The Internal Revenue Service’s total tax debt inventory has increased 23 percent since 2009 to $380 billion, according to a new government report, while the agency’s collection staff has declined 23 percent after years of budget cuts.
The report, from the Government Accountability Office, found the IRS lacks adequate internal controls over its largely automated tax collection processes. The processes automatically categorize and route unpaid tax or unfiled tax return cases for potential selection. The automated Inventory Delivery System, or IDS, categorizes and routes cases based on many factors, such as type of tax and amount owed.
Outside of IDS, collection managers set goals for closing cases in priority areas, such as delinquent employer payroll taxes and cases involving certain high-wealth taxpayers. If the goals are at risk of not being met, officials are able to take action to select additional priority cases.
In recent fiscal years, the collection program has exceeded nearly all case closure goals for priority cases. However, because the IRS has not identified objectives for the collection program, such as fairness, the GAO said it is difficult to assess the program's overall effectiveness.
The GAO identified several areas where the lack of documented objectives and internal control deficiencies for categorizing and routing cases increase the risk that the collection program's mission, including fair case selection, will not be achieved.
For example, the IRS collection program's objectives and key terms are not clearly defined, according to the report. Although fairness is specified in the collection mission statement and IDS processes can affect how collection cases are selected, IRS management has not defined fairness or any other program or case selection objectives. IRS collection's management referred to various documents as examples of program objectives. However, the GAO found the documents were not specific enough nor codified in official IRS guidance to ensure proper control over the program. Without clearly defined objectives that can enhance program effectiveness, the GAO said it is difficult for the IRS to ensure it selected collection cases in a fair and unbiased manner.
In addition, case categorization and routing procedures for collection cases are not documented. According to IRS management, case categorization and routing procedures were developed over several years as the result of incremental decisions and system changes. However, the GAO found the system and decisions were not documented, such as the selection of priority areas. Without documentation, the GAO pointed out that it is difficult to determine whether processes are effective or consistently applied.
Nor is the effectiveness of the collection processes routinely monitored, the GAO found. Despite some ad-hoc studies, IRS does not have procedures to periodically monitor IDS, including the dollar thresholds used to identify some cases for collection. IRS management could not provide the GAO with justification for the thresholds because, according to IRS officials, they were set so long ago. Without periodic evaluations, out-of-date collection procedures could result in unnecessary costs or missed collections, the GAO report noted. Unadjusted dollar amounts could also lead to inconsistent treatment of taxpayers over time as the real value of dollar thresholds decline over time due to inflation.
The GAO recommended the IRS take five actions to improve collection controls, such as clearly defining and documenting program objectives and control procedures, and periodically evaluating the effectiveness of controls. In commenting on a draft of the report, the IRS said it generally agreed with all of GAO's recommendations.
“In the Collection sphere, the concept of fairness has both a collective and individual component,” wrote IRS deputy commissioner for services and enforcement John M. Dalrymple in response to the report. “We take into account the responsibilities and obligations that all taxpayers share, and we pursue those individuals and businesses who fail to fully pay or file their taxes to ensure fairness to those who do; and we do so while taking into account the individual ability of each taxpayer to meet his or her responsibilities.”
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