TIGTA Finds IRS Doesn't Always Protect Taxpayers, Follow Rules When Filing Liens

July 28, 2010

A report issued by the Treasury Inspector General for Tax Administration (TIGTA) says the IRS does not always follow legal requirements when issuing liens and lien notices. The report also concludes that, as a result, action is needed to protect taxpayer rights during the lien process.

A federal tax lien arises when the IRS attaches a taxpayer’s assets for the amount of the taxpayer’s unpaid tax. The Service is authorized to issue liens under IRC § 6321. IRS Data Book figures show that the number of liens filed by the IRS more than tripled between 2000 and 2009, growing from 287,517 to 965,618.

As part of the lien attachment process, the IRS files a lien notice in the appropriate local government office to notify interested parties that the lien exists. The IRS is also required to notify taxpayers within five business days of the filing of a lien notice (IRC § 6320). The taxpayer then has 30 days to request a hearing with the IRS Appeals office.

TIGTA performs an annual audit to determine if the IRS is complying with the law regarding lien notifications to affected taxpayers. This year’s audit, performed from Sept. 2009 through March 2010, examined a statistically valid sample of actual lien notices sent during that period. The study found delays in mailing two of the 125 sampled lien notices that could have given affected taxpayers less than 30 days to request a hearing. While only 1.6% of the sampled lien notices were not mailed in a timely manner, TIGTA estimates from this that mailing delays affected 15,169 taxpayers during the period from July 1, 2008, to June 30, 2009. (IRS management responded with an estimate of 7,684 taxpayers potentially affected by mailing delays.)

TIGTA also found that in 26% of the sampled lien notices, the IRS did not send lien notices to the taxpayers’ authorized representatives. Treas. Reg. § 601.506 requires the Service to give taxpayer representatives copies of all correspondence sent to the taxpayer. TIGTA estimates that 60,675 taxpayers may have been affected by not having their representatives notified of the filing of a lien against the taxpayer.

TIGTA also examined how the IRS handled undelivered lien notices and found that, from their sample of 300 undelivered notices, 84% of the time IRS employees did not perform required research within five business days to determine if the IRS had a different address on file for the taxpayer.

TIGTA recommends that the IRS identify ways to correct these issues involving untimely and undelivered lien notices. The IRS has responded that it agrees with the recommendations and is planning corrective action.

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