TIGTA Finds IRS Is Not Always Following Procedures for Tax Liens

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Zachary J. Montgomery

Zachary J. Montgomery

Attorney

469.998.8484
zmontgomery@freemanlaw.com

Zachary J. Montgomery is a dual-credentialed attorney and CPA. He practices in the area of federal and state tax litigation, white-collar defense, business and tax planning, and litigation. Mr. Montgomery has experience representing both businesses and individuals in federal tax controversies, including appeals, examinations, penalty abatement and collection matters. He has also represented taxpayers—from small organizations to Fortune 500 companies—with Texas franchise tax refund claims, audits, penalty abatement, and corporate structuring.

Mr. Montgomery is a graduate of the University of Virginia School of Law where he focused his studies on corporate and tax law and served on the editorial board of the Virginia Tax Review. Prior to joining the firm, he gained experience with PricewaterhouseCoopers, LLP, and a regional firm, focusing on federal and state tax controversies. His previous experience also includes Ernst & Young, Deloitte & Touche, and a judicial student clerkship with the First Court of Appeals of Texas.

Mr. Montgomery is a graduate of Texas A&M University, where he graduated Summa Cum Laude and received his B.B.A. with a double major in Accounting and Business Honors and his M.S. in Management Information Systems. While attending Texas A&M, he developed his business acumen, working as an enterprise risk consultant and financial analyst.

In 2021, the Internal Revenue Service filed 212,251 Notices of Federal Tax Lien (“NFTLs”). To provide perspective, in 2019 (i.e., pre-COVID-19 pandemic), the IRS filed 543,604 NFTLs. The IRS is working on ramping up its enforcement efforts; however, the IRS must follow certain procedures with respect to filing NFTLs against taxpayers. The Treasury Inspector General for Tax Administration (“TIGTA”) recently performed its annual audit to review the Internal Revenue Service’s legal compliance with respect to NFTLs. While TIGTA found general compliance by the IRS, it also noted several areas of improvement.

NFTLs and Section 6320(a)

Section 6320(a) of the Internal Revenue Code explicitly provides that the IRS must file a notice of lien, assuming it complies with certain restrictions on timing, service methods, and notice information. Specifically, Section 6320(a) provides as follows:

(a) Requirement of notice

(1) In general

The Secretary shall notify in writing the person described in section 6321 of the filing of a notice of lien under section 6323.

(2) Time and method for notice

The notice required under paragraph (1) shall be—

(A) given in person;

(B) left at the dwelling or usual place of business of such person; or

(C) sent by certified or registered mail to such person’s last known address,

not more than 5 business days after the day of the filing of the notice of lien.

(3) Information included with notice

The notice required under paragraph (1) shall include in simple and nontechnical terms—

(A) the amount of unpaid tax;

(B) the right of the person to request a hearing during the 30-day period beginning on the day after the 5-day period described in paragraph (2);

(C) the administrative appeals available to the taxpayer with respect to such lien and the procedures relating to such appeals;

(D) the provisions of this title and procedures relating to the release of liens on property; and

(E) the provisions of section 7345 relating to the certification of seriously delinquent tax debts and the denial, revocation, or limitation of passports of individuals with such debts pursuant to section 32101 of the FAST Act.[1]

For more information on federal tax liens, see our previous Insight Blog: Everything That You Need to Know About Federal Tax Liens.

TIGTA’s Final Audit Report – September 12, 2022

TIGTA performed an audit of the Internal Revenue Service’s policies and procedures related to federal tax liens. Specifically, TIGTA determined whether lien notices issued by the IRS complied with the legal requirements set forth in Section 6320(a) oof the Internal Revenue Code. The annual audit resulted in a number of findings, including: the IRS did not always timely mail the NFTL and notice of CDP appeal rights to taxpayers’ last known addresses and taxpayers’ representatives were not always copied on taxpayer correspondence from the IRS.

Among its findings, TIGTA noted the following:

Our review of a statistically valid random sample of 117 NFTLs from the 156,998 NFTLs filed between July 1, 2020, and June 30, 2021, found that the IRS did not always timely mail a copy of the NFTL to the last known address of all taxpayers as required by I.R.C. § 6320(a). I.R.C. § 6320(a) requires the IRS to notify taxpayers in writing, at their last known address, within five business days of the filing of an NFTL. However, our review of a judgmental sample of undelivered lien notices showed that the IRS did not always use the taxpayer’s last known address when sending the notices. Also, the IRS did not file NFTLs for more than 1 million individual and business taxpayers with balances due of more than $10,000 during the period of our review.[2]

Moreover, IRM 5.12.6.3.10(1) states: “When an NFTL is filed against a taxpayer who has an authorized representative/power of attorney (POA) for any of the tax periods on the NFTL, the POA must be notified of the NFTL filing.” TIGTA found that in 11 percent of cases, taxpayers’ representatives were not notified of lien notices, despite authorizations (Forms 2848 & 8821) being on file with the IRS. In response, TIGTA provided the following recommendation, and the IRS provided its response:

TIGTA Recommendation: Reinforce guidance in IRM 5.12.6.3.10 to ensure that taxpayers’ representatives are notified of NFTL filings.

IRS Response: The IRS agreed with this recommendation and will issue an e-mail or alert to remind employees of notifying the taxpayer’s authorized representatives when filing an NFTL.[3]

For more details related to TIGTA’s review and findings, see TIGTA’s Final Audit Report.

Conclusion

Based on TIGTA’s final audit report, the IRS has certain areas to improve to ensure it is complying with Section 6320. While at least one compliance issue was the result of a computer glitch (which has since been corrected), other issues are problematic for taxpayers. The IRS must be more diligent in ensuring that NFTLs are delivered to taxpayers and their representatives. Such oversights are frustrating for obvious reasons but especially for resolving delinquencies. Taxpayers should also note that there were well over 1.3 million NFTLs that were not filed against taxpayers who owed more than $10,000. Although this may be seen as a good thing for taxpayers, this trend will likely not continue, as the IRS is still working to overcome the enforcement backlog largely created by the COVID-19 pandemic.

 

Expert Tax Attorneys

Need help with determining your tax obligations? Contact us as soon as possible to discuss your rights and the ways we can assist in your representationWe handle all types of cases, including cases involving federal tax liens and NFTLs. Schedule a Consultation Today!

 

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Readers may be interested in the Freeman Law International Tax Symposium scheduled to take place virtually on October 20 and 21, 2022.  Attendees will qualify for CLE, CPE, and CE and the slate of presenters includes well-recognized speakers and panelists, such as the IRS Commissioner, a prior Chief Counsel of the IRS, a former Acting Assistant Attorney General of the U.S. Department of Justice Tax Division, and many others in government and private practice.

To Register for the Freeman Law International Tax Symposium, please visit www.its2022.freemanlaw.com.

 

[1] I.R.C. § 6320(a).

[2] TIGTA, Fiscal Year 2022 Statutory Review of Compliance With Notice of Federal Tax Lien Filing Due Process Procedures (Sep. 22, 2022).

[3] Id.