The Inner Income Service primarily makes use of lien foreclosures when it’s going after the first residences of individuals with overdue tax money owed, however taxpayers don’t get the identical authorized protections as they might get pleasure from underneath the seizure course of, based on a brand new report.
The report, launched final week by the Treasury Inspector Normal for Tax Administration, discovered that in fiscal yr 2020, the IRS used lien foreclosures fits extra usually than seizures when pursuing taxpayers’ principal residences, though lien foreclosures don’t present the identical authorized protections as seizures. For seizures, the IRS has to adjust to the authorized provisions written into Sections 6330 by way of 6344 of the Tax Code, which require a radical exploration of assortment alternate options earlier than a levy motion might be taken and extra enchantment rights. In distinction, for lien foreclosures fits, Part 7403 provides comparatively little discretion for a court docket to contemplate any concern aside from figuring out the deserves of all claims to and liens upon the property. In contrast to the sale of actual property at a seizure sale, a taxpayer has no proper to redeem the property after the court docket orders the foreclosures of the federal tax lien.
“Due to this fact, it’s important that the IRS pursue a seizure moderately than a swimsuit to foreclose, every time potential, to make sure that taxpayers are afforded all accessible administrative and authorized protections,” mentioned the report.
Inner Income Service headquarters in Washington, D.C.
Stefani Reynolds/Bloomberg
A lien foreclosures is a selected kind of judicial enforcement device that the IRS can use in some circumstances to gather delinquent taxes. When figuring out whether or not to advocate a swimsuit to foreclose on property with a federal tax lien, IRS staff are required to comply with the insurance policies and procedures within the Inner Income Guide. “In keeping with these procedures, a swimsuit to foreclose ought to be pursued solely when there are not any cheap administrative cures, equivalent to levies (contains seizure), installment agreements, or provides in compromise, and when there are not any taxpayer hardship points,” mentioned the report. “As a result of expense and time related to bringing a swimsuit to foreclose in opposition to a taxpayer, it isn’t typically thought-about until the entire tax legal responsibility is larger than a specific threshold and the IRS has exhausted all relevant and efficient administrative cures.”
Nevertheless, the report acknowledged there are circumstances wherein a swimsuit might be advisable when the tax legal responsibility is beneath the actual greenback threshold. For instance, a swimsuit could also be referred if the liabilities are associated to liabilities beforehand advisable in an ongoing swimsuit. The Justice Division could ask for a foreclosures referral in response to a title concern. Different eventualities wherein a lien foreclosures may be acceptable embrace points associated to possession, encumbrances on the property, clouded title, or assortment statute issues. The final word determination on whether or not to make use of administrative or judicial assortment processes relies on the info of the precise case.
TIGTA reviewed 96 lien foreclosures instances from between Oct. 1, 2018, and Sept. 30, 2020, that had been nonetheless in litigation as of Jan. 12, 2021, together with 35 swimsuit suggestions that had been in declined standing throughout this identical timeframe. It discovered that income officers typically adopted the correct procedures and inner controls. However, TIGTA did spot some situations wherein procedures and inner controls weren’t adopted or weren’t clear. For instance, TIGTA discovered some instances the place income officers had been requested to make revisions on swimsuit packages, however improper or premature actions stored the IRS from submitting swimsuit. TIGTA additionally found instances wherein swimsuit packages had been lacking the required types or case actions weren’t executed on a well timed foundation. Whereas the IRS has developed a system to trace lien foreclosures instances internally, as soon as the instances are despatched to the Division of Justice for litigation, TIGTA discovered, there’s no strategy to monitor and measure the result or the associated prices and revenues collected on lien foreclosures instances.
TIGTA made 5 suggestions within the report, together with recommending that the IRS work with the Treasury Division’s Workplace of Tax Coverage to contemplate a legislative proposal to amend the regulation so taxpayers can get the identical rights and protections whether or not the IRS is conducting a federal tax lien foreclosures or a seizure on their property. TIGTA additionally advisable the IRS make a number of updates to its Inner Income Guide to make sure discipline assortment managers and staff take well timed and correct case actions when weighing whether or not to advocate a swimsuit to foreclose on a taxpayer’s property. The IRS agreed with 4 of the 5 suggestions however disagreed with TIGTA’s advice to work with the Treasury to contemplate a legislative proposal.
“Each assortment gadget has its personal benefits and drawbacks to tax administration,” wrote Darren Guillot, commissioner of the IRS’s Small Enterprise/Self-Employed assortment unit, in response to the report. “When it turns into essential to compel assortment, the IRS is anticipated to make use of the suitable assortment gadget based mostly on the info of the person case.”
TIGTA, for its half, insisted it continues to consider that comparable authorized protections are wanted for each processes.