Kinder, Gentler IRS Turns to Liens, Levies




In the early 1990s, IRS enforcement activities were fairly aggressive. In several well-publicized cases, individual taxpayers lost their homes and livelihoods to the IRS because of unpaid taxes. As a result, public sentiment turned against the agency, and congressional hearings were held to address the problem. Congress responded by passing the IRS Restructuring and Reform Act of 1998.

In the act’s aftermath, IRS enforcement strategies changed. Seizures decreased dramatically and became less intrusive. Enforcement activities became less visible. The apparent decrease in IRS enforcement activities is not all good news for taxpayers: The use of liens and levies has increased; document-matching activities are up; average dollar amounts of penalties have grown; and prison sentences for tax-related matters have lengthened.

The most significant changes to IRS enforcement have occurred in the collection programs. IRS data show that seizures nosedived after passage of the IRS Reform Act, dropping from 10,000 in 1997 to fewer than 600 in 2006.

Seizures are confrontational, visible and very disruptive to taxpayers, their families, and their neighbors. Instead of seizures, the IRS has changed its collection focus to liens and levies, which do not lead to direct confrontation. Federal tax liens increased from 168,000 in 1999 to more than 629,000 in 2006. Other than placing a blemish in the public records, the process of recording the lien is invisible to the taxpayer’s family and neighbors. If the property is later sold, the IRS lien will be satisfied, with interest, from the proceeds of the sale.

Levies increased from 220,000 in 2000 to more than 3.7 million in 2006. Levies, such as wage garnishments, are generally made against persons or entities holding property for the taxpayer’s benefit. Much like liens, levies achieve the same outcome as seizures (that is, collection) but are much less visible and do not require a face-to-face confrontation with the taxpayer.

According to the IRS, the enforcement changes seem to have been successful. In its 2007 report, Reducing the Federal Tax Gap , the Service indicated that its enforcement activities have produced a steady climb in revenues since 2001. Enforcement revenues grew 44% from 2001 to 2006. Liens and levies are a driving force behind the increase.

In an effort to increase voluntary compliance, the IRS intends to expand its enforcement activities in coming years. For fiscal year 2008, the Service requested an additional $410 million for new enforcement initiatives. Part of the money will be used for “increasing front-line enforcement resources,” which will probably translate into more audits. The IRS notes that examinations of individual income tax returns increased 77% from 2001 to 2006. During the most recent period (2006), the IRS examined approximately 1.3 million income tax returns. However, it does not appear that front-line enforcement activities will translate into more face-to-face audits or an increase in seizures. Rather, correspondence audits, penalties, liens and levies will likely increase.

For a detailed discussion of the issues in this area, see “IRS Enforcement Activities: Past, Present, and Future,” by Raymond L. Placid, Esq., CPA, H. Wayne Cecil, CPA, Ph.D., and Carl Pacini, Esq., CPA, Ph.D., in the July 2008 issue of The Tax Adviser.

Alistair M. Nevius, editor-in-chief
The Tax Adviser

Also look for articles on the following topics in the July 2008 issue of The Tax Adviser :

An overview of charitable contributions.

A look at structuring legal fees.

A report on the Economic Stimulus Act.



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