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MSP #22: Managerial Approval For Liens

The IRS’s Administrative Approval Process for Notices of Federal Tax Lien Circumvents Key Taxpayer Protections in RRA 98

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #22-1

In collaboration with TAS, develop and implement factors to determine situations in which managerial approval of NFTL filings is appropriate and should be required.

IRS RESPONSE TO RECOMMENDATION: IRM 5.12.2.7, Approval of Lien Notice Filing and IRM 5.19.4.5.3.4, When Filing an NFTL Requires Approval, set forth the policies and procedures for obtaining managerial approval for NFTL filings. IRM 5.12.2.3 through IRM 5.12.2.6 and IRM 5.19.4.5 provide the criteria for making NFTL determinations and filing criteria instructions, including clarifying when to consider filing an NFTL. TAS personnel reviewed and cleared these IRMs before they were published.  However, we periodically evaluate our programs to identify policies or procedures that can be improved. If TAS has suggested improvements for these procedures, TAS should provide their suggestions, including data or other information that supports the suggested changes, to our analysts for evaluation and consideration. Finally, we note that the Treasury Inspector General for Tax Administration (TIGTA) performs an annual review of the IRS’s lien procedures and our compliance with these procedures. In contrast to the NTA, TIGTA thinks the agency should be filing more NFTLs to protect the government’s interest. Additionally, TIGTA generally has given the IRS high marks in connection with our employees’ adherence to agency procedures.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS has based its NFTL filing model and policy on recommendations (now 13 years old) noted in a Treasury Inspector General for Tax Administration (TIGTA) audit. In response to the TIGTA report, the IRS took the position unless it filed the NFTL in most cases, it was losing revenue, regardless of a taxpayer’s inability to pay, the absence of assets to which the lien could attach, or the harm to the financial viability of the taxpayer. However, multiple TAS studies found most payments for taxpayers with NFTLs filed against them were attributable to sources other than the lien notice, e.g., refund offsets.

For many years TAS repeatedly disputed the IRS’s interpretation of RRA 98 § 3421 and recommended the IRS adopt guidance reflecting Congress’ intent. For example, in 2010, the National Taxpayer Advocate issued Taxpayer Advocate Directive 2010-1 in which, among other things, she directed the IRS to require managerial approval for filings of an NFTL in all cases where the taxpayer has no assets. In the 2011 Annual Report to Congress, the National Taxpayer Advocate recommended the IRS “require managerial approval for NFTL filings in cases where no attempted personal contact was made or the notice to the taxpayer was returned as undeliverable.” Further, TAS has continuously raised its disagreement with IRS interpretation of RRA98 § 3421 when reviewing IRS guidance. Specifically, in 2012, TAS disputed IRM sections 5.12.2.3 through 5.12.2.6 and IRM 5.19.4.5 and their lack of managerial approval prior to filing a NFTL for over 16 months. For the IRS to indicate in its response TAS has not raised these objections while reviewing IRM guidance is disingenuous.

Finally, the IRS’s reference to TIGTA annual reviews of the IRS’s lien procedures and its compliance with these procedures is irrelevant in the context of managerial approval as required by RRA98 § 3421. The overall objective of TIGTA annual reviews is to determine whether the IRS complies with legal guidelines set forth in IRC § 6320, i.e., it has timely issued the Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320, which advises taxpayers they have 30 calendar days, after the five-day period of the filing of NFTL, to request a Collection Due Process (CDP) hearing with the IRS’s Office of Appeals. This requirement is separate and unrelated to the congressional mandate contained in § 3421 of RRA98.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #22-2

Develop and implement disciplinary actions to be taken when managerial approval prior to filing a NFTL is not secured in the specified situations.

IRS RESPONSE TO RECOMMENDATION: IRM 6.751.1.16, Disciplinary and Non-Disciplinary Action Defined, Document 11500, IRS Manager’s Guide to Penalty Determinations, and IRM 1.4.50.5, Performance Evaluation set forth IRS policy and procedures for disciplinary actions. The IRS has in place instructions for disciplinary action when any employee fails to observe written regulations, orders, rules, or IRS procedures.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Although there is general guidance on when IRS should take disciplinary action, it should set out specific disciplinary action when an employee fails to obtain managerial approval prior to filing an NFTL where such approval is required.  Setting forth such disciplinary guidelines will bring the IRS more in line with what Congress instructed the IRS to do in § 3421 of RRA 98.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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