Wednesday, March 30, 2022

TIGTA - IRS Primarily Uses Lien Foreclosures For Principal Residences Which Do Not Provide the Same Legal Protections as the Seizure Process

The Treasury Inspector General for Tax Administration (TIGTA) released its reportThe IRS Primarily Uses Lien Foreclosures When Pursuing Principal Residences, Which Do Not Provide the Same Legal Protections as the Seizure Process.  

The report found that in Fiscal Year 2020, the IRS used lien foreclosure suits more often than seizures when pursing principal residences, which do not provide the same legal protections as seizures. 

  • For seizures, the IRS must comply with the legal provisions set forth in I.R.C. §§ 6330 through 6344, which govern many aspects of the seizure process, including requiring a thorough exploration of collection alternatives before a levy action can be taken and additional Collection Due Process appeal rights. 
  • In contrast, for lien foreclosure suits, I.R.C. § 7403 offers very little discretion for the court to consider anything other than determining the merits of all claims to and liens upon the property. In addition, unlike the sale of real property at a distraint (seizure) sale, the taxpayer has no right to redeem the property after court ordered foreclosure of the Federal tax lien. Therefore, it is important that the IRS pursue a seizure rather than a suit to foreclose, whenever possible, to ensure that taxpayers are afforded all available administrative and legal protections.

Additionally, TIGTA reviewed 96 lien foreclosure cases identified on the IRS’s eApproval system between October 1, 2018, and September 30, 2020, that were in litigation status as of January 12, 2021, and 35 suit recommendations that were in declined status during this same time frame. Revenue officers generally followed procedures and internal controls; however, TIGTA identified some instances in which procedures and internal controls were not followed or were not clear. For example, TIGTA identified instances in which revenue officers were asked to make revisions on suit packages, but improper or untimely actions prevented the IRS from filing suit. TIGTA also identified cases in which suit packages were missing required forms or case actions were not timely.

Finally, while the IRS has developed a system to track lien foreclosure cases internally, once the cases are sent to the Department of Justice for litigation, there is no way to track and measure the outcome or the related costs and revenues collected on lien foreclosure cases.

TIGTA made five recommendations, including recommending that the IRS work with the Department of the Treasury Office of Tax Policy to consider a legislative proposal to amend the law (I.R.C. § 7403) so that taxpayers are afforded the same rights and protections whether the IRS is conducting a Federal tax lien foreclosure or a seizure on their property. Additionally, TIGTA recommended that the IRS make several updates to the Internal Revenue Manual to ensure that Field Collection managers and employees take timely and proper case actions when determining whether to recommend a suit to foreclose on a taxpayer’s property.

The IRS agreed with four of the five recommendations. However, the IRS disagreed with TIGTA’s recommendation to work with the Department of the Treasury to consider a legislative proposal. The IRS’s view is that, while each process has its own advantages and disadvantages, each ensures taxpayers’ rights are protected. TIGTA continues to believe that similar legal protections are needed for both processes.

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