House Ways & Means Committee Hears GAO Report of IRS Mismanagement
of Seized Assets

     -- F.E.A.R. Chronicles, Vol 1. No. 5, (November, 1992)

     On Thursday, September 24, 1992, the House Ways and Means
Committee, Subcommittee on Oversight, held hearings regarding IRS's
Management of Seized Assets.  Jennie S. Stathis, Director of the
GAO office on Tax Policy and Administration Issues, testified that
two IRS divisions -- Collection, which manages the seized assets of
taxpayers who owe taxes, and Criminal Investigation, which manages
forfeited assets -- do not have "adequate controls to protect the
property it seizes. . . from theft, waste, or misuse.  And the
practices used to dispose of the property do not always provide the
best return for the taxpayer."

     Among the starting revelations contained in the report:  IRS
does not know exactly how much seized property it has in its
inventory because it does not have an adequate management
information system.  

     Physical inventories are not conducted and documentation
problems include failure to report seizures in a timely manner, to
obtain receipts showing where the property was stored, and to note
the physical condition of the property when it was seized. 

     Because the IRS does not have specialized units to store and
dispose of seized assets, there is widespread mismanagement and
waste.  "Each Collection Division revenue officer who seizes
property is expected to find a place to store the property and to
sell it."  In some places, IRS was paying as much as $10 per day to
store seized vehicles.  These expenses are deducted from the sales
price of the asset before proceeds are credited to taxpayer debts. 
 
     Often, the report states, property is stored for long periods
of time before being sold.  A $200,000 Ferrari Testarossa has been
stored over a year.  IRS is incurring $600 per month to store a
$225,000 boat seized in February 1992.   Little control is
exercised over seized assets, making them prime targets for theft
and vandalism.  Because of the lack of controls, thefts often go
unnoticed.  GAO found two cars and a boat on a trailer stored in an
unfenced parking lot.  

     GAO did a random sample of 70 pending cases, finding property
missing in two of the 70.  In another random sample of 278 closed
cases, five cases had property missing, including "televisions,
video cassette recorders, telephones, scuba equipment and other
personal items", "a grocery inventory valued at $10,000", three
television remote controls, four hubcaps and a gold Krugerrand. 
Also unaccounted for were a $13,000 Mazda (which later appeared to
have been taken into government use), and 30 pieces of gold and
diamond jewelry, valued at $17,000.  In both of these later cases,
IRS claims to have found the assets.  

     Most upsetting to the committee, however, was the fact that
the seized properties were not being sold for top dollar, because
of the long, wasteful storage period, vandalism and theft, as well
as the way the property was being sold, in separately advertised
single sales, rather than in consolidated batches.  Also, the costs
of storage were deducted from the sales proceeds -- in many cases
exceeding the proceeds.  

     In 23 percent of the cases we reviewed -- 42 of 180 --
     IRS collected no money at all but incurred labor and 
     overhead costs.  In half of these cases, taxpayers'
     accounts were charged for such out-of-pocket expenses as
     towing and storing.  

     The real tragedy here, is that is the taxpayer, already
     obviously down on his/her luck, having gotten behind on
     taxes, suffers through having his/her assets seized, only
     to get partial or no credit for them.          

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