The Internal Revenue Service's process for collecting unpaid taxes is overly complicated and delayed, according to a new report by the Government Accountability Office.
Because the IRS has a very large debt workload and limited resources spread across multiple units, it must make numerous decisions about how best to handle debt cases, noted the GAO. Debt cases can take various routes based on about 70 IRS decision rules used for handling cases. The rules depend on a wide variety of debt characteristics, information known about the taxpayer, and the results of attempts to contact the taxpayer or take enforcement action.
The cumbersome process is leading to longer delays in collecting unpaid taxes. From fiscal years 2002 through 2007, increases occurred in the unpaid tax debt inventory, the percentages of debt classified as potentially collectible and in active collection status, and the dollars IRS collected.
The revenue collected from pursuing the unpaid tax debt through the collection process increased about 30 percent, from $33 billion in fiscal year 2002 to $43 billion in fiscal year 2007. At the same time, the total IRS tax debt inventory went from $280 billion to $290 billion, as new tax debt was created and old tax debt was resolved each year. IRS officials attributed the increase in collections and in debt inventory in part to increased enforcement actions.
The GAO identified material weaknesses in the IRS's controls over unpaid tax assessments and collection. The report said they were partly due to the lack of agency-wide cost-benefit data and related performance measures.
The GAO acknowledged that the IRS has made some progress in addressing these weaknesses, but said the progress has not been sufficient. Over the past three years, the IRS has taken various approaches, including sophisticated computer modeling and risk assessment techniques, to help identify the tax debt cases with the greatest collection potential, and prioritize the cases. But while the IRS has ongoing projects to expand the use of these models and techniques, it does not yet have an agency-wide, systematic approach to managing the collection of tax debts.
In response, the IRS has created a council of IRS collection officials to coordinate various collection activities and potential changes across parts of the collection process. In addition, the IRS has a number of ongoing projects to improve aspects of the collection process. However, some of these projects will take a few years to be implemented.
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