The Internal Revenue Service frequently establishes payment plans for delinquent taxpayers without considering whether taxpayers can afford to pay them, according to a new report.

The report by the Treasury Inspector General for Tax Administration found that when delinquent taxpayers respond to balance-due notices from the IRS, the agency often does not promptly process the cases, resulting in unnecessary delays and costs. The IRS and taxpayers sometimes enter into streamlined installment agreements when taxpayers may have the ability to fully pay their tax liability. In other cases, taxpayers did not have the income to support the payment amount required.

TIGTA selected a random sample of 60 balance-due cases to determine whether the cases were worked properly and procedures were followed. Fifty-seven (95 percent) of the 60 cases involved streamlined installment agreements. In 17 of the 57 cases (30 percent), installment agreements were established when taxpayers may have had the ability to fully pay their tax debts and could have avoided the costs of the installment agreement, which include penalties and interest.

TIGTA estimates that in the weeks selected for the sample, 1,874 taxpayers may have had the ability to pay their tax liabilities in full. Other times, it appeared the taxpayers did not have the income to support the payment amounts required by the terms of the installment agreements.

IRS officials advised TIGTA that the Internal Revenue Manual instructions for streamlined installment agreements do not require them to contact the taxpayer or make a determination if the taxpayer has the ability to pay. The installment agreements are instead based entirely on data provided by the taxpayers on the Installment Agreement Request (Form 9465).

IRS employees should document the case file to support all actions taken to resolve a taxpayer’s case. However, 13 of the 60 sampled cases (22 percent) did not include proper documentation. TIGTA estimates that for the weeks selected in the sample, balance-due notice cases for 958 taxpayers were not properly documented. The Internal Revenue Manual also requires that for any taxpayer correspondence, IRS Compliance Services Collection Operations needs to provide taxpayers with a final response that addresses all taxpayer issues within 30 calendar days from the date received by the IRS. However, in 39 of 60 sampled cases (65 percent), this practice did not occur. In addition, the interim letters acknowledging the delay were either late or there was no evidence that interim letters were sent as required in 26 of the 39 untimely cases (67 percent). TIGTA estimates that for the weeks selected in its sample, 4,343 taxpayers were adversely affected when processing of their balance-due notices exceeded 30 calendar days.

Management was not always aware of the issues that TIGTA identified because the workload reviews performed by team managers are not identifying these kinds of problems. The results of the workload reviews for Balance Due Notice Program cases are combined with those of other cases.

TIGTA made several recommendations to the IRS, including ensuring that streamlined installment agreements are beneficial to both the IRS and the taxpayer. IRS management agreed with most of TIGTA’s recommendations and is taking corrective actions.

“The IRS is establishing installment agreements without considering whether they are in the interest of either the taxpayer or the government,” said TIGTA Inspector General J. Russell George in a statement. “I am pleased that the IRS agrees with most of our recommendations and is taking corrective actions.”

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