officer seized one of the taxpayer's vehicles
(estimated value of about $4,000). The taxpayer
then fully paid his taxes, and IRS returned his
automobile.

Table 2.4: Delinquency Amounts, Days in
Collection, and Revenue Officer Collection Results
Seizure result  Percen    Average tax      Revenue officer collection results
                  t of   delinquency
                taxpay
                   ers
                                               Average number        Percent of
                                          before seizure of          tax
                                                                  liability
                                                                  resolved
                         Amount Days from  Collec Days in   Levies   Presei Throu
                                 first   tion collect       on    zure    gh
                             collectio contac     ion   wages,         seizu
                              n notice     ts             bank            re
                                                      accounts
Taxpayers paid,    49%  $63,42     1,180       8     423        3      18%   60%
and IRS                    4
returned the
assets
Taxpayers did      26   214,77      1302       7     347        4      17     15
not pay, and               5
IRS sold the
assets
Taxpayers did       7   259,20     1,091       8     328        3      10      0
not pay, but               1
IRS could not
sell the assets
and returned
them
Othera             17   113,39     1,033      10     403        6       9      5
                           9
Total             100   $126,3     1,181       8     392        4      15     22
                          54
Note 1: Confidence intervals for the estimates in
this table are found in table II.2 of app. II.
Some of these confidence intervals may be quite
large.
Note 2: Percentage of taxpayers does not add due
to rounding.
aThis covers taxpayers who could be categorized
under more than one category because they had
multiple assets seized or experienced multiple
seizures and not all assets had the same
disposition or payment status.
Source: GAO analysis of IRS case files.
Some Small Seizures Produced Large Results
In some instances, considerable compliance was
also achieved when IRS seized delinquent taxpayer
property worth relatively small amounts. About 30
percent16 of seizures involved property valued at
$2,00017 or less. About 57 percent18 of the
taxpayers who had such property seized fully paid
their tax liability. Specifically, an estimated 41
percent19 resolved liabilities that exceeded
$2,000, and another 16 percent20 resolved smaller
tax debts. We also estimate that the median
liability resolved by these successful small
seizures was about $11,000.21 As with the larger
seizures, these results, taken together with the
number of collection contacts and the amount of
time that had elapsed, indicate that if the
seizure had not taken place, the tax delinquencies
would likely not have been significantly resolved.
For example:

ï¿½    A taxpayer with employment tax delinquencies
over $80,000 had been contacted numerous times but
had paid less than $6,000 of the delinquencies.
However, following the seizure of business
vehicles whose combined value was estimated to be
about $600, the taxpayer made full payment.
ï¿½    A taxpayer had about $9,000 in employment tax
delinquencies and was not paying current amounts.
Despite numerous contacts, the taxpayer had made
payments of only about $60 before seizure.
However, following the seizure of the contents of
a cash register (about $400), the taxpayer fully
paid the outstanding delinquencies.

Seizures for About One in Five Taxpayers Achieved
Little Compliance
IRS revenue officers made a number of seizures of
taxpayer property that produced little or nothing
in terms of receipts to the federal government or
little in terms of helping to resolve the
taxpayers' tax debts, and those taxpayers were
subsequently judged by IRS to have insufficient
remaining resources to make additional payments on
their delinquencies.

We estimate that the seizure of property from
about 22 percent22 of the taxpayers  met all of the
following characteristics:

ï¿½    The seizures produced less than $2,000 in
total proceeds (i.e., less than the general IRS
estimate23 of the costs of a seizure);
ï¿½    The seizures produced little in terms of tax
debt resolved (i.e., less than 5 percent); and
ï¿½    The taxpayer's delinquent account was
classified as "currently-not-collectible" after
the seizure.

The decisions to proceed with these seizures
involved revenue officer judgments based on
information available to them at the time. As will
be discussed further in chapter 3, the quality of
information from delinquent taxpayers was often
suspect. Also, we estimate that in about three-
quarters24 of these cases, the revenue officers
could have expected higher proceeds (i.e. proceeds
greater than $2,000) based on their estimates of
the value of the assets. However, as will also be
discussed in chapter 3, IRS' process for
estimating asset value had weaknesses. The
following examples describe seizures that produced
little compliance.

Low Proceeds From Sale
of Assets
ï¿½    To collect on a tax delinquency of about
$32,000, IRS seized a taxpayer's van and assorted
tools worth an estimated $1,500. IRS sold the
property for about $900 less expenses of about
$700 (out-of-pocket expenses for advertising,
towing, and storage) for a net to the taxpayer's
account of about $200. Given the taxpayer's
financial condition, the revenue officer suspended
collection action by closing the case as currently
not collectible.
ï¿½    To collect on a tax delinquency of about
$15,000, IRS seized artwork having an estimated
value of $1,200, sold it for about $170, and after
expenses (out-of-pocket expenses for advertising
and storage), netted about $100 for the taxpayer's
account. Given the taxpayer's financial condition,
the revenue officer suspended collection action by
closing the case as currently not collectible.
ï¿½    To collect on a tax delinquency of about
$94,000, a revenue officer seized taxpayer
property that the revenue officer estimated to be
worth about $25,000. However, no prospective
purchasers bid on the property at an IRS auction.
IRS returned the assets to the taxpayer and
charged his account an additional $330 for the out-
of-pocket expenses related to the attempted sale.
Given the taxpayer's financial condition, the
revenue officer then designated the case as
currently not collectible.

Unmarketable Assets
ï¿½    A defunct business owed over $800,000 in
taxes dating back to 1989 but retained title to a
30-acre parcel of land. The revenue officer seized
the property, but subsequently returned it because
the land was contaminated with hazardous material
and IRS was unable to sell it.
ï¿½    A business taxpayer owed about $82,000 dating
back to 1989. The revenue officer made four
seizures, each involving a separate parcel of
land. A sale was held, but no bidders came. Then
IRS found underground fuel tanks on the properties
and, because of lack of sales potential, returned
the assets to the business.

Examples of Questionable Seizures
In reviewing 115 sample seizure cases, we
identified examples where IRS revenue officers'
use of discretion in deciding whether and how to
conduct a seizure or sale was questionable. We
recognize that some revenue officer discretion is
necessary and that the adversarial nature of
seizure cases can limit the information available
to revenue officers when making seizure decisions.
Nevertheless, the examples we identified seemed
clear cut because they involved disproportionate
seizures, unwillingness to work with the taxpayer,
superficial investigation work, little advance
warning provided to taxpayer, seizure of
everything owned by the taxpayer, sale of assets
with uncertain value, and a non-arms-length sale
of assets. Given the unique characteristics of
seizure cases and the subjective nature of
determining what constitutes a "questionable"
seizure, we did not attempt to estimate the number
of questionable actions in the entire population
of seizures. The following are examples of the
questionable uses of discretionary seizure
authority that we found.

Disproportionate Seizure
ï¿½    A taxpayer owed about $9,000 in unpaid taxes.
The revenue officer seized taxpayer property
valued at about $90,000 and then subsequently
seized another piece of the taxpayer's property
valued at about $38,000.25 The revenue officer
justified the seizures on the basis that the IRS
forced sale would produce about what was owed. The
taxpayer fully paid the liability, and IRS
returned the property.

Unwillingness to Work
With Taxpayer
ï¿½    A taxpayer approached IRS and explained the
company bookkeeper was just caught embezzling the
federal tax deposits. The taxpayer wanted to
resolve the problem before IRS' enforcement
officers discovered the nonpayment. The taxpayer
offered to make payments through an installment
agreement. However, the revenue officer, after
verifying the facts with law enforcement, refused
to consider an installment agreement as the
business was ongoing and had assets. The revenue
officer seized the business. The taxpayer then
raised a significant portion of the delinquency
and agreed to a very short-term installment
agreement with IRS in order to get the assets
back. By the time the case was resolved, the
taxpayer, who started out trying to comply, became
recognized within IRS as a tax protestor.

Superficial Investigatory Work
ï¿½    A revenue officer refused to consider an
offer-in-compromise made by a low-income,
physically and mentally disabled couple who owed
employment taxes amounting to about $24,000. The
couple earned less than $15,000 a year from a
marginal business, disability payments, and
Supplemental Security Income payments for their
children; had been paying all federal taxes on
time for a number of years; and were trying to
find a way to pay the past-due taxes. The revenue
officer refused to consider their request for IRS
to settle for less than the total due. The revenue
officer believed that the value of the taxpayers'
assets exceeded the amount of their liability, and
therefore, he seized the taxpayers' business
assets. After many taxpayer complaints, a more
senior IRS manager reviewed the seizure. He found
that the revenue officer "does not appear to have
done even the minimal investigation . . ." to
determine asset values or the maximum amount the
taxpayers could offer. The delinquency, then, was
settled for about one-third of the total (an
amount equal to the taxes owed, excluding
penalties and interest).

Little Advance Warning
ï¿½    A taxpayer's business license was seized
within 21 days of a request made to a taxpayer's
associate for the taxpayer to contact the revenue
officer regarding a tax delinquency of about
$1,000. No response was received, and no further
attempted contacts or warnings were made by the
revenue officer.

Seized Everything
ï¿½    A taxpayer, who had lost everything in a
business venture, was unemployed and lived with
his mother. The revenue officer found that a
relative had given the unemployed taxpayer an
automobile, with an estimated value of $4,000. IRS
seized the car (realizing about $3,900 on a tax
delinquency of about $41,000) and suspended
collection until the taxpayer's income reached
$12,000.

Uncertain Asset Value
ï¿½    IRS seized gemstones with an estimated value
of roughly $23,000 according to a limited review
(not an appraisal) by a coin and jewelry shop
owner approached by the seizing revenue officer.
The gemstones were advertised as unvalued colored
stones (pink, green, amber, etc.). IRS offered to
make the stones available for inspection 1 hour
before the scheduled sale but would not make the
stones available for appraisal purposes. IRS sold
the stones for the minimum price IRS would
accept-$800-as set by the revenue officer, not by
an appraisal. The stones were sold at a public
auction conducted by the revenue officer.

Non-Arms-Length Sale
ï¿½    IRS seized a taxpayer's automobile to satisfy
a tax debt of about $95,000. The value of the
automobile was originally estimated at the blue
book value ($16,000). After talking to the towing
and storage company, the revenue officer set the
minimum amount that IRS would accept for the car
at $4,000 to guarantee a sale. The car was
subsequently purchased for $4,000 by the towing
and storage company at an auction held by the
revenue officer and attended by the towing company
and one other bidder. After expenses were paid
(almost all to the towing and storage company),
about $2,600 was applied to the taxpayer's
account.

Sharp Decline in IRS' Use of Seizure Authority
IRS' seizure program is in a period of transition
while it adapts to Restructuring Act requirements
for providing greater taxpayer protections. During
this transition period, the number of seizures has
declined by about 98 percent, from roughly 10,000
seizures per year to an estimated 200 for fiscal
year 1999. Figure 2.1 shows the 10-year trend in
IRS' discretionary use of seizure authority. The
decline began after congressional hearings were
held on collection practices in September 1997.

Revenue officers in the four district offices that
we visited told us that seizures have nearly
stopped because of their uncertainty regarding the
Restructuring Act's new, and what they viewed as
complex, rules with potentially severe penalties
for not following those rules. In particular, they
voiced concerns over section 1203 of the act,
which provides for mandatory termination of
employment for certain acts, omissions, or
misconduct. The revenue officers were concerned
that unintentional errors in implementing the
act's provisions related to seizures could
possibly lead to disciplinary actions, including
termination of employment.

The revenue officers also said that IRS management
was slow in developing workable policies and
procedures related to the implementation of the
new law and seizure conduct. They also said they
were unsure how enforcement activity would be
integrated into IRS' newly restated mission. The
restated mission says "Provide America's taxpayers
top quality service by helping them understand
their tax responsibilities and by applying tax law
with integrity and fairness to all."

Figure 2.1: Trends in IRS' Use of Seizure
Authority

Note: 1999 is an annualized estimate based on
seizures done in the first half of the year.
Source: GAO review of IRS data.

National Office Collection officials indicated to
us that they expected the number of seizures to
rebound as changes to the program are implemented
and revenue officers adapt to the new
requirements. However, they indicated that the
anticipated level would be less than the previous
level of about 10,000 seizures per year.
Anticipating a rebound seems consistent with our
analyses of 1997 seizures. We estimate that about
3,000 taxpayers26 (an estimated 36 percent27 of the
8,300 taxpayers whose assets were seized by IRS)
waited until after a seizure to pay their tax
liability in full despite numerous collection
contacts by revenue officers over extended periods
of time.

As discussed earlier in this chapter, we estimate
that the fiscal year 1997 seizures resolved about
$235 million28 (about 22 percent29) of the affected
taxpayers' $1.1 billion30 of outstanding tax debt.
Because IRS generally has up to 10 years to
collect delinquent taxes and because some seizures
did not bring in significant revenue, it is
unclear what the transition to a new seizure
program means in terms of tax collections.

Conclusions
In general, IRS' use of seizure authority was
instrumental in getting many delinquent taxpayers
to become tax compliant or in resolving a
significant part of their tax debts. Nonetheless,
some seizures produced little; however, given the
quality of information available to IRS, it is not
clear whether these seizures could have been
avoided. In addition, IRS' processes for
controlling the use of discretionary seizure
authority were not sufficient to prevent some
questionable seizures. Our detailed analyses of
these processes is presented in chapter 3; and our
recommendations for improvement, recognizing the
changes being made by IRS in light of
Restructuring Act requirements and the expected
rebound in the use of seizure authority, are
discussed in chapter 4.

_______________________________
195-percent confidence interval: $800 million to
$1.4 billion.
295-percent confidence interval: $145 million to
$325 million.
395-percent confidence interval: 12 to 32 percent.
495-percent confidence interval: 13 to 32 percent.
595-percent confidence interval: $145 million to
$325 million.
695-percent confidence interval: 12 to 32 percent.
795-percent confidence interval: 32 to 51 percent.
895-percent confidence interval: 32 to 51 percent.
995-percent confidence interval: 75 to 95 percent.
10Additionally, IRS may release the property back
to taxpayers when it cannot find a buyer for the
property; when it determines that it is in the
government's interest to return the property, such
as if it may increase the likelihood of future
payment; or when the taxpayer files for
bankruptcy, and the assets become part of the
bankruptcy settlement.
1195-percent confidence interval: 1 to 17 percent.
1295-percent confidence interval: 18 to 34 percent.
1395-percent confidence interval: 23 to 40 percent.
1495-percent confidence interval: 9 to 21 percent.
1595-percent confidence interval: 16 to 32 percent.
1695-percent confidence interval: 22 to 38 percent.
17IRS Internal Audit estimated the general costs of
a seizure that proceeds to sale to be about
$2,000; thus, we used this amount to identify low-
value seizures.
1895-percent confidence interval: 40 to 74 percent.
1995-percent confidence interval: 30 to 53 percent.
2095-percent confidence interval: 7 to 25 percent.
2195-percent confidence interval: $7,000 to
$19,000.
2295-percent confidence interval: 13 to 32 percent.
23This IRS Internal Audit estimate was not based on
a detailed cost analysis but, rather, a general
estimate of what was believed to be the time spent
on an average seizure. IRS does not maintain data
on total seizure-related costs. Although IRS
maintains data on out-of-pocket costs, such as
asset moving or storage costs paid to third-party
vendors, IRS does not maintain data on internal
costs associated with the seizure and sale of
assets, such as staff time and travel.
2495-percent confidence interval: 62 to 93 percent.
25Values cited are the taxpayer's ownership rights
to the property (i.e., equity in the property) as
determined by IRS.
2695-percent confidence interval: 2,273 to 3,737.
2795-percent confidence interval: 27 to 45 percent.
2895-percent confidence interval: $145 to $325
million.
2995-percent confidence interval: 12 to 32 percent.
3095-percent confidence interval: $800 million to
$1.4 billion.

Chapter 3
Weaknesses in IRS' Pre-Restructuring Act Seizure
Processes for Protecting Taxpayer Rights and
Interests
Page 64 GAO/GGD-00-4 IRS' Use of Seizure Authority
During fiscal year 1997, the period of our review,
IRS had processes in place for protecting taxpayer
rights and interests when planning and conducting
seizures of taxpayer property. In part, these
processes were intended to ensure that IRS

ï¿½    made delinquent taxpayers aware of their
responsibilities and the consequences of not
taking action to voluntarily resolve their tax
debts,
ï¿½    evaluated the necessity and appropriateness
of seizing delinquent taxpayers' property before
engaging in such an action,
ï¿½    conducted the seizures appropriately,
ï¿½    established controls over assets seized to
protect against loss,
ï¿½    sold the seized property for an amount that
was in the government's and delinquent taxpayers'
interest, and
ï¿½    had information to monitor the use of seizure
authority.

 We identified implementation breakdowns in each of
these processes, and in some instances, we
identified inadequate process requirements. For
example, the procedures established for asset
sales provided little assurance that IRS asset
sales obtained the highest financial return for
either the delinquent taxpayer or the government
for a number of reasons, including sales being
conducted with little competitive bidding. Because
of the severe impact that asset seizures can have
on taxpayers, we viewed any breakdown in the
process for protecting taxpayer rights and
interests as a weakness.

Most, But Not All, Affected Taxpayers Were
Provided the Required Opportunities to Resolve Tax
Debts Before Seizure
Our review of revenue officer files for 115
taxpayers and IRS masterfile records on their tax
delinquencies,1 showed that most affected
taxpayers were provided with the required
opportunities to resolve their tax debts
voluntarily. In doing this review, we assessed
IRS' adherence to certain basic taxpayer
protection requirements, including whether or not
IRS

ï¿½    automated systems sent taxpayers written
notification about the amount of their tax
delinquencies and their rights and
responsibilities in dealing with IRS to resolve
the delinquencies, as required by statute;2
ï¿½    automated systems or revenue officers sent
the delinquent taxpayers written notices
explaining the consequences of their continued
nonpayment of taxes owed, including the potential
seizure of their property, and their rights during
the collection process, as required by statute;
ï¿½    revenue officers personally visited the
delinquent taxpayers or attempted to personally
contact them to collect the taxes due, as required
by IRS procedures;
ï¿½    revenue officers personally warned the
delinquent taxpayers of the impending seizure of
their property if arrangements were not made to
resolve their delinquencies, as required by IRS
procedures; and
ï¿½    revenue officers waited at least 30 days
after notifying taxpayers in writing about the
potential for seizure action before initiating the
seizure of taxpayer property, as required by
statute.

Frequent Notifications
We found that most taxpayers were notified, both
in writing and verbally, about their delinquencies
and had numerous opportunities to resolve tax
debts before seizure. We estimate that IRS had
sent delinquent taxpayers an average of 15 written
notifications during an average period of just
over 3 years.3 We also found that taxpayers had
personal contact (i.e., personal visits or phone
calls) with revenue officers an average of 5 times
and other contacts (i.e., faxes or letters) an
average of 3 times. These contacts occurred over
an average period of about 1 year before the
taxpayer's assets were seized.4

Missing Notifications
     Nonetheless, as shown in table 3.1, in a
number of instances, IRS did not follow basic
notification requirements or the revenue officer
files did not document adherence to the basic
taxpayer protection requirements. Lack of
documentation risks leaving managers unable to
properly review the revenue officer's actions and
risks fostering an environment in which taxpayer
protections are not fully considered during the
seizure decisionmaking process.

Table 3.1: Key Requirements for Giving Taxpayers
an Opportunity to Resolve Their Delinquent Tax
Debts
Description of key requirement     Percentage of
                                     taxpayers
                                 Yes    No Unknown
                                                 a
Taxpayers were sent written      100     0       0
notices about each delinquent
tax liability and their rights
and responsibilities
Taxpayers were sent a written     91     9       0
notice for each delinquency
about the possible seizure of
their property and an
explanation of their rights and
responsibilities before seizure
Taxpayers were provided with      66    33       1
written notification of possible
seizure within 180 days or were
subject to ongoing enforcement
action (lien, levy, or seizure)
within 60 days of a seizure
Revenue officers attempted at     96     4       0
least one personal contact with
taxpayers before seizure
Revenue officers personally       71    11      18
advised taxpayers of potential
for enforced collection action,
e.g., seizure of property
Revenue officers waited at least  86     8       6
30 days after all notices before
seizing taxpayers' property
Note: Confidence intervals for the estimates in
this table are shown in table II.3 of app. II.
Some of these confidence intervals may be large.
aFile documentation was not sufficient to make a
yes or no determination.
Source: GAO analysis of IRS case files.

Written Notifications Not Always Complete or Sent
When Required
     IRS was required by statute to provide
taxpayers with written notification of each tax
delinquency and also a written notification of
IRS' intent to take enforced collection action
against each delinquency, including the seizure of
taxpayer assets. Therefore, an individual taxpayer
who did not pay all income taxes annually would
have to be notified at least twice for each tax
year's delinquency.

     Although an estimated 9 percent5 of the
taxpayers were not sent a notice of intent to take
enforced collection action, including seizure, for
each delinquency before seizure, all but about 2
percent6 of the taxpayers received such notice on
at least one of their delinquencies before
seizure. We reviewed the three sample cases
supporting the 2-percent estimate to determine why
a notice of intent to take enforced collection
action was not sent. In one of these cases, the
revenue officer determined that quick action7 was
needed to ensure that some payment on the
taxpayer's delinquency was secured. However, we
did not find documentation that the approvals
required in such a situation were obtained. In the
remaining two sample cases, we could not determine
why a notice of intent to take enforced collection
action was not sent.

     Table 3.1 also shows that revenue officers
did not always notify taxpayers of a possible
seizure within the required time frames. IRS
procedures require revenue officers to determine
if the taxpayer received a notice of intent to
take enforced collection action within 180 days of
the seizure or had ongoing enforcement action
within 60 days of the seizure. Since IRS
procedures do not define enforcement action, the
ongoing enforcement action could encompass a range
of revenue officer activities. Our analysis for
table 3.1 considered enforcement actions to be
liens, levies, or seizures. Using this definition,
33 percent8 of the notifications were not current.
However, if a more encompassing definition of
enforcement action were used (i.e., "any revenue
officer collection action"), only about 14 percent9
would have been considered as not current.

Personal Contact Not Always Made or Aggressively
Pursued
     According to IRS procedures, revenue officers
are expected to attempt to make a personal contact
with taxpayers before a seizure. At the time of
contact, revenue officers are to give taxpayers
the opportunity to resolve their tax liabilities
voluntarily and to determine if taxpayers are
aware of their rights.

     As shown in table 3.1, we estimate that
revenue officers did not attempt to personally
contact about 4 percent10 of the taxpayers. For
example, in one case, a revenue officer initiated
a seizure of taxpayer property without contacting
the taxpayer, apparently based on learning that
IRS had seized property from that taxpayer a year
earlier for a prior tax delinquency. This was not
consistent with IRS procedures.

     Although revenue officers documented attempts
to contact about 96 percent11 of the taxpayers,
such attempts were not always successful or
aggressively pursued. Revenue officers were
successful in their attempts for 89 percent12 of
the taxpayers and unsuccessful for 7 percent.13
Examples of attempts to contact the taxpayer that
we did not consider aggressive include the
following:

ï¿½    A revenue officer made no attempt to contact
the taxpayer beyond his last officially known
address, although the revenue officer had
additional information on how to contact the
taxpayer.
ï¿½    A revenue officer made one attempt to
personally meet with the taxpayer and no attempts
to call the taxpayer before a seizure action.

Limited Warnings of Potential Seizure Given
Taxpayers
IRS procedures required revenue officers to warn
taxpayers of the consequences of not taking
sufficient steps to resolve their tax
delinquencies. The procedures called for revenue
officers to warn taxpayers of the possibility of
enforcement action and to personally advise the
taxpayers that the next enforcement action would
be seizure. Lack of documentation of personal
contact in revenue officers' case files, as with
lack of documentation of written notification,
risks leaving managers unable to properly review
the files and risks fostering an environment where
taxpayer protections are not fully considered
during the seizure decisionmaking process.

As shown in table 3.1, we estimate that only 71
percent14 of the taxpayers were personally warned
of an impending seizure action. For an estimated
11 percent15 of taxpayers, the revenue officers had
not contacted and warned them before the seizure.
An estimated 18 percent16 of the taxpayers were
contacted, but the files did not document whether
the taxpayers were warned of an impending seizure
action.

30-Day Requirement Not Always Met
By statute, IRS is not permitted to make a seizure
until 30 days have elapsed from the date the
taxpayers are notified in writing of the potential
seizure of their property. Taxpayers with multiple
tax delinquencies should receive a notification
for each delinquency, and the 30-day period
commences with the date of the last notification.

As indicated in table 3.1, we estimate that about
8 percent17 of the taxpayers were not given the
full 30 days, and for an estimated 6 percent18 of
the taxpayers, there was not sufficient
documentation to determine whether the 30-day
requirement was met.

We reviewed the nine sample cases supporting the 8-
percent estimate to determine why the 30-day
requirement was not met. In five of the nine
cases, the revenue officers did not document the
reasons why the taxpayers were not given the full
30 days. For three cases involving multiple
delinquencies, we found that taxpayers were not
sent notifications 30 days in advance on at least
one of their delinquencies. For the remaining
case, quick action was deemed necessary, but
contrary to IRS procedures, the revenue officer
did not document the appropriate approvals
required to circumvent the 30-day requirement.

Some Seizures Approved Based on Limited
Information
As a condition for gaining agency authorization to
seize delinquent taxpayer's property, revenue
officers were required to document the necessity
for making a seizure and to make that information
available for management review and approval. We
reviewed revenue officer files to determine
whether the following key information needed to
make and approve a seizure decision was
documented:

ï¿½    financial information indicating the
taxpayers' ability to pay, to determine which
payment alternative may be appropriate;
ï¿½    financial results expected from the seizures
to prevent uneconomical seizures (i.e., seizures
in which the costs of the seizure and sale
exceeded the fair market value of the property);
and
ï¿½    rationale used to determine that the seizures
were necessary.

In addition, we reviewed revenue officer files to
determine whether information on the possible
seizure impacts, including the effect on the
taxpayer's family or the taxpayer's employees, was
documented. While not a requirement, IRS
procedures encouraged this information to be
documented.

     We found that case files often had incomplete
information or lacked complete documentation to
justify seizures. Taxpayers subject to seizures
frequently did not cooperate with the revenue
officers' requests for complete and accurate
financial information. Revenue officers, in some
cases, did not develop all the estimates needed to
determine if there would be net proceeds from the
sale. Additionally, most files did not document
information on the possible impacts of the
seizures. Such documentation would help ensure
that IRS better considers both the potential
return and potential hardship from the seizure.

Obtaining Information on Taxpayers' Ability to Pay
Was Problematic
     IRS procedures require revenue officers to
request financial information (i.e., taxpayer
income, expenses, assets, and liabilities) from
delinquent taxpayers and document the request and
information obtained in the case file. This
information is necessary to determine whether it
would be appropriate to (1) arrange for the
taxpayers to pay off the liabilities in
installments, (2) accept less than full payment to
resolve the taxpayers' liabilities, or (3)
temporarily suspend collections because of
taxpayers' inability to pay or hardship.

     As shown in table 3.2, we estimate that
complete and accurate taxpayer financial
information was obtained for only about 9 percent19
of the taxpayers, mainly because the taxpayers did
not provide it when requested. In some cases,
revenue officer files did not indicate that this
information was requested.

Table 3.2: Key Steps in Developing Information for
Assessing Taxpayers' Ability to Pay
Description of key requirements    Percentage of
                                     taxpayersa
                                  Yes   No Unknown
                                                 b
Revenue officer requested          84   14       2
financial information
from taxpayer
Taxpayer provided some financial   63   33       4
information
Taxpayer provided complete and     10   90       0
accurate financial information
Revenue officer verified           86    6       9
financial information for those
taxpayers who provided it
Revenue officer found unreported   25   75       0
assets
IRS obtained complete and           9   86       5
accurate financial information
Note 1: Confidence intervals for the estimates in
this table are shown in table II.4 of app. II.
Some of these confidence intervals may be large.
Note 2: Percentages may not add to 100 due to
rounding.
aUnless otherwise noted, projections are made to
the universe of all taxpayers who were personally
contacted before the seizures.
bFile documentation was not sufficient to make a
yes or no determination.
Source: GAO analysis of IRS case files.

Revenue officers need to be cautious in accepting
financial information from taxpayers. Based on
revenue officers' experience in finding unreported
assets, we estimate that 25 percent20 of the
taxpayers did not disclose all their assets to
IRS. While not shown in the table, data from
taxpayers were suspect even when taxpayers were
seeking alternative payment arrangements, such as
installment agreements.

Incomplete Estimates of Potential Financial
Results From Seizures
     Another factor revenue officers are required
to consider and document in deciding whether to
seize taxpayer property is whether the sale of the
seized asset would yield sufficient proceeds to
pay some, if not all, of the tax debt.

     The Internal Revenue Code has long prohibited
IRS from making uneconomical seizures.
Implementing IRS procedures required the revenue
officers to determine that there was sufficient
taxpayer equity in the property to yield net
proceeds from the sale to apply to the unpaid tax
liability. To meet these requirements, revenue
officers were required to

ï¿½    estimate the fair market value of the
property to be seized,
ï¿½    identify any encumbrances and interests on
the property that would reduce the taxpayer's
equity, and
ï¿½    estimate the costs involved in the seizure
through the sale of the property.

 To the extent that prospective buyers would be
willing to purchase the asset for an amount equal
to the taxpayer's equity in the assets, IRS
procedures would provide the basic elements for
estimating sales proceeds.

As shown in table 3.3, we estimate that 39 percent21
of the seizures were made without the estimates
required by IRS procedures. In some of these
cases, we identified extenuating circumstances
that could have precluded revenue officers from
making the estimates, including six seizures where
the revenue officer was unable to obtain the
taxpayer's consent to enter private premises and
had to secure a court order permitting entry on
the day of the seizure, four seizures involving
either cash in a cash register or contents of a
safety deposit box to which the revenue officer
was not given access, and one taxpayer who was
hiding assets.

In other instances, however, omission of the
preseizure estimates appears to have been an
oversight. For example, an estimated 42 percent22
of the cases in which the an estimate of the fair
market value was not in the case file involved
vehicles, for which fair market values are readily
available in industry guides.

Table 3.3: Required Elements for Estimating
Seizure Results
Description of requirement        Percentage of
                                     seizures
                                 Yes    No Unknown
                                                 a
Estimate of fair market value     81    18       1
of property
Estimate of encumbrances on       76    20       4
propertyb
Estimate of the cost of           66    32       1
seizure and sale
Overall                           57    39       4
Note 1: Confidence intervals for the estimates in
this table are shown in table II.5 of app. II.
Some of these confidence intervals may be large.
Note 2: Percentages may not add to 100 due to
rounding.
aFile documentation was not sufficient to make a
yes or no determination.
bTwo seizures involving only cash were excluded
from the population, as encumbrances did not
apply.
Source: GAO analysis of IRS case files.

     Just making the required estimates, however,
was generally not sufficient to estimate the
return from asset sales. Before holding sales,
revenue officers are required to establish minimum
acceptable prices for the assets. As discussed in
the asset disposal section of this chapter, the
minimum acceptable prices were generally
significantly less than the taxpayers' equity in
the assets as identified by the revenue officers
and were strong indicators of proceeds from actual
asset sales. Requiring the computation, whenever
possible, of the minimum acceptable price before
making the seizure could provide a more reliable
indicator of the eventual sales proceeds than
computation of taxpayer equity under the current
requirements.

Seizure Rationale Documented; Impact Generally Not
     IRS procedures required revenue officers to
document in their case files the factors
considered and the reasons the seizure was
necessary. The documentation requirements are
meant to enable IRS managers to review the case
files to ensure that the seizure action was
warranted before approving the seizure. The
factors that were documented could be found in
various places throughout the lengthy case files,
but there was no requirement for a summary
statement on the justification for the seizure,
which increased both IRS managers' and our
difficulty in reviewing the case files.

     Our review of the case files showed that in
all cases revenue officers documented at least one
reason for the seizure, and most documented
multiple reasons. Table 3.4 shows the various
reasons for the seizures. The three most common
reasons were repetitive delinquencies, lack of
good-faith effort to pay taxes, and lack of
cooperation to resolve tax delinquencies.

Table 3.4: Documented Reasons for Taking Seizure
Action
Reason for seizure                   Percentage of
                                          seizures
Taxpayer has been delinquent in                 75
filing income tax returns or paying
taxes in more than 1 year
Taxpayer not making a good-faith                62
effort to pay the taxes due
Uncooperative taxpayer (e.g.,                   41
hiding assets, not providing
financial information)
Taxpayer has not paid the current               33
year taxes
Taxpayer pyramiding employment                  19
taxes liabilitiesa
Immediate action necessary                       6
(impending bankruptcy, etc.)
Other                                           31
Note: Confidence intervals for the estimates in
this table are shown in table II.6 of app. II.
Some of these confidence intervals may be large.
aWhen employment taxes are not paid from quarter
to quarter and the taxpayer has not paid the
current quarter's taxes, the taxpayer is
considered to be pyramiding employment tax
liabilities.
Source: GAO analysis of IRS case files.

     Revenue officers did not generally document
the potential impact of the seizure (e.g., impact
on family, employees, etc.). Yet hardship or
inability to pay has been a common complaint
raised by taxpayers. IRS procedures did not
require documentation of the impact but did
encourage revenue officers, when making personal
residence seizures, to include any pertinent
information, such as the potential effect on the
taxpayer's family. As discussed earlier, the lack
of documentation risks (1) leaving managers unable
to properly review the case files and (2)
fostering an environment in which taxpayer
protections are not fully considered.

     In some instances, however, revenue officers
did a more thorough job of documenting key
information to justify making the decision to
seize. Due to the sensitive nature of residential
seizures, IRS procedures provided for a higher
level of review as well as additional assurance
that key information on these cases was documented
and reviewed before seizure. IRS procedures
authorized the use of a summary memo to be
prepared by the revenue officer before the seizure
of personal residences. The suggested format
provided for information on taxpayer equity and
seizure rationale, date of liens filed by IRS,
type of tax owed and for what years, collection
efforts attempted, and any special circumstances
of the taxpayer considered when making the
decision to seize. The memo was meant to provide
management with a concise review of many of the
critical elements the revenue officer considered
in determining that seizure was appropriate.

IRS Generally Complied With Procedures for
Conducting Seizures
IRS procedures specified that revenue officers
were to

ï¿½    obtain all required approvals within IRS and
the courts, if appropriate;
ï¿½    have the seizure and the recording of the
inventory witnessed by another IRS employee; and
ï¿½    make appropriate notification to the taxpayer
at time of seizure and make the record of the
inventory available to the taxpayer.

 As shown in table 3.5, in about 1 percent23 of the
seizures, revenue officers did not obtain the
required approvals. In the two sample cases
reviewed where required approvals were not
obtained, the revenue officers had determined that
quick action was needed. While the group manager's
approval was obtained in both cases, neither case
had the higher level of approval required for such
seizures.

Additionally, the table shows that sometimes the
revenue officer did not record whether or not
seizure documents (the notice of levy or seizure
action and the inventory of seized assets) were
delivered to the taxpayer. The notice of levy is
to be given to the taxpayer at the time of
seizure. The inventory of seized assets-an
important accountability document-is to identify
the taxpayer's property that IRS has seized.

Table 3.5: Key Steps Taken to Protect Taxpayer
Rights During the Seizure Process
Description of key step            Percentage of
                                     seizures
                                  Yes   No Unknown
                                                 a
Revenue officer obtained           99    1       0
required approvals
Revenue officer obtained writ     100    0       0
of entryb when needed
Revenue officer complied with      99    0       1
witness requirements
Taxpayer provided with notice      72    0      28
of levy or seizure action and
the inventory of seized assets
Note 1: Confidence intervals for the estimates in
this table are shown in table II.7 of app. II.
Some of these confidence intervals may be large.
aFile documentation was not sufficient to make a
yes or no determination.
bA writ of entry from the court must be obtained
before seizure when the revenue officer has been
denied taxpayer consent to enter private premises.
Source: GAO analysis of IRS case files.

As indicated earlier, documenting all aspects of
IRS' adherence to requirements is important to
fostering an environment in which taxpayer
protections are fully considered. Documenting IRS'
actions before and during seizure-and the
information obtained as a result of those
actions-helps ensure that seizures are done only
when necessary and that taxpayer rights and
interests are protected. Documenting IRS' actions
after the seizure provides additional taxpayer
protections, as discussed in the sections of this
chapter on IRS control over seized assets and
asset disposal.

Weak Controls Over Assets Seized
Once assets are seized, IRS is responsible for
establishing controls over those assets as set out
in federal financial management guidelines24 and
safeguarding those assets against loss. To
accomplish this, IRS requires revenue officers to

ï¿½    document basic control information, such as
description, value, and location, to establish
accountability over the seized assets;
ï¿½    arrange to protect seized assets from loss or
damage; and
ï¿½    submit control information for entry into
IRS' automated inventory control system that was
designed to monitor assets from seizure through
disposition.

 We found shortcomings in each of these areas.

Incomplete or Questionable Asset Control
Information
To establish accountability and control over
seized assets, federal financial management
guidelines specify the type of information that is
to be documented. This information includes type
of asset, estimated value25 and the basis for that
value, mortgage and claim liabilities, physical
condition, geographic location, responsible
custodian, and costs incurred while the asset is
in custody. 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.

IRS procedures required revenue officers to record
basic inventory information (e.g., description,
value, and location) on a form that was to be
witnessed by another IRS official. Also, copies of
this form were to be provided to the taxpayer to
document the property taken and to the local IRS
district office for data entry into IRS' automated
inventory system. As such, this form served as the
official accountability record of the property IRS
seized.

As shown in table 3.6, the baseline information
revenue officers recorded on the official
inventory forms did not always include all of the
needed information to support an independent
verification of each asset or the asset's
condition, custody, location, and value as
envisioned by federal financial management
guidelines.

Table 3.6: Completeness of Inventory Descriptions
Baseline             Percentage of seizures with
information         baseline information recorded
                             on inventory
                    All   Some     Not Unable Tota
                           but             to    l
                           not recorde determi
                           all       d     ne
Asset description                                 
  General            93      6       0      1  100
description
  Itemized list      91      6       3      0  100
  Asset quantity     85     12       3      0  100
  Detailed           74     20       5      1  100
descriptiona
Asset value                                       
  Estimated fair     96      2       2      0  100
market value
  Estimated          88      2      10      1  100
taxpayer equityb
Asset location       90      2       8      0  100
Asset custody        53      4      43      0  100
Asset condition      26      8      66      0  100
Note 1: Confidence intervals for the estimates in
this table are found in table II.8 of app. II.
Some of these confidence intervals may be large.
Note 2: Percentages may not add to 100 due to
rounding.
aDescription sufficient, in GAO's opinion, to
differentiate asset seized from other like items,
such as by specifying make, model, or serial
number.
bAsset fair market value adjusted to account for
encumbrances.
Source: GAO review of IRS seized asset inventory
records and attachments to those records.

Incomplete Asset Descriptions
As shown in table 3.6, for the most part, revenue
officers generally described and enumerated most
of the assets seized. However, in a number of
instances, the 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 or to quantify the number of items seized.26
For example:

ï¿½    IRS seized the inventory of an automotive
business with an estimated value of over $24,500.
The level of detail recorded on the inventory form
for one of the 14 groups of assets seized was 1
snack machine; Reddy Heater; miscellaneous
filters, disc pads, belts; 1 antifreeze recycling
machine; compressor; miscellaneous auto parts;
metal stand; 1 drum kerosene; and 1 table.
ï¿½    IRS seized restaurant equipment with an
estimated value of $8,000. The inventory form
listed restaurant equipment including, but not
limited to, fryers, prep tables, walk-in cooler,
tables, chairs, dishes, flatware, drink machines,
freezers, cash registers, safe, coffee machine,
and miscellaneous office equipment.

The omission of detailed descriptive information
reduces accountability and could negate assurance
that the specific asset seized was still under IRS
or third-party custody, even if a physical
inventory is taken.

Uncertain Asset Values
Table 3.6 shows that revenue officers estimated an
asset value to cover most, but not all, assets
seized. However, revenue officers rarely obtained
written appraisals to ascertain asset value. As
discussed later in the asset sale section of this
chapter, asset values were determined largely
based on revenue officer judgment or research
(such as checking county tax records or automobile
guides), but with little or no documentation to
support the values assigned. The absence of
documentation reduces accountability and limits an
independent verification that recorded values are
accurate.

Missing Condition, Custody, and Receipt
Information
As shown in table 3.6, we found many cases where
asset condition or custody27 was not recorded in
IRS' seizure inventory records. Moreover, in those
cases where our review of the revenue officers'
case files indicated that seized assets were
stored at contractor locations, the files did not
contain receipts from the contractors in an
estimated 51 percent28 of the cases.

IRS does not conduct a physical inventory of its
seized assets. So, even if revenue officers
documented the condition of each asset and who had
custody of it and obtained receipts for storage
from contractors, IRS would not use the
information to independently verify various
attributes of each asset as envisioned by federal
financial management guidelines. Also, absence of
documentation on condition, custody, and receipts
limits accountability because baseline information
would not be available to assess responsibility
for apparent flaws in assets observable during
physical inspection of the assets.

Missing Information on Asset Security and Losses
     To protect seized assets from loss or damage
while in IRS' possession, revenue officers were
required to arrange for asset safekeeping. While
revenue officers were expected to use judgment in
determining the extent of security, IRS procedures
also required that seized assets be given at least
the same level of protection as the taxpayer
provided. Some of the assets frequently seized by
revenue officers, such as undeveloped real
property and residences occupied by the delinquent
taxpayer, required no safeguarding. While other
seized assets, such as vehicles and jewelry,
required some type of security.

  Our review of revenue officer case files
indicated that revenue officers, in exercising
judgment on security matters, generally tended to
hold down costs since they had to be paid from
budgeted funds. We estimate that 60 percent29 of
the seizures involved assets requiring no
security. In some instances, revenue officers
obtained security for free (e.g., making
arrangements with local military installations to
store property, such as automobiles, in secured
areas) or simply padlocked the premises. We
estimate that 33 percent30 of seizures involving
asset security arrangements involved no costs. For
those with costs, we estimate that the median
security costs were about $150.31

  We also found that an estimated 12 percent32 of
the seizure cases involved assets that required
safeguards, but the case files did not show
whether any safeguards were used. 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 from a delinquent
taxpayer. However, the revenue officer did not
indicate in the case file how the assets were
safeguarded against loss or damage.

  We found a few case files that contained
information about a loss, alleged loss, or damage
to property. However, because of limited
documentation in the files, we could not be
certain of the magnitude of the loss or who was
liable for the loss. 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 a piece of seized real estate were
missing. The revenue officer's file provided no
information on the amount of the alleged loss.

  During our physical observation of assets from
16 open seizures,33 we also found some situations
where the assets were either missing or damaged or
there was insufficient information on the initial
condition of the assets to determine whether they
were missing or damaged.

ï¿½    A revenue officer seized various pieces of
business equipment valued at about $1,600. The
assets were tagged with IRS seizure tags and left
in a public area of the open business. The
business subsequently declared bankruptcy and was
involved in other legal proceedings, which kept
the seizure case open for over 18 months. At the
time of our review, we were unable to locate a
number of the assets seized, and one asset was
damaged because it was left outside and
unprotected.
ï¿½    A revenue officer seized a parcel of improved
real estate. At the time of the seizure, the
taxpayer was renting a building located on the
land to a tenant who was operating a used car lot
and the real estate was left in such use. During
our visit, we found that the used car lot had been
vacated and the front door of the building was
open. We were unable to determine whether there
was any damage to the property because of the
limited information on initial condition of the
property included in the case file.

Automated Inventory Not Sufficient for Monitoring
Seized Assets
Federal financial management guidelines, in
addition to specifying the types of information to
be included in an inventory control system, also
stated that management should be able to query
their system at any time to obtain current
information about any asset. The system should
also generate periodic reports that provide
performance results so management can monitor
areas of concern, evaluate results, and take
appropriate corrective action when necessary.

IRS' system to track seized assets does not
include all the information set out by federal
financial management guidelines, and the
information it does contain is not always current
or accurate. More specifically:

ï¿½    The automated inventory system, while
requiring the entry of asset description
information, did not require the entry of the full
description of assets as recorded by revenue
officers. For example, for one business seizure,
the revenue officer prepared a 12-page written
itemization of assets seized with an estimated
value of almost $63,000. The automated inventory
specified that miscellaneous business equipment
and supplies were seized. Moreover, as shown in
table 3.6, such detailed descriptive information
was frequently not recorded by revenue officers on
the source document used for data entry into the
automated system.
ï¿½    The automated inventory system did not
provide data entry fields for capturing
information on asset condition or custody.
Moreover, as shown in table 3.6, such information
was not routinely recorded by revenue officers on
the source document used for data entry into the
automated system.
ï¿½    The automated inventory system did not
provide a data entry field for theft, loss, and
damage expenses.
ï¿½    The automated inventory system did not
consistently capture information on the amount of
taxpayer equity in the asset. The system provides
a data entry field for taxpayer equity but the
directions specified that the lesser of the
taxpayer equity or tax delinquency amount should
be recorded in the available field. Once entered,
the system did not provide a means for
distinguishing whether the amount represented the
equity or delinquency amount.
ï¿½    The automated inventory system records did
not always coincide with revenue officer records.
We could not reconcile amounts between the two
record-keeping systems regarding seizure costs,
proceeds from seizures, number of assets, and type
of asset in about 23 percent,34 21 percent,35 16
percent,36 and 13 percent37 of the seizures,
respectively. In one case, taxpayer equity
differed by over $2 million.
ï¿½    The automated system did not have to be
updated in a timely manner. IRS has a requirement
that all seizure and sale documents should be
transmitted to the office that inputs the
information into the automated inventory system
within 5 working days after the related action has
occurred. Since the date the submissions were
transmitted was not always recorded in the revenue
officers' files, we could not determine if the
requirement was met. Even if the 5-day requirement
was met, there was no requirement that, once
received, the information must be entered into the
system within a certain time frame.
ï¿½    The automated system records did not always
coincide with the revenue officers' files or the
actual property on hand. When 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. In three cases, the inventory assets
were no longer in IRS' possession because the
asset had been returned to the taxpayer, sold, or
taken (without permission) by the taxpayer. In the
remaining 12 cases, there were conflicts between
the automated inventory system and the revenue
officers' files, including differences in taxpayer
equity, asset description, asset location, date of
seizure, asset quantity, or asset custody. Also,
in 2 of the remaining 12 cases, an observation of
the asset showed the asset was not in the same
condition as described in the revenue officers'
files and, in 1 of those 2 cases, some of the
assets were missing.

Given the above limitations, the system produced
little useful oversight information that
management could use to monitor seized assets.
Moreover, as discussed later in this chapter (see
section on seizure oversight and review), IRS
officials made limited use of the information in
the inventory control system to oversee the seized
asset program.

Asset Sales: Little Assurance That Maximum Returns
Were Achieved
Because taxpayers avoided sales in most cases by
reclaiming their assets,38 we estimate that IRS'
revenue officers were responsible for making
arrangements to sell taxpayers' assets in about 42
percent39of the seizure cases. For 1997, we
estimate that IRS' sales produced about $26.5
million40 in net proceeds.41

In arranging asset sales, revenue officers usually
adhered to most elements of IRS' procedures. Even
when procedures were followed, however, IRS' sales
practices provided little assurance that the
maximum possible returns were achieved for two
reasons. First, many assets were sold without
competitive bidding, and second, IRS' minimum
acceptable price for an asset was often
established in an arbitrary manner.

Procedural Protections Usually, But Not Always,
Met
As shown in table 3.7, when complete information
was available, our analysis of sales cases showed
that revenue officers, in most instances, adhered
to basic procedures established by IRS to protect
taxpayers' interests.

Table 3.7: Adherence to Basic Taxpayer Protections
in Cases That Went to Sale
Taxpayer protection               Percentage of
                                     seizures
                                 Yes   No Unknowna
IRS computed a minimum price      97    3        0
at which it could sell the
seized assets
Taxpayer was notified of          79    5       16
minimum price and was given 10
days to submit a different
valuation
Sale was advertised in the        96    4        0
required locations (e.g.,
public postings and newspaper)
Sale was held within              94    6        0
prescribed time period-at
least 10 days, but not later
than 40 days, after public
notice
Sale was witnessed by another     70    0       30
IRS employee
Asset was sold for the minimum    95    2        2
price or moreb
Taxpayer was notified of sales    16    0       84
results (sale amount, sale
expenses, and amount credited
to taxpayer)
Note 1: Confidence intervals for the estimates in
this table are found in table II.9 of app. II.
Some of these confidence intervals may be large.
Note 2: Percentages may not add to 100 due to
rounding.
aFile documentation was not sufficient to make a
yes or no determination.
bExcludes those sales where the asset was returned
to the taxpayer.
Source: GAO analysis of IRS case files.

In a few instances, however, revenue officers did
not adhere to basic procedural requirements
established to protect taxpayers. For example, we
found that IRS had rushed through a seizure and
sale of a bus company. First, the revenue officer
did not fully research ownership of the assets or
compute a minimum price at which IRS could sell
the seized assets. Second, the revenue officer did
not notify the taxpayer of the minimum price to
allow him to either challenge the price or buy the
property back. Third, the revenue officer neither
advertised the sale as required nor waited the 10
days after such advertising to hold the sale.
Rather, he held the sale on the same day as the
seizure. After consummating the sale, the revenue
officer learned that the assets did not belong to
the taxpayer, and he subsequently returned them to
the rightful owner after retrieving the assets
from a successful bidder.

Also, as indicated by table 3.7, for some elements
of the sales process, we could not be certain what
actions took place because case file information
was incomplete or inconclusive.

Despite Protections, Many Assets Sold Without
Competitive Bidding
Even when IRS' sales procedures for protecting the
rights and interests of taxpayers were followed,
IRS' sales practices provided little assurance
that the maximum possible returns were achieved.
One reason is that many assets were sold without
competitive bidding.

Our analysis showed that most IRS sales were not
conducted in a competitive manner-we estimate that
about 51 percent of the sales42 attracted no more
than one bidder, and only 42 percent of the cases43
sold for more than the IRS-established minimum
price.

Steps that help promote competitive bidding
include

ï¿½    making potential bidders aware of the sale,
ï¿½    enabling potential bidders to inspect the
assets, and
ï¿½    conducting the sales in a manner that makes
the sale transactions relatively easy for the
purchasers.

Our previous reviews have demonstrated the
importance of these steps to ensure that the
highest possible prices are obtained.44 The highest
possible price might not be the market price
because certain conditions are attached to IRS'
seized asset sales that cause them to differ from
a typical market sale. Although these conditions
are intended to protect taxpayer interests and
reduce the risk of loss to the government, some of
them may reduce the price that could be obtained
from selling an asset. Two examples of such
conditions are that (1) IRS is authorized to sell
only the taxpayer's equity in the seized asset and
makes no warranties or guarantees that it has
identified all lien holders and (2) the taxpayer
has the right to redeem real property from a buyer
for up to 180 days after the sale and, thus, the
buyer is precluded from doing anything with the
property for that period of time. We could not
quantify the impact of such conditions on asset
valuation nor do we have a position on the
appropriateness of these conditions. The
uncertainty of the effect that the conditions have
on asset price highlights the importance of
competitive bidding.

In evaluating IRS' sales practices, we identified
shortcomings in the three steps for promoting
competitive bidding.

ï¿½    Advertising was generally limited to legally
required advertisements-one local newspaper or
posting in two public places. IRS made little use
of bidders lists or other media channels to target
potentially interested buyers. Most sales involved
few assets because the sales were stand-alone
sales (assets from only one seizure). Almost all
sales were conducted on weekdays between 9:00 a.m.
and 5:00 p.m. and in the county where the asset
was seized. This could limit the number of
potential bidders from knowing about the sale and
being able to attend.
ï¿½    IRS had no requirement to make assets
available for inspection or appraisal before the
day of the sale. As a routine practice, IRS does
not provide information or comment on asset value,
condition, or operability because of liability
concerns over any implied warranties. Also, while
IRS does advise potential buyers of any identified
encumbrances, it does not guarantee that all
lienholders have been identified or the accuracy
of the amounts owed. This adds uncertainty to the
asset value.
ï¿½    IRS did not make use of commercial sales
venues. Auctioneers who specialize in selling
preowned assets conducted few sales. Nor were
commercial markets specializing in certain types
of assets, such as regional automobile auctions,
used.

 Based on our analysis of sample cases where IRS
sold taxpayer assets, we estimate that in about 30
percent45 of the sale cases, revenue officers sold
the assets for the minimum amount IRS was willing
to accept. Additionally, in an estimated 24
percent46 of the sales, revenue officers either did
not attract any bidders or attracted bidders who
were unwilling to pay the minimum price. The
revenue officers then returned these assets to the
delinquent taxpayers and increased their tax
liability to cover the out-of-pocket costs
incurred by IRS.

Absent Competitive Bidding, Other Controls Not
Adequate for Ensuring Maximum Return
Given the limited number of bidders that revenue
officers attracted to their sales, IRS had to rely
on its minimum price setting procedure to protect
both taxpayer and government interests. The
procedure involved first estimating the fair
market value of an asset and then discounting that
value to obtain the minimum price that IRS would
be willing to accept.

Some discounting of the fair market price appears
reasonable, in part because of the conditions
described previously that are attached to seized
asset sales. The existence of the conditions under
which IRS sells assets makes it difficult, if not
impossible, to find comparable sales for assets to
estimate asset values. Consequently, the
conditions attached to seized asset sales, when
combined with the lack of competitive bidding, put
the burden of protecting taxpayers' and
government's interests on IRS' minimum price
setting process. However, our analysis shows that
the process was often arbitrary.

Uncertain Asset Value
The first step in determining the price IRS would
accept for an asset is for the revenue officer to
identify the asset's fair market value. Our
assessment of IRS' practices for determining asset
value showed that it was not a formal or well-
documented process. We estimate that about 35
percent47 of the assets were valued on the basis of
revenue officer judgment; the basis for valuing 8
percent48 of the assets was not recorded by the
revenue officers; and about 4 percent49 were based
on a professional appraisal of the property. In
the remaining cases, the assets were valued on the
basis of revenue officer research, such as
checking county tax records or automobile guides.
But, in most revenue officer files (an estimated
71 percent50), we could not find physical
evidence-copies of the automobile guide or county
records- for the set values.

The lack of a formal documented process
contributed to the following situations.

ï¿½    A revenue officer seized gemstones with a
value of about $23,000 according to a limited
review (not an appraisal) by a coin and jewelry
shop owner approached by the revenue officer. In
preparing for the sale, the revenue officer
ignored the earlier value and, without obtaining
an additional valuation, arbitrarily set the fair
market value at about $14,000.
ï¿½    A revenue officer checked county courthouse
records and noted that the value of seized real
property was about $93,000. In preparing for the
sale, the revenue officer set the value at about
$80,000. The revenue officer provided no
explanation for using the lower unsupported
amount.

In each of these instances, without an appraisal,
neither IRS nor we can be certain what the value
of the taxpayer's property should have been.

Arbitrary Minimum Price
The second basic step in determining the price at
which IRS should sell an asset is for the revenue
officer to set a minimum price51 that IRS would
accept for the asset. To set the minimum price,
revenue officers were generally required to use a
formula that allowed for the fair market value to
be reduced by up to a maximum of 40 percent. The
amount was then reduced further by any
encumbrances (e.g., mortgages) on the assets.

Our assessment of the formula, the revenue
officers' use of the formula, and exceptions to
the formula, showed the minimum price set by IRS
was arbitrary and did not necessarily reflect the
value of the taxpayer's interest in the property.

ï¿½    First, 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 supported, revenue
officers used the maximum reduction an estimated
69 percent52 of the time with little detailed
justifications shown.
ï¿½    Second, 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.
ï¿½    Third, we noted that lesser percentage
reductions appeared to be sometimes used when the
"maximum reductions" would have reduced the
minimum price to essentially nothing and thereby
risked having an uneconomical seizure, an event
prohibited by law. For example, IRS seized a
taxpayer's residence that the revenue officer
valued at about $138,000. After using a maximum
reduction, justified on the basis of "experience,"
and deducting the encumbrances, the revenue
officer set the minimum price at about $20,000.
Subsequently, the taxpayer produced a third-party
appraisal on the property showing a fair market
value at about $84,000. The revenue officer
accepted the appraisal but instead of using the
maximum reductions, he used a reduction of 19
percent, based as before on his "experience." This
resulted in a minimum price of about $5,500 after
deductions for encumbrances. Use of the maximum
reductions would have resulted in a negative
minimum price.
ï¿½    Fourth, IRS' policies limited the minimum
price to no more than the taxpayer's tax liability
plus estimated expenses of sale and seizure. Under
this policy, the minimum price could be set much
lower than the formula, using maximum percentage
reductions, would allow. The minimum price then
would not necessarily reflect the value of the
taxpayers' ownership interest in the seized
property. For example, IRS seized taxpayer
property valued at about $50,000 and set a minimum
price at about $30,000, using the maximum
reductions in the formula. Since the taxpayer owed
about $21,300 in delinquent taxes and since the
costs of the sale were estimated at about $2,500,
the revenue officer set the minimum price at about
$23,800-about $6,200 less than the amount
allowable under the formula-in accordance with the
IRS policy. IRS National Office officials involved
in the seizure program were uncertain about the
origins of this policy.

Program Integrity at Risk
IRS delegated revenue officers wide discretion and
authority in making decisions during the seizure
and sale process. This delegation of authority
included deciding what and when to seize,
controlling the seized asset inventory,
determining asset security needs, arranging for
asset security, planning and advertising asset
sales, setting minimum sales prices, and selling
the assets.

The concentration of responsibilities in the hands
of a single revenue officer puts program integrity
at risk. The lack of separation of duties could,
for example, lead to conflicts of interest.
Moreover, the lack of documentation in revenue
officer case files to support key decisions made
or actions taken during the seizure process,
particularly minimum price setting, limits the
information available to managers to conduct
oversight. Limitations to oversight combined with
the lack of segregation of duties create
situations such as the following.

ï¿½    IRS seized a taxpayer's automobile as part of
an attempt to collect on a tax debt of about
$90,000. The automobile, considered in excellent
condition, was originally valued by the revenue
officer, using the National Automotive Dealers
Association "Blue Book," at about $19,200 retail
and about $16,400 wholesale. After talking to the
towing and storage company about the value of the
car, the revenue officer set the minimum price
that IRS would accept for the car at about $4,000
to guarantee a sale. The car was subsequently
purchased for about $4,000 by the towing and
storage company at an auction held by the revenue
officer where two bidders attended. After expenses
were paid (almost all to the towing and storage
company), about $2,000 was applied to the
taxpayer's account.

IRS subsequently investigated the case. According
to IRS District Counsel, by lowering the minimum
price and eventually selling the vehicle to the
third-party vendor that was used for towing and
storage, the sale event had the appearance of
potential insider dealings. Upon further review,
IRS decided to pay the taxpayer a total of about
$4,200-the $4,000 sales price plus accrued
interest. Yet no consideration was given to
compensating the taxpayer for the loss of an asset
valued at over $16,000 that otherwise could have
been released back to the taxpayer because the
minimum price (computed at about $10,500 using the
maximum reduction) was not reached.

ï¿½    IRS seized another taxpayer's automobile. On
the day of seizure, the revenue officer estimated
the value of the vehicle at about $1,100 and set a
minimum bid price of about $700. On the same day,
the taxpayer paid IRS the minimum price for the
return of the vehicle. Approximately 1 month
later, the revenue officer seized the vehicle
again and arranged for towing and storage by a
third-party vendor. At this time, the revenue
officer estimated the value of the automobile at
about $2,000 and set the minimum price at about
$1,200. After attracting only one prospective
bidder to the sale and no bids in excess of the
minimum price, the revenue officer postponed the
sale for several days. In the interim, he reduced
his estimate of the vehicle's fair market value to
about $980 and the minimum price to about $590. On
reconvening the sale, the revenue officer
attracted the third-party vendor that towed the
vehicle and one other prospective bidder. The
vendor purchased the vehicle for the minimum price
less the costs of the services rendered (about $65
for towing, 30 days of storage of about $10 a day
and 15 days of storage at about $1 a day). This
sale yielded about $180 to be applied toward the
taxpayer's delinquency.

 Both cases demonstrate the broad discretion and
overall involvement that revenue officers have
during the seizure and sale process and show the
problems that can occur without segregation of
duties and effective oversight.

Limited Management Oversight of Use of Seizure
Authority
Without certain basic information and oversight
programs, IRS management cannot assure itself,
Congress, or the taxpaying public that its
employees are using seizures appropriately and
uniformly and that taxpayer rights are protected.

We reviewed the information available to IRS
National Office Collection management for
monitoring the use of seizures and assessing
program results, quality of seizure-related work,
and resolution of taxpayer problems. Generally, we
found that while IRS had established systems to
capture information on certain aspects of the
seizure program, these systems did not provide
senior management with information that was useful
for monitoring

ï¿½    seizure costs and accomplishments, including
tax law compliance achieved, and the uniformity of
seizure use across the country;
ï¿½    compliance with seizure requirements and
procedures and appropriateness of decisionmaking;
or
ï¿½    type, magnitude, and resolution of taxpayer
complaints.

Limited Information on the Costs, Accomplishments,
and Uniform Use of Seizures
IRS National Office Collection officials told us
that they have little information to assess the
costs, accomplishments, and uniform use of
seizures by district office. The information that
they received was contained in two monthly
reports.

The first, an activity report, showed the number
of seizure cases opened, the number closed, and
the number in open inventory by district office.
The report also contained some limited cost
information--time spent by district office support
staff on seizures. However, according to IRS
officials, support staff time is a small portion
of the total time spent on seizures.

The second, a disposition report, showed in the
aggregate the number of seizure dispositions; the
number of seized assets by type of property;
number by type of disposition; the total amount of
tax delinquency owed by the taxpayers who had
assets disposed of; the total out-of-pocket cost
of seizures and sales; and the total cash payments
from all of the closed seizures by district
office. The disposition report, however, contained
no information on such internal costs as revenue
officer time associated with the closed seizures
or the effect the seizures had on taxpayers fully
resolving their outstanding tax debt. For example,
the report did not capture data on installment
agreements or offers-in-compromise. Our analysis
of case file data indicated that IRS' information
systems, by omitting this information, can
understate seizure accomplishments.

Neither report provided information to determine
whether seizures were being uniformly used
throughout the country. While both reports
provided information on seizures by district and
contained some overall information on taxpayer
characteristics, such as number of delinquencies
and total amount of delinquencies for all seizures
within the district, neither provided the detailed
information by seizure or tax delinquent
population to allow for comparisons and analyses
such as we performed and reported in chapter 2.

In summary, neither report provided sufficient
information for assessing the costs,
accomplishments, or whether taxpayers are being
treated uniformly throughout the country. Examples
of information that could be provided include

ï¿½    tax law compliance achieved and the total
costs incurred in producing the compliance,
ï¿½    number of seizures relative to the amount and
severity of noncompliance within a district,
ï¿½    value of assets seized relative to the costs
of protecting the assets and the amount of damage
and other losses, and
ï¿½    amounts collected through the seizure
relative to the value of the assets seized.

Little Data Collected on Seizure Appropriateness
Determinations of the appropriateness of the use
of seizures cannot be made on the basis of
management information alone. Because the facts
and circumstances of each taxpayer case can vary,
a review of case files is necessary to judge the
appropriateness of the seizure decisions. IRS had
two processes that had the potential for checking
on the appropriateness of seizures. These
processes, one done by district office staff and
the other under IRS' Centralized Quality
Measurement System (CQMS) program, did not provide
a basis for fully assessing compliance with
requirements or appropriateness of seizure
decisions. In addition, the results of the
district office reviews were not summarized on a
national level.

District Office Case Reviews
IRS district collection support staff were to
review seizure paperwork to ensure, among other
things, that revenue officers obtained necessary
approvals, properly prepared inventory and other
forms, and adhered to certain legal and procedural
requirements. However, because the reviewers did
not have the revenue officer case files, they did
not have access to information to determine
whether all preseizure actions, such as the
sending of required notifications were made.

While the reviewers in three of the four IRS
districts we visited told us they usually kept a
record of the type of problems they identified,
this information was not provided to IRS' National
Office.

CQMS Reviews
Under CQMS, samples of closed collection cases
were to be reviewed at a centralized location to
check on compliance with collection requirements.
However, according to IRS National Office
officials responsible for CQMS, the size of the
sample of cases selected for review was too small
to make a statistically reliable assessment of
IRS' use of any specific collection authority,
such as seizures. In addition, when a seizure case
was included in the sample, the review process was
not designed to assess the appropriateness of
seizure decisions, nor report such information to
National Office management. Moreover, the reviews
did not did not cover all aspects of seizures,
such as the management and sale of seized assets.

Information on the Type and Resolution of Taxpayer
Complaints
IRS did not systematically capture or report to
National Office Collection management information
on taxpayer complaints about the seizure process.
Taxpayers could complain about the seizure process
to the revenue officer or the revenue officer's
manager, the Collection Appeals Office, or the
Office of the Taxpayer Advocate. National Office
Collection management did not routinely receive
seizure complaint information from the Taxpayer
Advocate's Office or from Appeals. Nor did
Collection management have a method for capturing
information about the resolution of complaints by
their staff. This type of information would be
helpful to IRS Collection management to determine
the extent and types of problem occurring so that
corrective actions could be taken when
appropriate.

Because complaint information was not
systematically captured and reported, we collected
information on the types of complaints taxpayers
made about the seizure process and IRS' resolution
of these complaints from projectable samples of
revenue officer, Taxpayer Advocate, and Collection
Appeals files. We categorized complaints as (1)
the taxpayer disputed the amount owed, (2) IRS did
not follow procedures, (3) IRS caused the taxpayer
hardship, or (4) IRS judgment or conduct was
inappropriate. As shown in table 3.8, about one-
half53 of the complaints shown in the revenue
officers' files involved disputes over the taxes
owed, while two-thirds54 of the complaints made to
the Taxpayer Advocate or Collection Appeals
Program involved taxpayer hardship.

Table 3.8: Type of Taxpayer Complaint
Type of taxpayer         Percentage of complaints
complaint
                        In revenue     In Taxpayer
                         officers'     Advocate or
                             files      Collection
                                     Appeals files
Taxpayer disputed               51              15
amount owed
IRS did not follow              21              10
procedures
IRS caused taxpayer             20              67
hardship
IRS judgment or                  9               9
conduct was
Inappropriate
Total                          100             100
Note 1: Confidence intervals for the estimates in
this table are found in table II.10 of app. II.
Some of these confidence intervals may be quite
large.
Note 2: Percentages may not add to 100 due to
rounding.
Source: GAO analysis of IRS case files.

Usually the complaints were resolved in support of
IRS' actions regardless of where the complaint was
resolved (see table 3.9). However, we estimate
that about 20 percent55 of complaints to the
Taxpayer Advocate and Collection Appeals Program
and about 26 percent56 of complaints to revenue
officers or managers were resolved in a way that
did not completely support IRS actions.

Table 3.9: Resolution of Taxpayer Complaints
                          Percentage of complaints
                           resolved in support of
                                IRS actions
IRS party resolving       Yes  No Partl Unknown Tota
taxpayer complaint                   y      a    l
Revenue officer or         74   7   19      0  100
supervisor
Taxpayer Advocate or       64   9   11     17  100
Collection Appeals
Program
Note 1: Confidence intervals for the estimates in
this table are found in table II.11 of app. II.
Some of these confidence intervals may be quite
large.
Note 2: Percentages do not add to 100 due to
rounding.
aFile information was not sufficient to determine
resolution.
Source: GAO analysis of IRS case files.

In an estimated 17 percent57 of the complaints, as
shown in table 3.9, information was not available
in either the Taxpayer Advocate or Collection
Appeals Program files to determine whether the
issues raised by the taxpayer were fully
considered and resolved. In most of the cases that
did not have information to determine the
resolution of a complaint, the taxpayers raised
more than one issue. While resolution was almost
always shown for at least one of the issues
raised, the case files did not address all of the
issues raised. In other cases, issues were
referred to other IRS units for resolution and the
case files did not contain information on whether
the issues were ever considered or resolved by
these units.

The information that we developed from case files
and reported in tables 3.8 and 3.9 was not
routinely captured and reported to IRS management.
Without information on taxpayer complaints, IRS
National Office Collection management could not be
aware of the extent and types of problems that
taxpayers are experiencing and whether the
problems are being resolved.

Conclusions
     We identified implementation breakdowns and
other weaknesses in the processes that were
established to protect taxpayer interests when
planning and conducting seizures. In summary

ï¿½    While most taxpayers were provided with many
opportunities to resolve their tax delinquencies
and frequent warnings of possible enforcement
actions, in some instances, seizures were made
without all required notifications and with
minimal efforts to personally contact taxpayers or
incomplete documentation for determining the
appropriateness of judgments made.
ï¿½    In some instances, seizures were approved and
made although key decisionmaking information, such
as taxpayer financial information, measures of
expected proceeds from the seizure, or potential
impact of the seizure, were missing from the case
files. Factors contributing to the missing
information included (1) revenue officers not
following requirements, (2) taxpayers not
cooperating, and (3) procedures not being clear.
ï¿½    In a few instances, seizures were conducted
without required approvals, and the collection
files did not always document whether taxpayers
were provided with an inventory listing of the
assets seized.
ï¿½    IRS did not always capture some basic
information to establish accountability over
assets (e.g., asset condition information or asset
identity information, such as model number). Nor
did the process provide IRS management with a
means to measure seizure results and monitor the
program as envisioned by federal financial
management guidelines.
ï¿½    The process requirements for marketing and
selling seized assets provided little assurance
that IRS sold the assets for the maximum price
possible for a number of reasons, including sales
being consummated with little competitive bidding
and little basis for evaluating returns from
noncompetitive sales.
ï¿½    IRS' process for monitoring the use of
seizure authority delivered little information to
senior management for overseeing compliance with
seizure requirements; appropriateness of seizure
decisionmaking; seizure results including
uniformity of seizure use across the country; and
resolution of taxpayer complaints.

In chapter 4, we discuss the extent to which these
process weaknesses are being addressed and make
recommendations to more fully resolve them.

_______________________________
1We reviewed masterfile records on 647 of 649
delinquencies owed by the 115 taxpayers. The two
delinquencies not reviewed had been archived by
IRS, were not readily available for analysis, and
were unlikely to materially affect the results of
our review.
2For example, the taxpayer could (1) seek payment
alternatives with the revenue officer; (2) contact
the IRS Taxpayer Advocate to address unresolved
tax problems, such as hardship; or (3) ask IRS'
Collection Appeals Program to review issues
concerning the amount of tax liability or certain
collection actions.
395-percent confidence interval: an average of 12
to an average of 17 written notifications during
an average period of 2.7 to 3.8 years.
495-percent confidence interval: an average of 4
to an average of 6 personal contacts and an
average of 2 to an average of 3 other contacts
over an average period of 0.9 to 1.3 years.
595-percent confidence interval: 5 to 15 percent.
695-percent confidence interval: 0 to 7 percent.
7The tax code (section 6331(d) 3) authorizes IRS
to take immediate action on determining that the
collection of tax could be lost if quick action
were not taken.
895-percent confidence interval: 25 to 40 percent.
995-percent confidence interval: 8 to 20 percent.
1095-percent confidence interval: 2 to 9 percent.
1195-percent confidence interval: 92 to 99 percent.
1295-percent confidence interval: 83 to 95 percent.
1395-percent confidence interval: 2 to 11 percent.
1495-percent confidence interval: 62 to 79 percent.
1595-percent confidence interval: 5 to 17 percent.
1695-percent confidence interval: 11 to 26 percent.
1795-percent confidence interval: 3 to 14 percent.
1895-percent confidence interval: 3 to 11 percent.
1995-percent confidence interval: 5 to 15 percent.
2095-percent confidence interval: 16 to 33 percent.
2195-percent confidence interval: 31 to 48 percent.
2295-percent confidence interval: 25 to 61 percent.
2395-percent confidence interval: 0 to 5.
24Joint 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. The agencies may develop
additional requirements as necessary to support
unique mission requirements.
25According to Statement of Federal Financial
Accounting Standards Number 3, the value of
property seized under the Internal Revenue Code
shall be based on taxpayer's equity (market value
less encumbrances) as IRS seizes and sells only
the unencumbered portion of the taxpayer's
property.
26Based on our evaluation of the asset descriptions
found in revenue officers' files.
27IRS guidelines state that revenue officers
preparing an inventory of seized assets should
record or otherwise document the condition of
seized vehicles. But these guidelines did not
require recording the condition of other types of
assets or recording the identity of the party
having custody of the assets.
2895-percent confidence interval: 35 to 66 percent.
2995-percent confidence interval: 52 to 67 percent.
3095-percent confidence interval: 20 to 45 percent.
3195-percent confidence interval: $109 to $241.
3295-percent confidence interval: 6 to 17 percent.
33As described in the Objectives, Scope, and
Methodology section in ch. 1, we followed up on 16
seizures in 4 IRS district offices to examine
assets that IRS still had in its possession at the
time of our review.
3495-percent confidence interval: 15 to 30 percent.
3595-percent confidence interval: 14 to 28 percent.
3695-percent confidence interval: 10 to 22 percent.
3795-percent confidence interval: 7 to 18 percent.
38Most taxpayers exercised their rights to reclaim
their property by either (1) paying off their tax
delinquency or (2) paying IRS an amount equal to
the government's interest in the property.
3995-percent confidence interval: 33 to 50 percent.
4095-percent confidence interval: $15.8 million to
$37.1 million.
41This was net of sales-related costs (e.g.,
moving, storing, and selling costs).
4295-percent confidence interval: 33 to 69 percent.
4395-percent confidence interval: 29 to 56 percent.
44See Resolution Trust Corporation: 1992
Washington/Baltimore Auctions Planned and Managed
Poorly (GAO/GGD-93-115, July 7, 1993) and
Resolution Trust Corporation: Better Data Could
Improve Effectiveness of Nonperforming Loan
Auctions (GAO/GGD-95-1, Nov. 14, 1994).
4595-percent confidence interval: 16 to 43 percent.
4695-percent confidence interval: 12 to 36 percent.
4795-percent confidence interval: 26 to 45 percent.
4895-percent confidence interval: 4 to 14 percent.
4995-percent confidence interval: 1 to 9 percent.
5095-percent confidence interval: 62 to 80 percent.
51IRS may calculate a minimum price even though the
item may not go to sale. In an estimated 73
percent (95-percent confidence interval 65 to 80
percent) of the cases, IRS calculated a minimum
bid price, while only an estimated 47 percent (95-
percent confidence interval: 37 to 57 percent) of
these cases went to sale.
5295-percent confidence interval: 59 to 78 percent.
5395-percent confidence interval: 40 to 62 percent.
5495-percent confidence interval: 61 to 72 percent.
5595 percent confidence interval: 15 to 24 percent.
5695 percent confidence interval: 15 to 38 percent.
5795 percent confidence interval: 12 to 21 percent.

Chapter 4
IRS' Implementation of Restructuring Act
Requirements: Taxpayer Safeguards Strengthened But
Some Weaknesses Remain
Page 89 GAO/GGD-00-4 IRS' Use of Seizure Authority
Comparing the weaknesses we identified in IRS'
seizure process with the changes being made to the
process pursuant to the Restructuring Act showed
that not all the weaknesses identified were being
fully addressed. Changes that IRS has made to its
processes or is planning to make

ï¿½    do not provide adequate assurance that
notification requirements will be met in all
cases,
ï¿½    do not provide adequate guidance to revenue
officers on how to analyze and document whether a
seizure is an appropriate tax collection action,
ï¿½    do not establish adequate accountability and
control over seized assets,
ï¿½    do not provide assurance that asset sales
procedures are likely to generate the highest
possible sales prices, and
ï¿½    do not provide IRS management with the
information needed to oversee the program.

In each of these areas of remaining weakness, IRS
has options available to address them through the
Restructuring Act.

Continuing Seizure Process Weaknesses
The following sections summarize the weaknesses
identified in each process area, updated with
changes mandated by the Restructuring Act as
implemented by IRS. The sections conclude with a
description of the remaining weaknesses.

Notifying Taxpayers of Impending Collection
Actions
As discussed in chapter 3, we found that before
initiating seizure action, revenue officers
provided most taxpayers with numerous
opportunities to make arrangements to resolve
their tax delinquencies. However, IRS' seizure
approval system allowed some seizures to proceed
when (1) records indicated that not all required
notifications had been sent to some taxpayers, (2)
limited attempts had been made to personally
contact some taxpayers as compared to others, and
(3) seizure files did not fully document
compliance with all requirements.

Process Changes
Process changes required by the Restructuring Act
and procedures developed by IRS are intended to
increase assurance that taxpayers are made aware
of their responsibilities and the potential
consequences of not taking action to voluntarily
resolve their tax debts and that taxpayers are
provided with a final opportunity to resolve their
delinquency before seizure.

ï¿½    The act requires IRS to send additional
notifications to taxpayers, including a written
notice of intent to seize taxpayer property for
nonpayment of taxes, which inform the taxpayers
about new appeal rights. This notice requirement
is designed not only to alert the taxpayer to an
impending seizure, but also to stay the seizure
action for at least 30 days to allow the taxpayer
time to file an administrative appeal. The basis
for the appeal may include the reasonableness of
the action and the availability of alternative
collection methods other than seizure, such as an
installment agreement or offer-in-compromise.
Also, IRS decisions may be appealed to the Tax
Court or district court, rendering proposed
collection actions reviewable by the courts for
the first time.
ï¿½    IRS revised its collection procedures
governing personal contacts with taxpayers. In
response to concerns that taxpayers were not fully
informed of the possibility of seizure, newly
established procedures require revenue officers to
summarize their discussions with taxpayers and
provide them with a written record of their
discussion. The record would confirm that revenue
officers specified the actions required of the
taxpayer, the time frame for such actions, and the
potential for seizure of taxpayer property if the
taxpayer failed to act accordingly.
ï¿½    The act and related IRS procedures
established a mechanism to help ensure that
notification requirements are carried out. Under
the act, supervisors must review proposed levies
and liens and related notices, where appropriate.
Further, all seizures must be approved by a more
senior district office collection manager,
including the district director, for the seizure
of business assets. Additionally, not complying
with the approval procedures would subject the
responsible IRS employees (e.g., revenue officers
and managers) to disciplinary actions, including
termination of employment.

Weaknesses Remaining
     Although these changes should help to ensure
that taxpayers are made aware of their
responsibilities, we are concerned that some
problems that existed before the changes have not
been fully addressed. First, we found instances in
which seizures had been approved even though some
notification requirements were not met (e.g., a
notification was not sent to a taxpayer or a
collection action was not postponed until the 30-
day notification period expired) or not documented
as met. Because IRS' controls were not sufficient
to prevent departures from pre-Restructuring Act
process requirements, it is unclear whether the
continued reliance on manual reviews of revenue
officer case file information would be sufficient
to prevent departures from requirements in the
future.

Thus, we looked for a relatively "fail-safe" check
that could stop a collection case from advancing
to seizure if a requirement was not met. During
our review, we found that IRS was expanding an
automated field collection system to cover the
seizure process, including plans for the computer
generation of seizure forms. This automated system
had linkages to other information systems in IRS,
such as the masterfile, which contain account data
and notification data. In discussions with the IRS
personnel developing the automated system, we
learned that programming could be done to prevent
the generation of forms, such as the form needed
for seizure approval, if taxpayer protection
requirements were not met or not documented as
met. Also, expanding the capabilities of this
system to automate the technical requirements
review would allow the managerial review to focus
largely on judgmental areas, such as the adequacy
of revenue officer contacts with taxpayers.

Second, we noted problems with the quality of case
file documentation. We found several instances in
which revenue officers' case files, because of
incomplete documentation, risked (1) leaving
managers unable to properly review seizure case
files and (2) fostering an environment in which
taxpayer protections were not fully considered. In
revising its procedures, IRS has developed a
succinct checklist of seizure requirements. While
revenue officers are required to initial that each
applicable requirement listed was met, this list
does not have instructions on the amount of
explanation or evidence required to show the
appropriateness of judgments made, such as the
adequacy of contacts with taxpayers.

     Third, we found instances in which limited
attempts had been made to personally contact some
taxpayers. Given the potentially severe effect of
a seizure on a taxpayer, more than one attempt to
contact the taxpayer would be appropriate. We also
recognize that revenue officer time is limited and
should not be spent repeatedly contacting or
attempting to contact the same taxpayer. At
present, however, revenue officers do not have
clear guidance on the amount of effort they should
make in attempting to personally contact taxpayers
before moving on to the enforcement stage of the
collection process.

Evaluating the Necessity and Appropriateness of
Seizures
As discussed in chapter 3, revenue officer case
files generally contained information that
indicated why seizure actions were necessary
(e.g., continuing nonpayment of taxes). However,
some seizures were approved without complete
information in the files to show why the seizure
was appropriate or whether alternatives to
seizure, such as installment agreements, might
have been warranted. Factors contributing to the
missing information included (1) procedural
requirements not being clear, (2) taxpayers not
cooperating, and (3) revenue officers not
following requirements.

Process Changes
The Restructuring Act, while not mandating the
collection of specific information, established
other requirements that increased the need for the
type of decisionmaking information that we found
missing in revenue officers' files. The act also
established penalties for noncompliance with its
requirements. In general, the Restructuring Act,
as implemented by IRS

ï¿½    requires revenue officers, before initiating
a seizure action, to consider all other collection
options (e.g., installment agreements or offers-in-
compromise);
ï¿½    prohibits seizures that would not produce
funds to apply to the taxpayers' delinquent
account;
ï¿½    requires certain seizures to be approved by
senior district office collection managers; and
ï¿½    subjects IRS employees, including revenue
officers and collection managers, to disciplinary
actions, including employment termination, for not
adhering to statutory or IRS procedural
requirements.

 In implementing the act's requirements, IRS
introduced procedures for revenue officers to make
a "risk analysis" before making a seizure
determination. Revenue officers were instructed
that if alternatives to seizure (e.g., installment
agreements) put the government at greater risk of
recovering the liability, then the alternative may
not be acceptable. In making the risk analysis for
determining whether seizure action would be
appropriate, revenue officers were advised to
consider issues such as the taxpayer's past and
current compliance status; current and probable
future financial condition, and interest in the
assets; the probable impact of the seizure on the
taxpayer's family or employees; and the potential
for future alternative collection methods to
produce more than the amount that could be
currently collected through seizure.

Weaknesses Remaining
     Given the need for information on which to
make and approve judgments on whether seizure or
alternative collection action would be the
appropriate resolution of a collection case, we
expected to see rather detailed evaluation
instructions and documentation requirements.
Instead, the Internal Revenue Manual changes
provided limited guidance on how the risk
assessment should be carried out or documented in
revenue officer case files. For example, the IRS
procedures did not specify

ï¿½    the lengths that revenue officers are
expected to go to obtain and document financial
information from delinquent taxpayers or to
develop and document the information from
alternative sources for review purposes;
ï¿½    the lengths that, before seizure, revenue
officers are to go to develop and document
estimates of the minimum sales price that seized
assets would be sold for; and
ï¿½    the depth of investigation required to assess
the potential impact that seizure actions may have
(e.g., no mention was made of assessing or
documenting the potential impact on the taxpayer's
family).

Also, as discussed in the previous section on
taxpayer notifications, the development of
automated checks for meeting technical
requirements (e.g., taxpayer financial information
or minimum acceptable asset sales price) would
help to ensure that the requirements are met and
allow managerial reviews to concentrate on
judgmental areas.

Seizure Conduct
As discussed in chapter 3, we found that revenue
officers generally complied with procedural
requirements for conducting seizures. But in an
estimated 1 percent1 of the seizures, revenue
officers did not obtain required approvals and the
case files were not always sufficiently documented
to show adherence to seizure process requirements.
For example, in an estimated 28 percent2 of the
seizures, the documentation in the revenue
officers' files was not sufficient to show whether
the taxpayers were fully notified of the assets
seized. Incomplete documentation risks (1) leaving
managers unable to properly review seizure case
files and (2) fostering an environment in which
taxpayer protections were not fully considered.

Process Changes
The Restructuring Act and IRS procedures added
several protections. The changes made higher level
managers responsible for approving seizures and
required disciplinary action, including mandatory
termination, against IRS employees who make
seizures without required approvals.

Weaknesses Remaining
As explained in the preceding section on taxpayer
notifications, we questioned the sufficiency of
IRS' continued reliance on manual reviews of case
files to, in part, ensure that case files
documented that all taxpayer protection
requirements were met as a means of preventing
departures from requirements. As discussed in that
section, we identified process changes that could
provide automatic checks to prevent such
occurrences.

Protecting Assets Against Loss
As discussed in chapter 3, we found a number of
weaknesses in IRS' systems of controls for
establishing accountability over seized assets and
safeguarding assets against loss or damage. More
specifically, we found the following.

ï¿½    Some seizures involved assets that typically
require safeguards, such as jewelry. However,
revenue officer files did not indicate whether
safeguard arrangements had been made. In a few
instances, the files contained information about a
loss, alleged loss, or damage to property.
However, because of limited documentation in the
case files, we could not be certain of the
magnitude of the loss or who was liable.
ï¿½    The asset control information documented by
revenue officers in their case files, while
generally meeting IRS' minimum requirements, was
not as comprehensive as the control information
envisioned under federal financial management
guidelines for establishing accountability over
seized assets.
ï¿½    IRS' automated inventory control system,
while not designed to capture the comprehensive
control information envisioned by the federal
financial management guidelines, also did not
capture some of the basic control information
documented by revenue officers or always capture
the information accurately or in a timely manner.
ï¿½    IRS did not require periodic physical
inventories of assets-on-hand as envisioned by the
federal financial management guidelines to ensure
accountability and check against loss and damage.

Process Changes
The Restructuring Act mandated changes in IRS'
management of seized assets. The act requires that
by July 2000, IRS remove revenue officers from any
participation in the sale of seized assets. In
doing so, the act suggested that IRS consider the
use of outsourcing. During the course of our work,
IRS convened a study group to develop a proposal
for complying with the Restructuring Act change.
The group's decisions were not finalized at the
time we published our report but were expected by
late 1999.

     Also, during the course of our review, IRS
began making plans for a new automated inventory
control system. The new system is to be an add-on
module to its automated field collection system.
In designing the new system for an estimated first-
phase implementation in mid-2000, IRS took into
consideration the federal financial management
guidelines and input from us. Since IRS had not
completed its systems design work, we are
uncertain about the extent to which controls are
to be incorporated into the system.

Weaknesses Remaining
     Regardless of its decision on outsourcing the
sales function, IRS would need to have sufficient
controls to establish accountability and control
over assets. Outsourcing would merely mean that
IRS would need to monitor the actions of
contractors instead of employees. Given the
weaknesses identified in our pre-act review and
the process changes under way, existing and
proposed controls over assets do not fully comply
with federal financial management guidelines.
These controls do not

ï¿½    ensure that revenue officers document basic
asset control information, including detailed
asset identity descriptions, asset condition, and
custody information;
ï¿½    ensure that basic control information is
entered in a timely manner and included in the
revised automated inventory control system;
ï¿½    ensure asset security and accountability
through scrutiny of decisions regarding security
and periodic reconciliation of inventory records
to assets-on-hand (periodic physical inventories);
and
ï¿½    require 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.

Obtaining the Maximum Return on Asset Sales
As described in chapter 3, even when revenue
officers adhered to the basic taxpayer protection
requirements, IRS had little assurance that it
sold taxpayers' assets for the highest price.

First, IRS' sales practices did not ensure
competitive bidding for assets. For example, we
estimate that about 51 percent3 of IRS' asset
sales attracted no more than one bidder, and only
about 42 percent4 of the cases sold for more than
the minimum acceptable price set by IRS.

Second, absent strong competition, IRS' procedures
were not adequate to evaluate the reasonableness
of the sales proceeds and guard against self-
interest sales. The basic control-that is, the
minimum acceptable price computed by a revenue
officer-was frequently based on uncertain
estimates of asset fair market values that were
arbitrarily adjusted downward either through the
use of unsubstantiated percentage reductions or
set at an amount equal to the tax debt. Thus, IRS
had little assurance that the minimum price
reflected the actual value of the assets.

Process Changes
The Restructuring Act mandated the following
changes:

ï¿½    IRS is prohibited from selling seized assets
for less than an IRS-computed minimum price that
takes into consideration seizure and sales costs.
ï¿½    IRS is prohibited from seizing and selling a
taxpayer's property until a determination is made
that the sale of the property would generate
proceeds to be applied to the taxpayer's
delinquent account.
ï¿½    IRS is required to remove revenue officers
from the sales process by July 2000 and, in so
doing, is required to consider outsourcing the
sales activity.
ï¿½    IRS is required to notify the taxpayers of
the results of the sale of their assets, including
the amount of their tax debts before the sales,
amount of sales' proceeds, amount of sales'
expenses, amount applied to the taxpayers'
liability, and amount of the remaining taxes due.

The Restructuring Act reemphasized the importance
of setting minimum prices for ensuring a return
for both the taxpayer and government. But the
statute or preexisting tax code provisions
provided little guidance on setting a minimum
price beyond indicating that the price should
consider the expense of making the seizure and
conducting the sale.

During the course of our work, IRS convened a
study group to develop a proposal for removing
revenue officers from the asset sales activity and
to consider outsourcing. The group's decisions are
not expected until late 1999.

Weaknesses Remaining
We see little that would directly counteract the
two basic problems we observed in IRS' seized
asset sales activity: little competitive bidding
for assets and unreliable minimum price setting.
As discussed in chapter 3, ensuring competitive
bidding involves a number of activities, ranging
from advertising to attract bidders to providing
them with information and access to the assets.

     Also, similar to the discussion in the
previous section on taxpayer notification, we
found instances where sales were consummated even
though process requirements had not been met or
were not documented as met. As discussed in that
section, adding checks to the automated field
collection system for meeting process requirements
could help provide assurance that such
requirements are met.

Overseeing Seizure Activity
As discussed in chapter 3, we found that while IRS
had established oversight systems to capture
information on certain aspects of the seizure
program, these systems did not provide information
that could be used by senior management for
monitoring

ï¿½    the results and costs of seizures,
ï¿½    compliance with seizure requirements or
appropriateness of seizure decisionmaking, or
ï¿½    the resolution of taxpayer complaints.

Process Changes
The Restructuring Act mandated a number of changes
to improve oversight of the seizure program,
including the following:

ï¿½    Annual review of seizure cases by the
Treasury Inspector General for Tax Administration.
The reviews are to ensure that statutorily
established requirements governing the use of
seizure authority were followed.
ï¿½    More senior-level approval for seizures. A
seizure of a principal residence requires the
approval of a judge or magistrate. A seizure of a
sole proprietor's ongoing business requires the
district or assistant director's approval. In
addition, IRS changed its procedures to require
the district collection chief to approve all other
seizures.
ï¿½    A due-process system for taxpayers to appeal
IRS proposed seizure actions. This system also
provided for taxpayer appeals to the Tax Court or
district court.
ï¿½    Expanded role of the Taxpayer Advocate. The
law expanded the circumstances under which the
Taxpayer Advocate can review a case for hardship
to include, among other things, the threat of
adverse action. All seizures are required to be
reviewed for potential hardship by the Taxpayer
Advocate's Office if requested by the taxpayer.
ï¿½    A workforce performance management system.
IRS is to establish performance goals and
objectives and use data on meeting those to make
performance distinctions among employees and
groups of employees. The act also reiterates the
basic concept that tax enforcement results should
not be used to evaluate employees or impose or
suggest production quotas or goals.

In addition, IRS has concluded ad hoc reviews of
the collection system and has initiated
improvements. For example, collection staff
reviewed seizure activities in eight district
offices, primarily through focus group meetings.
Also, during the course of our review, IRS
initiated a redesign of its automated asset
control system.

Weaknesses Remaining
While the Restructuring Act mandated annual
reviews of adherence to seizure process
requirements, other aspects of the three basic
weaknesses remain in overseeing the use of seizure
authority.

ï¿½    First, at the time our work concluded, IRS
had no plans to change its management information
reporting on seizure results from what was in
place in fiscal year 1997. This was a management
information system that collection officials said
provided little or no insights on the appropriate
use of seizure authority. But they indicated that
the Restructuring Act added to program oversight,
in part, by adding new checks and balances into
the collection process, such as by establishing
the due-process appeal system and expanding the
Taxpayer Advocate role. However, at the time of
our review, no plans had been made for collection
managers to be systematically provided with
information on the type of problems experienced by
taxpayers and the resolution of those problems.
Such information could be useful for making
process changes to minimize taxpayer problems.
ï¿½    Second, at the time our work concluded, IRS
had not fully developed the capability to monitor
the quality of seizure work in terms of the
appropriateness of seizure decisionmaking or the
conduct of asset management and sales activities.
By mid-1999, IRS had revised its consolidated
review program to assess the quality of collection
work as a primary part of its revamped performance
management system. The program was not, however,
designed to provide an assessment of the quality
of seizure decisionmaking or the quality of asset
management and sales activities. While the annual
Inspector General reviews required by the
Restructuring Act will add to seizure oversight,
the Inspector General review work has been limited
to checking on compliance with process
requirements-not the appropriateness of seizure
decisionmaking. The Inspector General's staff
informed us that under current plans, future
annual reviews would also be process-oriented.

Conclusions
The tax system depends on taxpayers voluntarily
paying their taxes, a practice dependent on
taxpayers having confidence that their neighbors
or competitors are also complying. The use of
seizure authority is a necessary part of a tax
enforcement program that is intended to help
provide this confidence. Taxpayers with
substantial amounts of delinquent taxes, long-
standing delinquencies, repeated failures to
respond to nonseizure collection actions, and
substantial assets cannot be allowed to evade
payment without risking the credibility and
fairness of the tax system. However, the
protection of those taxpayers' rights and
interests is also crucial to a credible and fair
tax system. In this regard, IRS' seizure process
had a number of weaknesses-weaknesses that are not
all being addressed by changes being made pursuant
to the Restructuring Act.

Recommendations to the Commissioner of Internal
Revenue
To strengthen IRS' processes for ensuring that
seizure authority is appropriately exercised-that
is, taxpayers are made aware of their
responsibilities and provided time to comply,
proposed seizure actions are evaluated for
necessity and appropriateness, and seizure actions
are conducted appropriately-and when warranted is
exercised, we recommend that the Commissioner of
Internal Revenue

ï¿½    build controls into the automated field
collection system, currently under development,
that would act as a check to prevent departures
from seizure process requirements that are
verifiable on an automated basis (e.g., required
taxpayer notifications made and time requirements
followed);
ï¿½    provide guidance that describes the lengths
that revenue officers are to go to (1) personally
contact delinquent taxpayers, (2) obtain financial
information from delinquent taxpayers or develop
such information from alternative sources, and (3)
develop and document estimates of the minimum
sales price at which the seized assets could be
sold;
ï¿½    require revenue officers to document the
basis for judgments made (e.g., the basis for
determining that sufficient attempts were made to
gain taxpayer cooperation to pay delinquent taxes
and the basis for determining the impact on
taxpayer dependents) to facilitate managerial
review of case files; and
ï¿½    provide written guidance on when seizure
actions ought to be taken, that is, the conditions
and circumstances that would justify seizure
action and the responsibilities of senior managers
to ensure that such actions are taken.

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

ï¿½    ensuring that revenue officers document basic
asset control information, including detailed
asset identity descriptions, asset condition, and
custody information;
ï¿½    ensuring that basic control information is
entered in a timely manner and included in the
revised automated inventory control system;
ï¿½    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
ï¿½    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

ï¿½    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
ï¿½    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

ï¿½    expand the quality review of collection cases
to include an assessment of the use of seizure
authority and of asset management and disposal
activities and
ï¿½    establish a method for providing IRS senior
managers with useful information to monitor the
use of seizure authority and resolution of
taxpayer complaints.

Agency Comments and Our Evaluation
In written comments on a draft of this report, IRS
generally agreed with the report's findings and
recommendations, although it said that some
recommendations appeared impractical to implement
at this time. IRS also said it will use the report
to help improve the seizure process. In its
letter, IRS emphasized three points made in the
report.

ï¿½    First, while additional guidance needs to be
provided to IRS employees about how to conduct
seizures, that guidance needs to allow room for
employees to exercise judgment to address
individual taxpayer situations.
ï¿½    Second, predicting seizure results is
extremely difficult.
ï¿½    Third, the wide variation in the use of
seizure authority by district offices can be
attributable to a number of factors.

IRS further said that the procedural changes being
implemented were expected to eliminate a number of
seizures that would otherwise provide little or no
proceeds.

In an enclosure to the letter, IRS commented on
each recommendation. With respect to our four
recommendations for strengthening IRS' processes
for ensuring that seizure authority is
appropriately exercised, IRS agreed that it could
establish better controls to prevent departures
from seizure requirements and clearer guidance for
making seizure decisions. IRS also noted that, as
discussed in the report, the appropriate use of
seizure authority would still be dependent on
revenue officer judgment, which may be based on
incomplete information when taxpayers have not
been cooperative.

With respect to our four recommendations to
improve IRS' process for controlling assets after
seizure, IRS generally agreed with three of the
recommendations. IRS also commented that the
timing of the recommended physical inventories may
depend on the type of asset seized and storage
location. Although we agree, the timing of
physical inventories should also be based on
agency control needs consistent with federal
financial management guidelines.  Additionally,
IRS commented that as it removes revenue officers
from any participation in asset sales as mandated
by the "Uniform Asset Disposal Mechanism"
provision of the Restructuring Act, revenue
officer responsibility for maintaining control
over assets may change. As explained in our draft
report provided to IRS for comment, we found that
regardless of IRS' decision on who was to be
assigned responsibility for asset management and
sale activities, IRS employees or contractors,
controls needed to be developed to establish
accountability and control over assets. Thus, our
recommendations would apply to whomever is
subsequently responsible for the assets.  With
respect to our fourth recommendation, IRS said
that it would need to secure a ruling from Chief
Counsel before it could seek reimbursement from
third parties for any loss or damage to assets
seized from taxpayers.

With respect to our two recommendations for
strengthening the sales process and assuring that
maximum prices are obtained from the sale of
seized assets, IRS agreed that its sales
instructions needed to be augmented. IRS also
indicated that it would seek a ruling from Chief
Counsel to overturn a seized asset price-setting
precedent whose basis in tax law had been repealed
a number of years ago. But in doing so, IRS
expressed concern about being required to return
valuable property back to taxpayers if buyers
offered to pay more for the property than the
taxpayer owed but less than the IRS set minimum
acceptable price based on a proper valuation of
the asset. This highlights the importance of our
second recommendation, that is, promoting
reasonable competition among potential buyers
during asset sales. IRS commented that it believed
the changes it was making would improve
competition but noted that there may be instances
where, given the nature of the assets seized,
there may be limited marketability. We agree that
this could happen, and that is why our
recommendation specifically referenced
"reasonable" competition.

Lastly, with respect to our two recommendations to
strengthen oversight of seizure activities, IRS
commented that, at this time, it appeared
impractical to monitor the appropriateness of
seizure decisionmaking. IRS' comments indicated
that existing case file handling and selection
criteria preclude seizure cases from entering IRS'
overall program for assessing work quality and
that feedback from required Inspector General
reviews was more comprehensive. We agree that
current IRS procedures preclude seizure cases from
entering the review process established to assess
the quality of collection work, including the
appropriateness of decisionmaking. But, because of
the impact that seizures may have on taxpayers, we
believe that the procedures should be reconsidered
so that an appropriate number are selected for
review. Moreover, as discussed in the report, the
Inspector General reviews have focused on
compliance with seizure process requirements and
not on the quality of seizure work in terms of the
appropriateness of seizure decisionmaking. This
reinforces the need for seizure cases to be
included in the quality review process.

In comments on our oversight recommendation for
monitoring seizure results (e.g., use of seizure
authority by district offices and resolution of
taxpayer complaints), IRS commented that useful
information could only be developed through
detailed case-by-case analyses. In part, we agree,
and that is why we had recommended that IRS'
quality review of collection cases include
seizures. Also, we continue to believe that
effective oversight is necessary for IRS to have
assurance that collection authority is both
appropriately and uniformly applied across the
country. To this end, a monitoring system
comprised of seizure results data (including data
on the use of seizure authority by district
offices and the resolution of taxpayer complaints)
together with quality indicators could provide
senior management with the kind of data that would
be useful in identifying potentially troublesome
areas that may need management's attention. The
information on complaints resolved in the
taxpayers' favor may be particularly useful. But,
contrary to IRS' comments, we see no need to
channel all complaints through a single process in
order to have complaint resolution information
reported to management.

_______________________________
195-percent confidence interval: 0 to 5 percent.
295-percent confidence interval: 20 to 35 percent.
395-percent confidence interval: 36 to 67 percent.
495-percent confidence interval: 29 to 56 percent.

Appendix I
Statistical Analysis of Delinquent Taxpayers With
and Without Seized Assets
Page 94 GAO/GGD-00-4 IRS' Use of Seizure Authority
To investigate the factors affecting the
likelihood that delinquent taxpayers would have
had property seized, we used IRS data on
characteristics of the taxpayers' delinquencies;
on other taxpayer characteristics, such as age,
income, and filing status; and on the district
office where the seizure took place. The data were
collected for all taxpayers with seized property,
and a random sample of delinquent taxpayers
without seized property, who had accounts in field
collections in the last 2-week period of fiscal
year 1997.1 We limited our analysis to taxpayers
with delinquent accounts in field collections
because these taxpayers were most likely to be at
the stage in the collection process where the
decision to seize or not seize property was being
made by IRS.

We analyzed individual and business taxpayers
separately. For individual taxpayers, we analyzed
data for 876 taxpayers with seized property and a
random sample of 53,282 taxpayers without seized
property.2 This random sample was weighted in the
analysis to represent the total of 286,620
individual taxpayers without seized property who
were in field collections at the end of fiscal
year 1997. For businesses, we analyzed data for
1,710 taxpayers with seized property and a random
sample of 32,080 taxpayers without seized
property. This sample was also weighted in the
analysis to represent the total of 173,865
business taxpayers without seized property who
were in field collections at the end of fiscal
year 1997.

     We used the logistic regression model to
quantify the effect of delinquency and other
taxpayer characteristics on the probability that
taxpayers had

assets seized by IRS.3 The results of this
analysis are presented as odds ratios in tables
I.1 and I.2. An odds ratio is a measure of the
relative risk of the occurrence of an event-in
this case, the seizure of taxpayer property.4 The
reported odds ratios indicate the effect of a
particular characteristic (e.g., number of
delinquencies) on the probability of seizure,
controlling for the effects of other
characteristics included in the analysis. The
estimate of the effect, represented by the odds
ratio, is the net effect of the characteristic
(i.e., net of the effects of all the other
characteristics).

     If the characteristic increases the
probability of seizure, the odds ratio will be
greater than 1, and if it decreases the
probability of seizure, the odds ratio will be
less than 1. This interpretation of the ratios is
slightly different when the characteristics are
distinct categories. An example of such
"categorical" characteristics is filing status,
where the categories are single, married, and head
of household. The analysis omits one of the
categories (called the "reference group") and
tests whether the included categories have greater
or less chance of seizure relative to the omitted
category. An odds ratio greater than 1 indicates
greater probability of seizure, while an odds
ratio less than 1 indicates less probability of
seizure.

     Our analysis of the delinquency
characteristics of individual taxpayers shows that
the amount of tax uncollected, the number of
delinquencies, the age of the delinquency, and the
time in field collections had statistically
significant effects on the odds that taxpayers had
assets seized by IRS. When we tested the
significance of other, nondelinquency
characteristics, we found that source of income,
age, and filing status were determinants of the
likelihood of a seizure. Table I.1 shows the
delinquency and taxpayer characteristics that we
analyzed and the results. The table also shows the
effect on the probability of seizure of the
district office in which the taxpayers'
delinquencies were located.

Table I.1: Logistic Regression Analysis of the
Probability of Seizure for Individual Taxpayers
Characteristic tested                   Odds ratio
Delinquency characteristic                        
Assessed taxes uncollecteda                  1.01b
Assessed penalties and                        1.00
interesta
Accrued penalties and interesta               1.00
Number of delinquencies                      1.13b
Months in field collections                  1.04b
Months since the original                    0.98b
assessment
Taxpayer characteristic                           
Total income                                      
  Less than $0                               1.75b
  $0-$25,000                       Reference group
  More than $25,000 to $100,000               0.92
  More than $100,000                          1.16
Income source                                     
  Wages                            Reference group
  Self-employmentc                           2.08b
  Interest, dividends, and                   1.51b
capital gains
  Otherd                                     1.86b
Filing status                                     
  Single                           Reference group
  Married                                    1.20b
  Head of household                           1.01
Number of dependents                          1.05
Age of taxpayer                              1.03b
District office                                   
Northeast                                         
  Boston                           Reference group
  Hartford                                    .21b
  Buffalo                                     .64b
  Brooklyn                                    .47b
  Manhattan                                   .12b
  Newark                                      .53b
  Philadelphia                                .54b
  Baltimore                                   .41b
  Richmond                                    .40b
  Cincinnati                                   .69
  Indianapolis                                 .66
  Detroit                                     .29b
Southeast                                         
  Atlanta                                     .42b
  Jacksonville                                .43b
  Ft. Lauderdale                              .29b
  Greensboro                                  .38b
  Nashville                                   .36b
  New Orleans                                 .36b
Midstates                                         
  Chicago                                     .38b
  Milwaukee                                   .28b
  St. Paul                                    .49b
Characteristic tested                   Odds ratio
Midstates (cont.)                                 
  St. Louis                                   .45b
  Austin                                       .79
  Oklahoma City                                .80
  Dallas                                      .33b
  Houston                                     .40b
West                                              
  Denver                                      .37b
  Phoenix                                     .19b
  Seattle                                     .36b
  Liguna Niguel                               .35b
  San Jose                                    .06b
  San Francisco                               .23b
  Los Angeles                                 .21b
aMeasured in units of $10,000.
bOdds ratios that are statistically significant at
the .05 level.
CThe self-employed are taxpayers who file a
Schedule C with Form 1040, Individual Income Tax
Return, but do not file the employer's tax forms:
Form 940, Employer's Annual Federal Unemployment
Tax Return, and Form 941, Employer's Quarterly Tax
Return.
dLargely income from rents, royalties,
partnerships, and other business.
Source: GAO analysis of IRS data.

     In chapter 2, we explain the effect of the
delinquency characteristics and the source of
income on the odds of seizure. In this appendix,
we provide more detail on the effect of other
taxpayer characteristics on the odds of seizure.

     Differences in positive total income had no
effect on the odds of seizure. Taxpayers who
reported moderate or higher levels of income were
no more likely to have property seized than those
reporting lower incomes ($0-$25,000). However,
taxpayers reporting negative income were 1.7 times
more likely to have property seized. These
negative income taxpayers were reporting losses
from capital investments, partnerships, and other
businesses and from rental real estate property.
In such cases, negative income might an indicate
increased chance of seizure because it is
associated with taxpayers who did not pay their
tax liability, but who had assets that could be
seized.

     Other taxpayer characteristics also affected
the likelihood of seizure. Married taxpayers were
1.2 times more likely to have property seized than
single taxpayers. Taxpayers filing as head of
household (unmarried individuals with a dependent
child or parent) were no more likely than single
taxpayers to have property seized. The number of
dependents claimed by taxpayers had no effect,
while the age of the taxpayer increased the
chances of seizure. The odds of having property
seized increased by 3 percent with each additional
year of age. However, the age of the taxpayer and
filing status may be correlated with the amount of
assets held by the taxpayer since older, married
taxpayers tend to accumulate more assets. The
increased likelihood of seizure might have been
due to increased asset holdings rather than age or
filing status. IRS does not collect the asset
information for individual taxpayers required to
distinguish the separate effects of age, filing
status, and asset holdings on the probability of
seizure.

Our statistical analysis of the delinquency
characteristics of business taxpayers shows that
the number of delinquencies, the amount of unpaid
taxes, the age of the delinquencies, and the time
in field collections had statistically significant
effects on the odds of seizure. Table I.2 shows
the delinquency and taxpayer characteristics that
we analyzed and the results. The table also shows
the effect on the probability of seizure of the
district office in which the taxpayers'
delinquencies were located.

Table I.2: Logistic Regression Analysis of the
Probability of Seizure for Business Taxpayers
Characteristic tested                   Odds ratio
Delinquency characteristic                        
Assessed taxes uncollecteda                  1.01b
Assessed penalties and                        0.99
interesta
Accrued penalties and interesta               1.00
Number of delinquencies                      1.04b
Months in field collections                  1.04b
Months since the original                    0.97b
assessment
Taxpayer characteristic                           
Business type                                     
  Sole proprietorc                 Reference group
  Corporation                                 1.06
  Partnership                                 0.93
  Otherd                                      0.88
District office                                   
Northeast                                         
  Boston                                       .81
  Hartford                                    .23b
  Buffalo                                     .76b
  Brooklyn                                    .69b
  Manhattan                                   .29b
  Newark                           Reference group
  Philadelphia                                .38b
  Baltimore                                   .19b
  Richmond                                    .21b
  Cincinnati                                  .28b
  Indianapolis                                .26b
  Detroit                                     .21b
Southeast                                         
  Atlanta                                     .38b
Characteristic tested                   Odds ratio
Southeast (cont.)                                 
  Jacksonville                                .29b
  Ft. Lauderdale                              .07b
  Greensboro                                  .13b
  Nashville                                   .21b
  New Orleans                                 .19b
Midstates                                         
  Chicago                                     .45b
  Milwaukee                                   .28b
  St. Paul                                    .19b
  St. Louis                                   .28b
  Austin                                      .65b
  Oklahoma City                               .39b
  Dallas                                      .21b
  Houston                                     .28b
West                                              
  Denver                                      .11b
  Phoenix                                     .16b
  Seattle                                     .17b
  Liguna Niguel                               .23b
  San Jose                                    .08b
  San Francisco                               .28b
  Los Angeles                                 .34b
aMeasured in units of $10,000.
bOdds ratios that are statistically significant at
the .05 level.
cSole proprietors are taxpayers who file Schedule
C with Form 1040,Individual Income Tax Return, and
who also file the employer's tax forms: Form 940,
Employer's Annual Federal Unemployment Tax Return,
and Form 941, Employer's Quarterly Federal Tax
Return.
dIncludes tax-exempt organizations and other
businesses.

Tables I.1 and I.2 can be used to compute district
office odds ratios that are not directly reported
in the tables. The odds of seizure for individual
Boston taxpayers relative to taxpayers in other
districts is determined from table I.1 by dividing
1.0 by the odds ratio of the other district. Thus,
the odds of seizure for Boston taxpayers relative
to San Jose taxpayers is 1.0 divided by 0.06 which
is equal to 16.67. In the same way, the odds of
seizure for business taxpayers in Newark can be
determined from table I.2 by dividing 1.0 by the
odds ratios for other district offices. The odds
of seizure for Newark business taxpayers relative
to Fort Lauderdale taxpayers is 1.0 divided by
.07, which is equal to 14.29. The tables can also
be used to compare the probability of seizure in
any two district offices by dividing the odds
ratios for the offices. For example, that Oklahoma
City taxpayers were about 4 times more likely to
have property seized than Los Angeles taxpayers is
shown in table I.1 by dividing the odds ratio for
Oklahoma City (.81) by the odds ratio for Los
Angeles (.21) to obtain the odds ratio of 3.86.
Note that when comparisons are made in this way,
the table does not provide information about
whether differences in the odds ratios are
statistically significant.

     The size of the odds ratios can be used to
assess whether a characteristic had a large or
small effect on the probability of seizure.
However, caution should be used when comparing the
odds ratios of categorical and continuous
variables. The value of the odds ratio for
continuous variables depends on the units in which
the variable is measured, and a change in the
value of a continuous variable is not equivalent
to differences in the value of categorical
variables. For example, the odds ratio of 1.13 for
the number of delinquencies for individuals
(reported in table I.1) would increase to 2.11 if
the change in the number of delinquencies was
increased from one to six. The odds of seizure for
the self-employed are 2.08 times greater than the
odds for wage earners, about twice the odds ratio
for an increase of one delinquency for any
individual and about equal to the odds ratio for
an increase of six delinquencies. Thus, the
comparison of the number of delinquencies and
source of income characteristics depends on the
units of measurement and judgments about the
comparability of these numerical and qualitative
differences.

_______________________________
1We identified seized taxpayers from IRS'
Automated Workload Control System database. We
matched the taxpayers identified from this file
with IRS' Accounts Receivable File (ARF) to obtain
delinquency information about the businesses and
individuals. For individuals, the seized taxpayers
were also matched with the Electronic Tax
Administration (ETA) file to obtain tax return
data. Similar information on business taxpayers
was not available on ETA at the time of our
analysis. For the random sample of taxpayers
without seized property, we sampled business and
individual taxpayers from the ARF and matched the
individuals with the ETA file.
2We used IRS delinquency and seizure files to
identify a total of 1,594 individual taxpayers
with seized property in field collections at the
end of fiscal year 1997. Of these, we used the 876
who also had tax return information for our
analysis. The tax return information came from the
ETA file, which is an extract from the 1996
Individual Returns Transactions File. The missing
observations, therefore, may be due to (1) an
incomplete or imperfect match between IRS
databases or (2) taxpayers who did not file tax
returns in 1996. We tested the effects of these
missing observations by estimating the logistic
model using the full 1,594 seized taxpayers. We
found no important differences in the estimated
odds ratios for the delinquency, source of income,
and district office characteristics between this
model and the model reported in table I.1. The
observations with missing ETA data were
disproportionately those taxpayers with income
from interest, dividends, and capital gains and
those with income classified as "other"-largely
income from rents, royalties, partnerships, and
other businesses.
3The logistic regression model is a standard
method for estimating the size and significance of
the effects of categorical and continuous
characteristics on dichotomous outcomes-in this
case, seizing or not seizing taxpayer assets. The
size of the effects is estimated by the odds
ratios, which indicate how the odds of an outcome
vary across categories or values of the
characteristics. The model tests for the
statistical significance of the effect by testing
whether the ratio is significantly different from
1. By convention, the test is conducted at the 5-
percent significance level, i.e., the estimated
ratio is judged statistically significant if,
given the estimated value of the ratio, the
probability that the true value of the ratio is
equal to 1 is less than 5 percent. Equivalently,
the estimated ratio is judged significant if the
95-percent confidence interval for the estimate
does not contain a value equal to 1.
4The odds ratio is calculated by, first,
estimating the probability of seizure for a
taxpayer in a particular category (or with a
particular value) of a characteristic. The odds of
seizure are then determined by dividing the
probability that the taxpayer has property seized
by the probability that the taxpayer does not have
property seized. Finally, the odds ratio is
determined by dividing the odds of seizure for
taxpayers of a particular category (or with a
particular value) of the characteristic by the
odds of seizure for taxpayers of a different
category (or different value) of the
characteristic.

Appendix II
Confidence Intervals for Tables
Page 103GAO/GGD-00-4 IRS' Use of Seizure Authority
Most of the reported data in this report are
estimates based on the sample of seizures and
taxpayers we examined (see ch. 1). All estimates
and sampling error intervals are presented at the
95-percent confidence level. This means that we
can be 95-percent certain that this interval
contains the actual value. For example, if the
reported value is $235 million and the sampling
error is plus or minus $90 million, we are 95-
percent certain that the interval, $145 million to
$325 million, contains the actual value.

In the following tables, we present the confidence
intervals for the results reported in chapters 2
and 3.

Chapter 2 Tables
Table II.1 provides the confidence intervals for
the estimates in table 2.3.

Table II.1: Confidence Intervals for Percentage of
Tax Delinquencies Resolved
Seizure result             Percentage of taxpayers' debt resolved
                Less than 5%   5 to 50%   50 to 95%  95% or more    Total
                Estima Interv Estima Interv Estima Inter Estima Inter Estima Inter
                   te     al    te    al     te  val    te   val    te  val
Taxpayers paid,    4  1 to 8    9   5 to     0  0 to    36 27 to    49 40 to
and IRS                               16           3          45         58
returned the
assets
Taxpayers did      9    5 to   13   7 to     2   0.2     2  1 to    26 18 to
not pay, and              15          20        to 6           7         34
IRS sold the
assets
Taxpayers did      7    3 to    0  0 to 3     0  0 to     0  0 to     7 3 to
not pay, but              13                       3           3         13
IRS could not
sell the assets
and returned
them
Othera            12    5 to    1  0 to 5     1  0 to     4  1 to    17 10 to
                          18                       5           8         24
Total             32   23 to   23  16 to     2  1 to    42 33 to   100     
                          40          31           7          52
Note: Percentages may not add due to rounding.
aThis covers taxpayers who could be categorized
under more than one category because they had
multiple assets seized or experienced multiple
seizures and not all assets had the same
disposition or payment status.
Source: GAO analysis of IRS case files.

     Table II.2 provides the confidence intervals
for the estimates in table 2.4.

Table II.2: Confidence Intervals for Delinquency
Amounts, Days in Collection, and Revenue Officer
Collection Results
                           Average tax     Revenue officer collection results
                          delinquency
                                               Average number     Percent of
                                             before seizure         tax
                                                                 liability
                                                                 resolved
             Percent   Amount   Days from Collec Days   Levies Presei Throug
              age of              first    tion   in      on    zure    h
             taxpaye            collectioncontaccollec  wages,        seizur
                rs                notice    ts   tion    bank           e
                                                       accounts
Seizure      Est Int. Est.  Int. Est. Int. Est Int Est Int Est Int. Est Int Est Int
result        .                            .  .  .   .   .       .  .  .  .
Taxpayers    49%  40  $63,4 43,528 1,180  916  8  7 42 326   3 2 to 18%  6 60% 42
paid and IRS     to    24    to        to    to  3  to       4     to    to
returned         58       83,320      1,444    10    519             30    78
assets
Taxpayers    26   18 214,7 93,182 1,302  938  7  4 34 222   4 1 to 17   9 15   1
did not pay       to   75    to        to    to  7  to       6     to    to
and IRS sold      34      336,36      1,666    10    472             25    29
assets                        8
Taxpayers     7 3 to 259,2 91,414 1,091  790  8  2 32 157   3 0 to 10   6 0   0
did not pay,      13   01    to        to    to  8  to       6     to
IRS could                 426,98      1,392    12    500             14
not sell                      8
assets and
returned
them
Othera       17   10 113,3 33,067 1,033  355 10  5 40 107   6 2 to  9   1 5   0
                  to   99    to        to    to  3  to      10     to    to
                  24      193,73      1,711    15    698             17    11
                              0
Total        10      126,3 86,129 1,181  982  8  7 39 316   4 3 to 15   9 22  12
              0        54    to        to    to  2  to       5     to    to
                         166,57      1,380    10    468             21    32
                              9
Legend
Est. = Estimate
Int. = Confidence interval
Note: Percentage of taxpayers does not add due to
rounding.
aThis covers taxpayers who could be categorized
under more than one category because they had
multiple assets seized or experienced multiple
seizures and not all assets had the same
disposition or payment status.
Source: GAO analysis of IRS case files.

Chapter 3 Tables
     Table II.3 provides the confidence intervals
for the estimates in table 3.1.

Table II.3: Confidence Intervals for Key
Requirement for Giving Taxpayers an Opportunity to
Resolve Their Tax Debts
Description of key requirement              Percentage of taxpayers
                                         Yes           No        Unknowna
                                    Estima Interv Estima Interv Estima Interv
                                        te    al     te     al     te    al
Taxpayers were sent written notices   100  97 to      0      0     0      0
about each delinquent tax liability          100
and their rights and
responsibilities
Taxpayers were sent a written          91  85 to      9   5 to     0      0
notice for each delinquency about             95            15
the possible seizure of their
property and an explanation of
their rights and responsibilities
before seizure
Taxpayers were provided written        66  58 to     33  25 to     1  0 to 5
notification of possible seizure              74            40
within 180 days or were subject to
ongoing enforcement action (lien,
levy, or seizure) within 60 days of
a seizure
Revenue officers attempted at least    96  91 to      4 2 to 9     0      0
one personal contact with taxpayers           98
before seizure
Revenue officers personally advised    71  63 to     11   5 to    18  11 to
taxpayers of potential for enforced           79            17           25
collection action, e.g., seizure of
property
Revenue officer waited at least 30     86  79 to      8   4 to     6   3 to
days after all notices before                 93            14           11
seizing taxpayer's property
aFile documentation was not sufficient to make a
yes or no determination.
Source: GAO analysis of IRS case files.

     Table II.4 provides the confidence intervals
for the estimates in table 3.2.

Table II.4: Confidence Intervals for Assessing
Taxpayers' Ability to Pay
Description of key requirement              Percentage of taxpayersa
                                          Yes           No        Unknownb
                                     Estimat Interv Estima Interv Estima Interv
                                          e     al    te     al    te    al
Revenue officer requested financial      84  77 to    14   7 to     2 0 to 7
information from taxpayer                       91           21
Taxpayer provided some financial         63  53 to    33  23 to     4 1 to 9
information                                     73           42
Taxpayer provided complete and           10   4 to    90  83 to            
accurate financial information                  17           96
Revenue officer validated financial      86  78 to     6   2 to     9  4 to
information for those taxpayers who             94           15          18
provided it
Revenue officer found unreported         25  16 to    75  67 to     0     0
assets                                          33           84
IRS obtained complete and accurate        9   5 to    86  79 to     5  2 to
financial information                           15           93          12
Note: Percentages may not add to 100 due to
rounding.
aUnless otherwise noted, projections are made to
the universe of all taxpayers who were personally
contacted before the seizures.
bFile documentation was not sufficient to make a
yes or no determination.
Source: GAO analysis of IRS case files.

     Table II.5 provides the confidence intervals
for the estimates in table 3.3.

Table II.5: Confidence Intervals for Estimating
Seizure Results
Description of requirement                Percentage of seizures
                                     Yes             No          Unknowna
                               Estimate Interva Estimate Interva Estimat Interv
                                            l               l      e     al
Estimate of fair market value       81  74 to      18   12 to      1 0 to 4
of property                                88              25
Estimate of encumbrances on         76  69 to      20   13 to      4 1 to 8
propertyb                                  84              27
Estimate of the cost of             66  58 to      32   25 to      1 0 to 5
seizure and sale                           74              40
Overall, all estimates              57  49 to      39   31 to      4 1 to 8
                                           65              48
Note: Percentages may not add to 100 due to
rounding.
aFile documentation was not sufficient to make a
yes or no determination.
bTwo seizures involving only cash were excluded
from the population, as encumbrances did not
apply.
Source: GAO analysis of IRS case files.

     Table II.6 provides the confidence intervals
for the estimates in table 3.4.

Table II.6: Confidence Intervals for Reasons for
Taking Seizure Action
Reason for seizure                                   Percentage of seizures
                                                      Estimate   Confidence
                                                                   interval
Taxpayer has been delinquent in filing income tax           75     68 to 82
returns or paying taxes in more than 1 year
Taxpayer not making a good-faith effort to pay the          62     54 to 70
taxes due
Uncooperative taxpayer (e.g., hiding assets, not            41     33 to 50
providing financial information)
Taxpayer has not paid the current year taxes                33     25 to 40
Taxpayer pyramiding employment tax liabilitiesa             19     13 to 25
Immediate action necessary (jeopardy collection,             6      3 to 10
impending bankruptcy, etc.)
Other                                                       31     23 to 39
aWhen employment taxes are not paid from quarter
to quarter and the taxpayer has not paid the
current quarter's taxes, the taxpayer is
considered to be pyramiding employment tax
liabilities.
Source: GAO analysis of IRS case files.

     Table II.7 provides the confidence intervals
for the estimates in table 3.5.

Table II.7: Confidence Intervals for Protecting
Taxpayer Rights During the Seizure Process
Description of key steps                   Percentage of seizures
                                       Yes            No         Unknowna
                                 Estimat Interva Estimat Interv Estimat Interv
                                      e       l      e     al      e     al
Revenue officer obtained             99   95 to      1 0 to 5      0      0
appropriate approvals                        99
Revenue officer obtained writ of    100   83 to      0      0      0      0
entryb when needed                          100
Revenue officer complied with        99   95 to      0      0      1 0 to 5
witness requirements                        100
Taxpayer provided with notice of     72   65 to      0      0     28  20 to
levy or seizure action and the               80                          35
inventory of seized assets
aFile documentation was not sufficient to make a
yes or no determination.
bA writ of entry from the court must be obtained
before seizure when the revenue officer has been
denied taxpayer consent to enter private premises.
Source: GAO analysis of IRS case files.

     Table II.8 provides the confidence intervals
for the estimates in table 3.6.

Table II.8: Confidence Intervals for Completeness
of Inventory Descriptions
Baseline          Percentage of seizures with baseline information recorded
information                              on inventory
                        All      Some but not all Not recorded   Unable to  
                                                                 determine
                  Estima Interva Estimate Interv Estimat Interv Estimat Inter 
                      te       l              al      e     al      e   val
Asset description                                                           
  General             93   89 to        6   3 to      0 0 to 3      1  0 to 
description                   97              11                          4
  Itemized list       91   85 to        6   3 to      3 1 to 9      0  0 to 
                              97              13                          4
  Asset quantity      85   79 to       12   6 to      3 0 to 8      0  0 to 
                              92              18                          3
  Detailed            75   68 to       20  14 to      5   2 to      1  0 to 
descriptiona                  82              26            10            4
Asset value                                                                 
  Estimated fair      96   92 to        2 0 to 6      2 0 to 6      0  0 to 
market value                  99                                          3
  Estimated           88   83 to        2 0 to 5     10   6 to      1  0 to 
taxpayer equityb              94                            15            4
Asset location        90   85 to        2 0 to 5      8   5 to      0  0 to 
                              95                            13            3
Asset custody         53   42 to        4   0 to     43  32 to      0  0 to 
                              64              10            53            5
Asset condition       26   18 to        8   4 to     66  58 to      0  0 to 
                              25              13            75            3
Note: Percentages may not add to 100 due to
rounding.
aDescription sufficient, in GAO's opinion, to
differentiate asset seized from other like items
such as by specifying make, model, or serial
numbers.
bAsset fair market value adjusted to account for
encumbrances.
Source: GAO review of IRS seized asset inventory
records and attachments to those records.

     Table II.9 provides the confidence intervals
for the estimates in table 3.7.

Table II.9: Confidence Intervals for Adhering to
Basic Taxpayer Protections in Cases That Went to
Sale
Taxpayer protection                         Percentage of seizures
                                         Yes            No        Unknowna
                                   Estimat Interva Estima Interva Estima Interv
                                         e      l    te       l    te    al
IRS computed a minimum price at         98  89 to     2  0 to11     0     0
which it could sell the seized                100
assets
Taxpayer was notified of minimum        79  66 to     5 1 to 14    16  5 to
price and was given 10 days to                 93                        27
submit a different valuation
Sale was advertised in the              96  86 to     4 1 to 14     0     0
required locations (e.g., public               99
postings and newspaper)
Sale was held within prescribed         94  83 to     6 1 to 17     0    
time period-at least 10 days, but              99
not later than 40 days, after
public notice
Sale was witnessed by another IRS       70  57 to     0            30 16 to
employee                                       84                        43
Asset was sold for the minimum          95  83 to     2 0 to 13     2  0 to
price or moreb                                 99                        13
Taxpayer was notified of sales          16 7 to 29     0            84 71 to
results (sale amount, sale                                               93
expenses, and amount credited to
taxpayer)
Note: Percentages may not add to 100 due to
rounding.
aFile documentation was not sufficient to make a
yes or no determination.
bExcludes those sales where the asset was returned
to the taxpayer.
Source: GAO analysis of IRS case files.

     Table II.10 provides the confidence intervals
for the estimates in table 3.8.

Table II.10: Confidence Intervals for Types of
Taxpayer Complaint
Type of taxpayer complaint                  Percentage of complaints
                                         In revenue          In Taxpayer
                                       officers' files        Advocate
                                                            or Collection
                                                            Appeals files
                                     Estimate   Interval Estimate  Interval
Taxpayer disputed amount owed              51   40 to 62       15  10 to 19
IRS did not follow procedures              21   13 to 30       10   6 to 13
IRS caused taxpayer hardship               20   11 to 28       67  61 to 72
IRS judgment or conduct was                 9    4 to 17        9   6 to 12
inappropriate
Total                                     100                 100          
Note: Percentages may not add to 100 due to
rounding.
Source: GAO analysis of IRS case files.

     Table II.11 provides the confidence intervals
for the estimates in table 3.9.

Table II.11 Confidence Intervals for Resolution of
Taxpayer Complaints
IRS party resolving        Percentage of complaints resolved in support of
taxpayer complaint                           IRS actions
                               Yes           No        Partly     Unknowna
                          Estima Interv Estima Inter Estima Inter Estima Inter
                              te     al     te   val    te  val     te  val
Revenue officer or            74  64 to      7  2 to    19 10 to      0 0 to
supervisor                           83           15         29           6
Taxpayer Advocate or          64  59 to      9  6 to    11 8 to     17 12 to
Collection Appeals                   69           12         14          21
Program
Note: Totals may not add to 100 due to rounding.
aFile documentation was not sufficient to make a
yes or no determination.
Source: GAO analysis of IRS case files.

Appendix III
Comments From the Internal Revenue Service
Page 110GAO/GGD-00-4 IRS' Use of Seizure Authority

Appendix IV
GAO Contacts and Staff Acknowledgments
Page 111GAO/GGD-00-4 IRS' Use of Seizure Authority
GAO Contacts
James R. White, (202) 512-9110
Thomas M. Richards, (202) 512-9110

Acknowledgments
     In addition to those named above, Wendy
Ahmed, Julie Cahalan, Sharon 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.

*** End of Document ***