SEIZURE ABUSES AND VIOLATIONS OF IRS POLICY

Although it is easy to accuse some districts of having a strong "seizure mentality," it is not easy to specify how this orientation affects taxpayers or to demonstrate the abuses that arise. But revenue officers love to tell war stories. The following incidents have allegedly occurred in the mid-Atlantic region, encompassing the districts of Pittsburgh, Philadelphia, Newark, Wilmington, Baltimore, and Richmond.

One group manager walks through his group daily repeating "levy and seize" over and over again. Whenever one of his revenue officers enters his office to ask a technical question about a case, the group manager immediately says "levy and seize." This attitude permeates the working environment and emphasizes that firm enforcement action is expected from the revenue officers in his group. For example, one revenue officer in another group was not technically proficient in his job, but he was good at exercising his legal muscle; he loved to make seizures. His group manager berated him for his deficient skills and failure to follow the manual. The revenue officer called the branch chief and obtained a transfer to the "levy and seize" manager's group. This group manager told the revenue officer that he would protect him from overly vigorous work reviews as long as the revenue officer made many seizures. The revenue officer is now alleged to make at least two or three seizures a month. (The national average is 1.6 seizures a year.) The group manager claims that having many seizures on record makes him look like a good manager.

The indiscriminate use of the seizure authority is a clear violation of taxpayers' rights. Although the Internal Revenue Code gives the IRS the authority to make a seizure after the 10th day from notice and demand, the public expects the IRS to only use seizure action when no other alternatives are available. In fact, ax-Commissioner Donald Alexander has stated this numerous times. IRM 5311:(11) states, "judicious use of the levy authority is important to both the taxpayer and the service." Yet neither the IRM nor IRM policy statements mandate judicious use of the levy authority. IRS policy statement 5-34 only requires extra consideration before seizing and selling a going business. Individual income taxpayers are not afforded the same courtesy.

One revenue officer told a delinquent female taxpayer who had no income, no distrainable assets, no borrowing potential, and no other means of payment that "if you can't pay your taxes, then bring your kids in and we'll sell them for you." The revenue officer, when later reprimanded, explained that he was kidding. The woman had no idea that he was "kidding" and was severely shaken by the incident.

A revenue officer seized the house of a taxpayer who was dying of cancer. The revenue officer stated that his group manager believed the taxpayer could borrow the money on the equity in the house, but had refused to do so. Actually, the taxpayer had no means of paying off borrowed money, because of his illness. Again, the IRS does not require the revenue of ficer to use compassion in individual circumstances. The manual now requires branch chief approval before taking a residence, and the revenue officer can suspend collection when the taxpayer has no ability to pay. However, there is no provision for a circumstance such as this where, because of the taxpayer's equity, the group manager will not approve the suspension of collection due to hardship.

Two revenue of ficers were ordered by their group manager to seize a hearse owned by a funeral parlor that owed withholding taxes. The revenue officers went to the cemetery with the intention of seizing the hearse wherever it was, even if it was being used in a funeral procession. Fortunately for the relatives of the deceased person, the revenue of ficers could not locate the hearse.

One revenue officer seized and sold a taxpayer's vehicle at a public auction. The taxpayer was then able to borrow the money to bid on his own vehicle at the time of sale. He was successful in recovering the vehicle; however, the revenue of ficer immediately seized it again for the balance of unpaid taxes. Policy Statement 5-28 reads in part: "...sound judgment should be exercised, and the service of successive levies on the same source of income, or type of property, should be so timed as to avoid undue hardship to the taxpayer and/or family." This incident appears to be a clear violation of IRS policy.

The revenue officer who liked to make a lot of seizures had one trick that he loved to use at least once a year. If dealing with an uncooperative taxpayer, he would issue a summons to the taxpayer that required him to be at the IRS of fice at a prearranged time and date to give testimony about his financial ability to pay the tax. (This is normally done and is legal.) While the taxpayer was in the of fice giving testimony, the revenue of ficer would send another revenue officer out to the parking lot to seize the taxpayer's car. Unless the taxpayer was fortunate enough to have the cash in his pocket to pay the full amount owed, he would have to catch a cab home.

This type of seizure clearly violates IRS's summons authority. A taxpayer may be served a summons either to produce books and records or to provide testimony, but not to produce assets for seizure. In this case the legitimate use of the summons was merely a subterfuge for the illegitimate use of producing assets for seizure.

The Administrative conference report of January 20. 1976, heavily criticized the IRS for its use of "no-equity" seizures. On August 3,1977, the IRS prohibited the seizure of property in which the taxpayer's ownership interest is insufficient to provide any net sales proceeds. On July 31,1978, the GAO released a report on IRS seizures that demonstrated that in 5% of the cases studied, the taxpayer's ownership interest was less than $100. In over half of these cases, taxpayers owed IRS more than $5,000. Revenue officers admitted to the GAO that one of the primary reasons for a seizure was to "get the taxpayer's attention." Even today, five years after the prohibition, group managers are encouraging their revenue officers to make "no-equity"seizures.

When the revenue officer makes a "no-equity" seizure. he further violates IRS regulations when he refuses to release the seizure for less than full payment. A "no-equity" seizure is usually made when the revenue officer believes the taxpayer has the money and needs to be shown who has the upper hand. The revenue officer gambles that the taxpayer will come up with the money with no additional expenses incurred.

Regulations pursuant to IRC Section 6343 provide for a Release of Levy when the taxpayer makes a payment equal to the interest of the United States in the seized property. The taxpayer is not required to pay the entire balance of delinquency even though the revenue officer may explain that it is the only condition under which the property may be released. A revenue officer who does not immediately release a "no equity" seizure is in violation of IRS regulations. The manual does not require the revenue officer to explain to a taxpayer the situation under which a levy or seizure may be released, and there is no penalty for violating the regulations.

A Collection Division chief in the mid-Atlantic region who had his own corporation on the side reputedly would bid on seized property at IRS auctions. The story alleges that the chief asked to personally review the cases of his revenue officers. He would analyze the asset data on the taxpayer's financial statements, and after finding an asset he liked, he would send the revenue officer with explicit orders to seize the property. At the sale he would send a representative from his corporation to bid on the property. This same chief once ordered a revenue officer to seize a taxpayer's coin collection. After the collection was seized, the revenue officer wrote the taxpayer a receipt for the face value of the coins, ignoring the coin's numismatic value. The chief then bought the coins from the revenue officer at their face value.

A seizure can only occur on a delinquent account after an assessment has been made, notice and demand have b en issued, and there has been a eglect or refusal to pay within 10 days. A seizure cannot occur on a delinquency investigation, which involves nonfiling of a tax return. Yet I group manager instructed his revenue officers to make seizures on nonfiling case assignments called Taxpayer Delinquency Investigations (TDIs), in clear violation of the levy statutes.

The code establishes a penalty for responsible of officers of a corporation who do not forward the withholding taxes of the corporation's employees to the IRS. After proposing an assessment and giving the taxpayer an opportunity to appeal or contest it, the IRS can assess the officer the amount not paid, thereby attempting to recover a major portion of the corporate withholding liability. These assessments are called "100% penalties" by revenue officers. One revenue officer completely bypassed all the procedures of the proposal and appeal stages and arbitrarily assessed a 100% penalty against a taxpayer. The revenue officer then began levying on the taxpayer's assets, again in complete violation of IRS's levy authority.

One group manager will not approve a payment or installment agreement unless the revenue officer has first made a seizure on the case. This clearly violates the provisions of the IRM that allow for "automatic" installment agreements and IRS's publicly announced intentions that seizure only occur as a last resort. This same group manager assigns seizure quotas to his revenue officers by GS-grade level. The lowest GS-level revenue officers are told to conduct more seizures than the higher GS-rated revenue officers. He also compiles seizure statistics of his revenue of officers to measure their enforcement performance. This is a clear violation of Policy Statement P- 1-20 which states in part: "Records of tax enforcement results shall not be used to evaluate enforcement of officers, appeals of officers, and reviewers, or impose or suggest production quotas or goals."

Overage cases are those that were assessed more than a year ago. These cases constantly concern the Collection Division management. Every month a report has to be made explaining why the case is open and the date the case will be closed. One group manager has instructed his revenue officers to either collect full payment immediately or make a seizure immediately. The seizure supposedly justifies the cases being open.

Revenue officers from other districts testified at the Levin hearings about similar abuses and violations. Following are excerpts from their testimonies.

REVENUE OFFICER WARREN J. INGERSOLL, JR.
Ann Arbor, Michigan:

  -The management has destroyed morale and is completely uncaring
   about the consequences.-

  -To exhibit any sensitivity to and understanding of the taxpayers
   current individual circumstances is anathema. This management has
   arbitrarily circumscribed the exercise of our judgment.-

  -This management's attitude has caused many experienced revenue
   officers to disregard their own best judgment in dealing with
   taxpayers, and to act inflexibly out of fear for their jobs.-

  -When the question of priorities comes up, management replies that
   "the maximizing of revenue is not a priority. The priorities are
   compliance and ma~ example of delinquent taxpayers through
   seizure."-

  -The manager in Ann Arbor has stated that he does not care if he has
   to close up half the businesses in Ann Arbor in order to get
   compliance. He has said on numerous occasions that taxpayers should
   be punished for not doing as they are told. The same manager has
   also referred to some business taxpayers as "dens of thieves."-

REVENUE OFFICER ANTHONY CIPPARONE
Pontiac. Michigan:

  -We have been told that revenue officers will address the equity
   in a case no matter how small that equity is, simply in order to get
   a seizure statistic.-

  -As far as the revenue officer is concerned, the payment agreements
   are now the method of last resort.-

  -I have definitely seen situations where seizure has been ordered
   when saleable equity of the items to be put under seizure was in
   fact less than what the taxpayer offered to pay us voluntarily.-

  -There have been memorandums circulated in our district that
   specified that there will be one seizure per month per group. -

REVENUE OFFICER JOE BOYD
St. Louis, Missouri:

  -Now there is competition among groups and branches to see who can
   get the most seizures during the month. The one thing that a group
   manager does not want to do is to have a zero month in seizures. So
   somebody is keeping statistics on individual revenue officers.-

  -The installment agreement is so frowned upon that if you do get
   them, you try to set them aside because the chances of them getting
   approved, unless they are over age, are almost nil if there is any
   equity there whatsoever.-

  -I had one where the accounts were for approximately $150,000.
   Within about 20 days after I received them, I contacted the
   taxpayer, and I had $50,000 in hand. He said, "Please don't file a
   tax lien. I can get the money, but I am going to need two to three
   weeks to arrange the loan." So I sent down my request and I asked
   for an additional 10 days on my lien filing, which would be 40
   days. Instead of an approval, it came back with a "seizure tag"
   on the front of it. "Warning: U.S. Government Seizure." A red and
   white tag stapled on top of the account, with a litany of
   questions on it claiming the taxpayer was stalling, and why did I
   even entertain this. So I started checking further down the line,
   and I found out that a specific group manager had told his
   revenue officers: On any cases you pick up, I want one of those
   warning tags placed right on top of the case when you pick it up.
   And when you go out and talk with the taxpayer, you can open it
   up and there it is, the "warning" tag staring them right in the
   face so he knows where you're coming from. -

REVENUE OFFICER JAMES W. CLARK
Mobile, Alabama:

  -We have to look at what the Service measures. It measures the
   simple types of enforcement actions that work in certain types of
   cases. It measures seizures, the number of levies served, the number
   of lien notices filed. It does not measure the exotic enforcement
   actions-civil suits, attacks on fraudulent transfers, etc.-

    The following comments were entered into the record from affidavits by
other revenue officers.

REVENUE OFFICER ALBERT P. ZELENA
Detroit, Michigan:

  -Many of the revenue officers with whom I speak have indicated
   absolute terror toward the loss of their job if they did not seize.-

REVENUE OFFICER CHARLES F. SCHEFKE
Mears, Michigan:

  -During my service I have been constantly pressured to make seizures
   on a monthly basis. I am personally aware of seizures which caused
   undue and unnecessary hardship on the taxpayer. In one instance the
   taxpayer died of a heart attack after seizure of his business by the
   Internal Revenue Service. The seizure was made purely for
   statistical purposes. I am personally aware of taxpayers having
   their bank accounts seized after they had paid their taxes in full
   and/or have made other arrangements with IRS to pay their tax account
   by other means.-

REVENUE OFFICER FRANCESCO POMA Mt.
Clemens, Michigan:

  -If a revenue officer should question his superiors concerning
   these mandates, he or she is often the subject of not only
   criticism, but adverse personnel action. The following statement has
   been made on more than one occasion. "Do it to the taxpayer or it
   will be done to you.-

CASE HISTORIES

Testimonies from the Levin hearings also disclosed detailed accounts of abusive and counter-productive practices by the IRS. In the following statements, former IRS employees tell their stories.

    RICHARD DYKE, a businessman from Portland, Maine and an
ex-revenue agent:

    We, in 1978, acquired a small company that was in a
non-profitable state. We injected money into the company. We brought
on a manger who we gave a 25-percent interest to in the company. He
ran it for a year. In October 1979, upon the annual audit being
done-because the fiscal year ended in October-we discovered things.
No. 1, the company had lost some money. But more seriously, we found
that our manager had embezzled funds out of the company. We also
found that, in order to be able to embezzle those funds, the payroll
taxes had not been timely paid, and an amount of $20,500 was due to
the Internal Revenue Service.

    At that point, the other shareholder and myself had to sit down
and make a critical decision. Did we wind up a company that had been
in existence for 25 years and had 25 employees who had been loyal to
that company in many cases for that whole 25 years? Did we simply
scrub it, tell IRS to come in with their priority claim and get
their money first out of the liquidation of the inventory and what
small amount of fixed assets there were? Or should we try to go
forward by contacting our vendors who in many cases were overdue in
the amounts owed to them?

    We made the decision that if we could make an agreement with the
vendors and with the Internal Revenue Service, that we would put
additional funds into the company and see if we couldn't turn it
around and make it profitable. We contacted all of the vendors, and
they agreed that they would do a workout on the old debt, and that
we would keep current on anything new that we bought. This was in
October and November of last year. We then had our manager contact
the Internal Revenue Service's Collection Department and ask them if
it would be possible, with the $20,500 that was owed, to make a
monthly payment to clean up that arrearage, and at the same time to
keep the current payroll taxes deposited on a current basis. The
revenue officer said: "Yes, I'm glad to see that Dick is going to
continue in this thing; go ahead and do it."

    So from November until June of this year, $2,000 a month was
paid religiously and on time. And then in June, my manager gets a
call from the revenue officer who says: "We've got to speed up this
process." My manager reminded him that we had an agreement; that we
had been very timely with our payments; and that the company was
doing well; and that we were bringing it into the black; and it
looked like the future of the company was stabilized.

    The revenue officer's remark was, "Well Dyke's got it." That
was the only conversation that took place between my manager and that
revenue officer. The next thing that we knew, we got a yellow slip
from the bank saying that our account had been levied for $9,000,
being the balance of the $20,500 due. There was no phone call from
the revenue officer or his supervisor, and embarrassingly there was
no phone call from my own bank - but I have already talked with them
about that problem.

    The only justification that I can see for that is that June 30
is a very critical date with governmental agencies reporting
requirements. And I have to believe that that revenue officer had a
statistical production requirement that made him have to go out and
seek out additional funds, even contrary to any agreement that he
may have made with anyone. There is just no other justification for
it.

    The following exchange occurred between Senator Levin and
Revenue Officer Warren J. Ingersoll during the hearings:

    SENATOR LEVIN. Do you know of any companies that have been put
out of business through the use of seizure where seizure should not
have been used?

    MR. INGERSOLL. Well, in a qualified way, if I may answer that. I
have knowledge of a company that had been seized, probably
justifiably so. Then the taxpayer, after the seizure, came forward
with an adequate plan. In other words, he came forward with a plan
to give us an assignment; that is, to turn over to the Internal
Revenue Service a signed purchase agreement for $72,000, which would
have satisfied the tax lien in total. If we would have accepted that
assignment of the purchase agreement, we could have released the
property from seizure. He then could have used the property for
collateral to raise extra money to recapitalize the business, and
the business could have continued. At that time, that request for an
assignment of the purchase agreement and the sale of another piece
of property were refused, and that taxpayer continues to this day to
be under seizure and is no longer operating.

    Revenue officer Ingersoll continued his testimony with the
following story:

    The second illustration concerns a restaurant. This business,
taxpayer B, is a corporation. The president had recognized there
were internal problems and had relinquished daily control to a new
management team. The company had accrued $60,000.00 in tax
delinquencies. This new team kept the corporation completely current
on all of its deposit and filing requirements. After a thorough
analysis of the corporation's financial condition, it was determined
that the corporation could pay the approximately $60,000.00 in full
over the course of approximately one year. In addition, the
corporation would be allowed sixty days more without any payments in
order to set its cash flow in order. The procedure is allowed by the
Internal Revenue Manual 5231.52:(5)(b)(2) and 5231.53:(1). This
arrangement was approved by the acting group manager.

    Subsequently, the revenue officer handling this case was
detailed out for several weeks. While the revenue officer was gone,
the permanent manager removed the case from her inventory and
reassigned it to a grade five revenue officer trainee and ordered
him to give the taxpayer ten days to fully pay or be seized. The
trainee did as he was instructed. When the taxpayer was informed, he
demanded a meeting with the group manager. The taxpayer protested he
had entered into an agreement with the IRS through the original
revenue officer. The group manager responded that any such agreement
the taxpayer may have had was null and void.

    What was the end result? The taxpayer petitioned for bankruptcy
under Chapter 11. The government has not received one dollar from
the taxpayer as far as is known. In addition, the collection of the
Trust Fund taxes through the 100% penalty assessment will most
likely be delayed because of the petition of bankruptcy.

    REVENUE OFFICER JOE BOYD of St. Louis, Missouri related this
incident:

    I personally inherited a taxpayer who had been through about
three other revenue officers and who owed approximately $22,000
and was told by the group manager that he wanted the taxpayer out of
business with no other alternatives. I delivered notice and demand
to the taxpayer and advised him that I wanted full pay in ten days.
On the tenth day, the taxpayer called and stated that he had $ I
5.()()() and needed another week to pay the balance. This sounded
good to me since the accounts were nine months old and I could
possibly clean him up in less than one month. But I was told by my
group manager that this was unacceptable, and I must proceed with
the lien and seizure. I was unable to get a Writ [of Entry] from
District Counsel and the taxpayer delayed another week because of
the lien filing.

    The accounts were paid in full 28 days after I received them. I
was then written up by my group manager and reprimanded by my branch
chief for my failure to follow instructions: namely to make a
seizure as instructed. I also was told to make a seizure on another
taxpayer. Again, on this taxpayer I was unable to secure a Writ
because I was unable to prove that there was any equity in the
property involved. Again, I was reprimanded orally for my improper
attitude and failure to get with the program.

    The following incident occurred in Northern Virginia. The
revenue officer involved was assigned to the Bailey's Crossroads
office in Falls Church, Virginia. Taxpayer C.M. and two other
partners bought stock in a corporation that operated a restaurant in
Fairfax, Virginia. By buying stock in the business instead of
buying the corporate assets and forming a new corporation, the new
owners became legally liable for the previous owners' debts. Upon
purchasing the stock they were aware that the corporation owed
$8,500 in federal withholding taxes. Their accountant, an ax-revenue
officer, told them that they could either enter into a payment
arrangement to liquidate the back taxes or make an offer to
compromise the liability.

    The accountant submitted an offer to compromise the liability
and attempted to work out a payment arrangement while the offer was
being considered. The accountant knew that no payment arrangement
could be considered without a complete financial statement, so he
submitted a complete financial statement to the revenue officer,
together with a proposal to liquidate, over several months, that
portion of the liabilities offered with the compromise. The
financial statement showed that the company had more liability than
it had assets. When the revenue officer saw the financial
statement, he told the accountant that the corporation was bankrupt
and refused to enter into an agreement. The accountant then
requested a meeting with the revenue officer's manager, and the
revenue officer said he would discuss it with his boss. The
accountant left the IRS office believing that a meeting would soon
be scheduled.

    The next morning two revenue officers and four special agents
arrived at the restaurant with a moving van. The revenue officer
threatened to seize the tables and chairs in the restaurant unless
the taxpayer paid the entire $8,500. The accountant unsuccessfully
attempted to stop the seizure by calling the revenue officer's
manager. The IRS officers and agents then seized the tables and
chairs and removed them to the moving van. The revenue officer
stated that the property would be released only after full payment.

    The accountant then tried to release the seizure by offering
payment for the seized property's value. The revenue officer then
agreed to release the property for $2,000, a sum the accountant felt
was excessive for old tables and chairs. After several more phone
calls, the revenue officer decided to release the property to the
president of the corporation for $500 cash.

    The accountant filed a letter of protest to complain of the
handling of the case and the abuse of his client's rights. The case
was then transferred to another revenue officer who worked out a
payment arrangement. The compromise offer was rejected "due to
efforts to collect that had not been resolved in the past."

    This case contained numerous instances of procedural errors.
One, the revenue officer flatly rejected the proposed installment
agreement based upon the taxpayer's net worth without considering
the taxpayer's ability to pay. This clearly violates IRM 5223, which
states that it is "the analysis of the taxpayer's financial
condition" that is the basis for making decisions. It also violates
IRM 5231.52:(5)(b)2 which states: "If it appears that the taxpayer
can pay current taxes and, given a reasonable period of time, can
pay both accrued and delinquent taxes, the installment agreement
procedures in IRM 5231.53 should be followed."

    Two, even though the taxpayer submitted a compromise offer, the
revenue officer enforced collection anyway, thereby violating IRM
5734.4:(1): "When an offer is submitted and there is no reason to
believe that collection of the tax liability sought to be
compromised would be jeopardized, activity is normally withheld on
any open accounts." Policy Statement P-5-97 allows enforced
collection only "if there is any indication that the filing of an
offer in compromise was solely for the purpose of delaying
collection of the liability or that delay would jeopardize the
Government's interest." There was no such indication in this case.

IRM 5341:(2) reads: "Except in jeopardy situations, before seizure action is taken, the taxpayer should be contacted in person and advised that seizure action will be the next action taken. The taxpayer should be given a reasonable opportunity to pay voluntarily." Neither requirement was followed in this case.

Policy Statement P-5-34 requires that thorough consideration be given to the facts and circumstances of a particular case before deciding to seize a business and offer it for sale. IRM 5341.1 :(3) clarifies this by requiring that "The revenue officer and group manager must weigh all opposing considerations and satisfy themselves that every reasonable effort has been made to collect the delinquent taxes on a voluntary basis." The revenue officers in this case obviously paid no attention to this requirement. The day after the taxpayer's accountant visited the IRS office, the revenue officers seized the property.

IRM 5341.2:(1) requires revenue officers to "determine that there is sufficient equity in the property being seized to yield net proceeds from sale to apply to the unpaid tax liabilities." The revenue officer could not have expected old tables and chairs to have any substantial resale value. The fact that the seizure was released for a $500 payment shows that this case was essentially a "no-equity" seizure. The costs of hiring a moving van, paying daily storage fees, and advertising the property would have approached $500. It is clear the revenue officer had not computed the taxpayer's equity before making the seizure; otherwise, he would not have released the property for such a nominal payment.

IRM 5341 :(4) requires the revenue officer to "immediately release the seized property... if it is determined after seizure that the taxpayer's equity is insufficient to yield net proceeds from sale to apply to the unpaid tax." This property was not released until several hours after the seizure even though it must have been self-evident to the revenue officer at the beginning of the seizure that there was no equity in the property.