The Internal Revenue Service’s Fresh Start Initiatives have helped thousands of struggling taxpayers resolve their outstanding tax liabilities, but tax revenue collection could be jeopardized by potential risks, according to a new report.

The IRS announced new programs in 2009 to help taxpayers who faced financial challenges and had difficulty paying their tax debts because of the declining economy. In February 2011, the IRS began implementing the first of several initiatives to assist economically distressed taxpayers by offering viable collection alternatives to help resolve their delinquent balance due accounts. These initiatives are known as the Fresh Start Initiatives and include policy changes to installment agreements, offers in compromise, and Notices of Federal Tax Lien.

In a report released Wednesday, the Treasury Inspector General for Tax Administration found that the IRS’s implementation of the Fresh Start Initiatives provided several benefits to thousands of taxpayers. For example, the number of NFTLs filed against taxpayers with assessed liabilities below $10,000 decreased 60 percent, from 488,378 in fiscal year 2010 to 195,009 in FY 2013. Many other taxpayers benefited from streamlined procedures for processing installment agreements and offers in compromise. In addition, penalties were not assessed on certain taxpayers who requested a filing extension.

Although the Fresh Start Initiatives were generally implemented effectively, TIGTA noted that additional attention should be given in several areas. For example, 524 taxpayers, who owed approximately $10.5 million, defaulted on their direct debit installment agreements after the IRS had withdrawn the Notices of Federal Tax Liens, or NFTLs, yet the IRS did not file new tax lien notices. In addition, the IRS has not fully assessed the revenue impact of filing fewer NFTLs. TIGTA noted that performance measures may have helped identify potential problems and areas for improvement, but those measures were not established for all of the initiatives.

TIGTA recommended that the IRS file new NFTLs for the 524 taxpayers who defaulted on their direct debit installment agreements after their NFTLs were withdrawn. The IRS should also establish controls to ensure that new NFTLs are filed on taxpayers who default on their direct debit installment agreements, TIGTA suggested, and the IRS should assess the long-term revenue protection impact of the Fresh Start Initiative that increased the minimum dollar threshold for NFTL determinations in Field Collection. In addition, TIGTA recommended that the IRS establish methods to monitor and assess the performance of the Fresh Start Initiatives.

IRS management generally agreed with TIGTA’s recommendations. They plan to review case files and take action when appropriate for the 524 taxpayers, determine the viability of making a systemic enhancement or procedural changes for filing new NFTLs, and initiate a research request to evaluate potential revenue protection impact on NFTL-filing determinations.

Although IRS management agreed that there should be established methods to assess performance, they stated that their limited information technology resources prevent them from submitting or completing a work request at this time.

In response to the report, Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division, disagreed with TIGTA’s estimated loss of $10.5 million from the 524 taxpayers who defaulted on their installment agreements. “When a taxpayer neglects or fails to pay a tax debt, the government has a legal claim (a lien) against the taxpayer’s property,” she pointed out. “While the NFTL notifies creditors of the government’s right to the taxpayer’s property and gives the government a higher priority than certain other creditors with respect to the taxpayer’s property, the withdrawal of the NFTL does not remove the lien.”

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