IRS’ policy has long provided that, for taxpayers who are unwilling to pay their tax debts in a manner that is commensurate with their ability to pay, IRS revenue officers were to initiate enforced collection actions that could culminate in the seizure of their property. In fiscal year 1997, IRS revenue officers seized property from about 8,300 taxpayers who owed the federal government an estimated $1 billion in unpaid taxes. When we first reviewed IRS’ management of seized assets in 1992, we concluded that IRS’ controls over seized assets were not adequate to protect against theft, waste, and misuse nor to assure that the highest sales prices at the lowest cost were obtained. These conclusions were based on the following control weaknesses. Little accountability. We found that IRS did not (1) keep up-to-date records on property seized, (2) obtain receipts to document asset custody and storage location, (3) record physical condition of the property seized, or (4) conduct physical inventories of assets-on-hand to verify inventory records or check on the assets. Inadequate security. We found that some seized assets had been stolen or were missing, and in many cases, the value of the property was not documented in the files. We also reported that by not documenting the condition and value of seized assets, IRS left itself open to claims of damage. Sales not yielding highest price at lowest cost. We found that IRS could have attracted more buyers, and thus generated higher sales prices by holding consolidated sales of seized assets. Consolidated sales would also have allowed IRS to reduce sales costs, such as advertising. We also found that IRS did not always arrange for the lowest cost storage of assets. Little oversight. We found that IRS did not know the total amount of property in its possession because it lacked an adequate information system. Moreover, IRS management knew very little about the assets seized, including the types of assets seized, the value or condition of those assets, or where the assets were located. In conclusion, we commented that the asset management and sales functions could best be done by parties who specialize in those functions, such as other agencies or contractors, rather than as additional duties assigned to revenue officers, whose primary responsibility was to collect unpaid taxes. We also said that IRS needed far better information to oversee the management and sales of seized assets. To determine IRS’ progress in removing revenue officers from its process for selling seized assets, we interviewed IRS National and district officials concerning efforts to remove revenue officers from asset sales. We also reviewed the applicable provisions of the Restructuring Act, IRS interpretations of the act’s requirements, IRS procedures for selling seized assets, and seizure case files. To determine IRS’ progress in correcting internal control weaknesses, we discussed the 1992 findings with IRS National and district officials. We reviewed statutory and procedural requirements for conducting seizures and sales of taxpayer assets and examined collection case files to assess how those procedures were carried out. To make our case file review, we first selected a random sample of taxpayers who had property seized by IRS because of unpaid taxes. We selected the random sample from a population of about 8,300 taxpayers who had property seized by IRS in fiscal year 1997. About 9,700 seizures were associated with these 8,300 taxpayers. This sample yielded sufficiently complete information on 115 taxpayers with a corresponding 139 seizures to evaluate IRS’ management and control over assets seized. We followed procedures to express confidence in the precision of the results with a 95-percent confidence interval, separately computed for each estimate and reported as footnotes to the text of this report. Second, we randomly selected 16 cases with assets still in IRS’ possession from a population of 76 cases in 4 IRS district offices. Because this phase of our review involved examining the seized assets, possibly stored hundreds of miles from a district office, and reviewing the case file with the revenue officer in charge of the case, we established a maximum travel range of about 100 miles from our work locations in making our random selections. Our work was done principally in IRS district offices located in Atlanta, GA; Chicago, IL; St. Louis, MO; Oakland, CA; and the IRS National Office in Washington, D.C. We did our work between January 1998 and August 1999 in accordance with generally accepted government auditing standards. We obtained written comments from IRS on a draft of this report. We have summarized those comments in this letter and reprinted the written comments, in entirety, in appendix I. As of October 1999, IRS had not finalized its plans for removing revenue officers from any participation in selling seized assets. As a preliminary step to implement the Restructuring Act mandate, IRS collection managers asked IRS Chief Counsel for a legal interpretation of the point at which revenue officer involvement in a seized asset sale should end. Chief Counsel concluded that many activities that take place before the actual sale, such as the determination of the minimum price that IRS would accept for an asset, are “critical” to the sale of an asset and should be considered as “involved” in the sale. Accordingly, Chief Counsel concluded in its July 1999 interpretation that revenue officer involvement should essentially end with the act of seizing a taxpayer’s assets and may begin again after the sale of the assets has been completed. Chief Counsel also commented that an IRS study group would have the best perspective to structure any new IRS position related to asset sales. Using Chief Counsel’s interpretation as a starting point, IRS convened a study group of IRS staff and asset management and sales specialists from other federal agencies. The group met in October 1999 to discuss issues related to removing revenue officers from asset sales and structuring an IRS asset management and sales specialist position. As part of its discussions, the group recognized that any decisions reached would require consideration of a number of issues, including the following. Seizure workload. Since enactment of the Restructuring Act, the number of IRS asset seizures has dropped from about 10,000 per year to about 200 for 1999. As discussed in our overall report, IRS expects the number of seizures to rebound as IRS staff become more familiar with the act’s collection provisions. Considering the uncertainty regarding the workload for a specialist position, the group discussed issues related to ensuring that the number and location of specialist staff are commensurate with the workload. Allocation of duties and responsibilities. Although the Restructuring Act mandates that revenue officers are to be removed from any participation in sales, the group considered whether a revenue officer or other IRS employee, such as the specialist, should be present at all asset sales in order to stop a sale from being consummated, if appropriate. For example, a sale should be stopped if a taxpayer pays the tax debt or declares bankruptcy—currently the responsibility of the revenue officers involved in the seizures. The group also considered how the requirement for removing revenue officers from sales would affect supervisory responsibilities. Since many supervisory employees of the collection function are revenue officers, the group considered whether it would be permissible for those collection officials to supervise the specialists. Contracting out. The group considered the circumstances under which IRS should use private sector contractors or other government agencies to manage and sell assets. One option was for the specialists to determine, on a case-by-case basis, whether it would be better for the specialist to manage or sell the assets, assign the functions somewhere else in IRS, or contract out the functions. As of the end of October 1999, IRS’ Collection Division management was continuing to review options for structuring the specialist position. In our current review of IRS’ seized asset management and sales processes, we found little improvement from 1992 conditions in the 1997 seizures we reviewed. As in 1992, we found (1) little accountability over seized assets, (2) little or no security for some assets, (3) little assurance that IRS’ sales produced maximum proceeds, and (4) little useful management information for monitoring seized assets. The following summarizes the problems found. Our overall report on weaknesses in IRS’ seizure processes contains additional details. With respect to establishing accountability over seized assets, little had changed from our review in 1992. As detailed in our overall report on weaknesses in IRS’ seizure processes, asset control information documented by revenue officers in their seizure case files was not as comprehensive as the control information specified by federal financial management guidelines. Among other details, the guidelines explain that information should be sufficiently specific to allow the independent verification that each asset exists and that the recorded physical condition, geographic location, and asset value are accurate. We estimate, based on our review of sampled seizure cases, that revenue officers in preparing inventory documents omitted some information on the identity of assets seized in about 25 percent of seizure cases (i.e., asset descriptions used by revenue officers were not detailed enough, such as by identifying make, model, or serial number, to differentiate the items seized from other like items); quantity of assets seized in about 15 percent of seizure cases; condition of assets seized in about 74 percent of seizure cases; value of assets seized in about 12 percent of seizure cases; location of assets seized in about 10 percent of seizure cases; and custodian of assets seized in about 47 percent of seizure cases. Moreover, we estimate that revenue officers did not obtain receipts in 51 percent of the cases when the revenue officer file indicated that the seized assets were stored at contractor locations. Also, IRS did not make periodic physical inventories of assets in the possession of revenue officers or contractors. The omission of detailed information on assets (such as asset identity, quantity, or condition) reduces accountability. Even if IRS made physical inventories, without such information, there would be little basis for determining that all assets seized were still under IRS or third-party custody or appropriately protected against loss or deterioration. Regarding asset protection, little has changed from our review in 1992. As detailed in our overall report on weaknesses in IRS’ seizure processes, we found that an estimated 12 percent of seizure cases involved assets that required safeguards but the revenue officers’ files did not indicate security arrangements were made.