IRS Seizures: Limited Progress in Eliminating Asset Management Control Weaknesses
GGD-00-5
Published: Nov 29, 1999. Publicly Released: Jan 03, 2000.
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Highlights
Pursuant to a congressional request, GAO provided information on the Internal Revenue Service's (IRS) progress in eliminating asset management control weaknesses, focusing on: (1) the implementation of the IRS Restructuring and Reform Act's mandate to remove revenue officers from the asset sale function; and (2) other internal control weaknesses identified in GAO's 1992 testimony.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include ensuring that revenue officers document basic asset control information, including detailed asset identity descriptions, asset condition, and custody information. |
IRS generally agreed with the recommendation and has revised the Internal Revenue Manual (IRM) to provide instructions to revenue officers for documenting certain basic asset control information (e.g., model number and serial numbers) and instructions for an independent verification of that information. In January 2003, IRS revised the IRM to include instructions for completion of the Notice of Seizure (Form 2433) that requires information on the seized asset's condition with special instructions for documenting the condition of a seized motor vehicle.
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| Internal Revenue Service | To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include ensuring that basic control information is entered in a timely manner and included in the revised automated inventory control system. |
IRS agreed with the recommendation to timely input asset control information into its automated systems. All new seizures conducted after September 27, 2003, must be included in the Integrated Collection System's Sale and Seizure Program. This program includes data on the seizure's status and is updated at each major step in the seizure process providing timely asset control information.
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| Internal Revenue Service | To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include ensuring asset security and accountability through scrutiny of decisions regarding security and periodic reconciliation of inventory records to assets-on-hand (periodic physical inventories). |
In August 2003, IRS revised procedures to improve the accountability for seized assets. IRS issued a new form (Form 13464) to report on the status of open seizures. Part III of the form requires documentation of the results of physical inventories, and requires an IRS official to match the condition of the seized asset to the documentation created at the time of the seizure and note any differences.
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| Internal Revenue Service | To improve IRS' process for controlling assets after seizure, the Commissioner of Internal Revenue should fully implement federal financial management guidelines to include 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. |
In August 2003, IRS revised procedures to improve the accountability for seized assets. IRS now requires staff responsible for the custody of seized assets to periodically inventory the assets and document any changes in the asset's condition since seizure. This documentation in the case file will provide the basis to account for losses and obtain reimbursement for the expenses.
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| Internal Revenue Service | To strengthen the sales process for assuring that the highest prices are obtained from seized asset sales, the Commissioner of Internal Revenue should 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. |
With respect to setting a minimum acceptable price for selling property seized from taxpayers, IRS agreed with the recommendation to the extent that revenue officers would be required to document the reasons for reductions that are made to an asset's fair market value--the starting point in computing a minimum sales price. GAO agrees with this change as it represents an attempt to assure the establishment of minimum sales prices that would be reasonably related to the value of the property seized. This is important because, as the report demonstrates, IRS's sales of taxpayer assets were frequently consummated at or near the minimum price, and at auctions that attracted one or two prospective purchasers (i.e., sales with little or no competitive bidding). But, IRS also said that it would continue with its practice of automatically setting the minimum price of an asset at an amount equal to the taxpayer's tax debt if that produced a lower minimum price. IRS set no limit on how great a price reduction this could involve. Furthermore, IRS commented that it saw its responsibility as "only to secure payment of the legally established debt." GAO disagrees. IRS has a responsibility to take the steps necessary to prevent taxpayers' property from being sold at unreasonably low prices and to refund to the taxpayers any sales proceeds in excess of the tax debt or other encumbrances. The frequency that IRS has sold seized assets at the minimum price and without competitive bidding shows the importance of setting minimum prices that bear some relationship to the value of the assets seized.
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| Internal Revenue Service | To strengthen the sales process for assuring that the highest prices are obtained from seized asset sales, the Commissioner of Internal Revenue should take the steps necessary to promote reasonable competition among potential buyers during asset sales. |
IRS implemented this recommendation by establishing (1) specialized positions for managing and selling seized assets and (2) procedures for the asset specialists to evaluate alternative methods of selling assets to achieve the highest net return.
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| Internal Revenue Service | To strengthen oversight of seizure activities, the Commissioner of Internal Revenue should establish a method for providing IRS senior managers with useful information to monitor the use of seizure authority, including the quality of asset management and disposal activities. |
IRS indicated that it can develop procedures for reviewing the quality of seizure cases but preferred to do so outside of its existing system for assessing collection quality. In part, this reflected concerns about the capability of reviewers assigned to the program to review asset management activities. To implement its quality review, IRS's national office has required the field offices to report all seizures conducted and, on closure, to submit copies of their seizure files to the national office for review and comment.
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AccountabilityAssetsDebt collectionDelinquent taxesInternal controlsInventory control systemsProperty disposalSearch and seizureTax lawTaxpayers