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IRS May be Giving Up Too Easily on Collecting Some Tax Debt

Procedures not always followed in pursuit of delinquent taxpayers, watchdog finds.

This story has been updated. 

The Internal Revenue Service has long confronted a “tax gap” between what the government is owed and what the agency succeeds in collecting.

But through deeper research and more closely following procedures before writing off some taxes as uncollectible, the agency could make a significant dent in that gap—most recently estimated at $385 billion—a report released Monday by the Treasury Inspector General for Tax Administration stated.

IRS employees regularly send letters, make telephone calls and sometimes meet face-to-face with delinquent taxpayers, but there are always some whom the agency is unable to locate.

In fiscal 2012, the IRS closed files on 482,661 cases worth some $6.7 billion because they were deemed uncollectible, TIGTA noted. So auditors sampled 250 of those cases and found that employees sometimes skipped research safeguards in 57 percent of the cases, worth potentially as much as $1.9 billion. In as many as 7 percent of the cases, employees failed to attach the required Notice of Federal Tax Lien to the file.

Although the Internal Revenue Manual “includes a checklist that field managers can use to ensure that employees completed all required work on the case prior to approving it as a … closure, the use of the checklist is not required and there was no evidence in the case histories we reviewed that managers used them,” TIGTA wrote. “Field managers approved 180 cases for which all required research was not completed, which potentially reduced revenue collected.”

J. Russell George, Treasury inspector general for tax administration, said, “If the IRS does not take all of the required research steps prior to closing cases, there is increased risk that the government’s interest may not be protected and that taxpayers will not be treated equitably.”

TIGTA recommended that IRS management ensure that employees complete the required research; tag relevant files with liens; and require managers to document that all case actions have been completed before approving any decisions giving up on collection.

IRS officials largely agreed with the recommendations. But in a Monday statement to Government Executive, a spokesman wrote, “We have already taken actions to improve verification processes related to closing these cases. However, the IRS disagrees with the methodology used by TIGTA, which we believe overstates the amount of potential unprotected revenue.”

In addition, “The IRS generally agrees with TIGTA’s recommendations and has already taken action to develop a checklist of research requirements for revenue officers and group managers to verify all necessary actions prior to case closure,” the agency wrote. "We have also updated the Internal Revenue Manual so that cases based on undeliverable mail follow normal collection processing.”

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