The Internal Revenue Service needs to better manage the collection notices it sends to individuals, according to a new report from the Government Accountability Office.

According to the IRS, $23 billion in unpaid individual income tax debt existed in 2001, the agency’s most recent estimate. The notice phase is the first of the IRS's three-phase process to collect unpaid debt. The IRS annually sends notices to millions of individual taxpayers for billions of dollars of unpaid tax debt. But Congress and others have questioned the effectiveness of the IRS's collection process, the GAO noted.

Although the notice phase is a key part of the IRS's approach and strategy for resolving billions of dollars of individuals' unpaid tax debt, the IRS lacks certain internal controls to assure that notices to individuals are achieving the most benefits — such as debt collected or unpaid debt cases otherwise resolved — with the resources being used, according to the GAO. The IRS has no documented objectives for the notice phase and no performance measures to indicate how well the phase is performing in resolving debt cases or achieving other desired results.

According to IRS officials, to make the best use of collection resources, the IRS uses its business rules — based on certain dollar thresholds and individual tax debt case characteristics — to vary the number and types of notices sent to taxpayers and determine whether unresolved cases will be sent for further collection action or further action will be deferred. However, in almost all cases, for the five business rules the IRS identified as affecting the most taxpayers, the IRS did not have information on the date the rules were established, the rationale for the rule, or data supporting the rationale.

IRS collection officials also lacked documentation describing the business rules and how they operate. Further, even though IRS officials estimated that the business rules had been established for years, IRS had documentation for an evaluation of only one of the five business rules. Without relevant evaluations, the IRS lacks assurance that the notice phase achieves the desired collection results at the least cost, said the GAO.

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