Some IRS employees are closing delinquent taxpayer accounts without following the proper procedures and without managerial approval, according to a new government report.

J. Russell George

The report, from the Treasury Inspector General for Tax Administration, found that delinquent taxpayer accounts were closed as currently not collectible without IRS managerial approval and without any detection. Some taxpayers try to resolve their delinquent account by working with an assistor at one of the IRS’s walk-in offices, called Taxpayer Assistance Centers. If the taxpayer has no ability to pay, the taxpayer account could be closed as currently not collectible.

An analysis of two samples of taxpayer accounts closed in the IRS’s Taxpayer Assistance Centers as currently not collectible discovered that the accounts were not worked according to procedures.

Because the cases lacked documentation, such as financial statements and case history notes, however, TIGTA could not determine whether the correct decision was made to close the cases as currently not collectible. The total assessed balance for the statistical sample of 136 taxpayer accounts was approximately $2.5 million, of which nearly $800,000 involved incorrect closing codes, which could result in lost revenue.

TIGTA’s analysis of 136 currently not collectible cases also found that closed cases were not correctly input in the IRS’s databases. Some had the incorrect closing codes while others had closing codes that were either higher or lower than warranted based on case documentation.

TIGTA’s audit was initiated because of a referral from TIGTA’s Office of Investigations. TIGTA sought to determine whether controls over balance-due accounts closed as currently not collectible in the IRS Field Assistance Office were sufficient to ensure that all of the actions were appropriate.

“If taxpayer accounts are closed inappropriately, taxpayers may be burdened and the IRS may not be able to collect taxes owed when a taxpayer’s income increases,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA recommended that the IRS ensure that assistors follow established procedures; clarify internal guidelines requiring management approval of cases in the Accounts Management Services System history section; conduct a risk analysis to determine the risk of not segregating duties; and implement security reviews and reports that can be used to evaluate the assistors’ use of system command codes.

The IRS agreed with the recommendations and is planning remedial action. “We will remind our employees and managers of the procedures to be followed in evaluating the collectability of balance-due accounts and reinforcing expectations for adequate documentation of decisions made and approvals granted in updating accounts to CNC [currently not collectible] status,” wrote Peggy Bogadi, commissioner of the IRS’s Wage and Investment Division, in response to the report. “We are also initiating a comprehensive review of existing procedures and internal controls, and will perform an assessment of risks present and the effectiveness of controls in mitigating those risks.”

In response, the IRS did acknowledge that in recent years it has “noticed an increase in the number of taxpayers who seek assistance at [Taxpayer Assistance Centers] when they are unable to pay their taxes owed,” and that this increased volume has “illustrated a need to reinforce existing procedural controls.”

“There are 187 TAC locations staffed by just one or two employees,” the IRS's response added, which can “present significant challenges” and has occasioned a “security review process” in these TACs.