IRS Could Send Balance-Due Notices Faster

The Internal Revenue Service may be able to collect more money by sending out balance-due notices on a more frequent basis to delinquent taxpayers, according to a new government report.

The report, by the Treasury Inspector General for Tax Administration, found that the IRS allows 35 days between notices to give taxpayers enough time to respond. The first notice sent out the IRS to taxpayers with unpaid tax liabilities appears to be the most effective by a wide margin. In most cases, the IRS was able to collect the greatest amount of money and receive the most responses from taxpayers. However, the probability of collection diminishes as time goes on. By reducing the time between sending notices by seven days, TIGTA estimated the notice stream could potentially collect an additional $363 million each year, although a study analyzing the impact of reducing the time would be needed to quantify the benefits. In addition, taxpayers could potentially save $1.8 million each year in interest payments.

TIGTA also found that the notice stream does not always treat taxpayers with more than one delinquency the same. As a result, the IRS may not use collection resources most effectively.

“The notice stream is the least costly of the IRS’s three-phase approach to collecting unpaid taxes,” said TIGTA Inspector General J. Russell George in a statement. “While the notice stream collects billions of dollars in delinquent taxes annually, reducing the time between notices could potentially result in the collection of millions more. Further, if the IRS does not effectively pursue collection of unpaid tax through the notice stream, it could create an unfair burden on the majority of taxpayers who fully pay their taxes on time.”

TIGTA recommended that the IRS consider reducing the time between each notice by seven days and establish a business rule to address taxpayers with multiple balance due modules entering the notice stream at the same time.

IRS officials agreed with the recommendations and said they are open to modifying the time between each notice, subject to budget constraints and programming issues. However, IRS officials also noted that 35 days between notices were necessary in order to process taxpayer inquiries and correspondence.

The IRS noted that taxpayers could answer the notice in different ways too. “While a taxpayer may respond by simply making a payment, quite often taxpayers respond to balance due notices via telephone, correspondence or on-line to address other issues,” wrote Faris R. Fink, the commissioner of the IRS’s Small Business/Self-Employed Division. “In these instances, it may take additional time to respond dependent upon the issue and how the account is being resolved. The timeframe between notices needs to reflect all types of issues and responses, and allow the Service to respond appropriately before the next notice is issued to avoid causing undue burden on the taxpayer or the Service.”

TIGTA argued, however, that the IRS already has controls in place to prevent the next notice from being sent when taxpayers’ correspondence is being processed.