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According to a recent report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS has been inconsistent in how it deals with foreclosure cases.

Orange County tax attorneys point out that there are two types of foreclosures: judicial and non-judicial. The US Attorneys Office (USAO) is responsible for protecting the government’s interests in judicial foreclosure proceedings. The IRS has responsibility for non-judicial foreclosures. Even though the IRS is not the primary government player in the judicial foreclosures, they have a role and need to coordinate that role more effectively with the USAO, according to the TIGTA report.

TIGTA also found that the information the IRS provided to the public for submitting a timely notice of sale for non-judicial foreclosures was inconsistent with the Internal Revenue Code.

According to TIGTA’s press release on the report, when a taxpayer fails to pay taxes owed, the IRS may attach a claim to a taxpayer’s real property – a claim known as a Federal Tax Lien. The IRS files a Notice of Federal Tax Lien (NFTL) in appropriate local government offices, notifying interested parties that a lien exists on the property. When property has a Federal Tax Lien attached, the IRS may collect proceeds from a foreclosure sale to cover the taxes owed.

The IRS agreed with all of TIGTA’s conclusions. Those were:

  1. The IRS should provide timely information regarding the application of any
    surplus proceeds and timely recommendations regarding the value of any releases of rights of redemptions
  2. The IRS should have sufficient information to consider potential redemption of
    foreclosed properties
  3. IRS communications with the public should be consistent with the tax code
  4. Foreclosure files should include evidence supporting rejection of notices of sale
  5. Releases of the right of redemption should be timely and appropriate

Source: US Treasury “The IRS Should Improve Its Procedures and Effectively Coordinate With United States Attorneys’ Offices When Dealing With Foreclosures” 11/2/2010