The Internal Revenue Service’s streamlined installment agreement program has brought in large amounts of revenue from people who owed back taxes, but at least 90,000 taxpayers using a streamlined installment agreement to pay back taxes may still owe the IRS after they complete the terms of their agreement.
A new report from the Treasury Inspector General for Tax Administration on the program found that approximately 3.1 million taxpayers entered into streamlined installment agreements with the IRS last fiscal year, resulting in approximately $5.9 billion in collections for the IRS. The agreements reduce the amount of documentation needed from taxpayers and require only minimal processing on the part of the IRS.
However, the report found that IRS procedures have allowed for inconsistent processing and treatment of taxpayers, some of whom still owed taxes even after fulfilling the terms of the agreement. Due to inconsistencies, some agreements will not be paid off when expected, according to the report.
In addition, TIGTA auditors found that the IRS has not consistently communicated to taxpayers the options they have for avoiding user fees associated with the agreements. Taxpayers paid more than $1 million in user fees that could have been avoided, and thousands of taxpayers may have been surprised to learn they still owed taxes after they completed the terms of their streamlined installment agreements, according to the report.
“The inconsistent processing and treatment of taxpayers may contribute to the inefficient use of IRS resources and jeopardize the IRS’s ability to collect tax liabilities,” said TIGTA Inspector General J. Russell George in a statement. “Inconsistencies can also create an economic hardship for taxpayers and may lead to future tax liabilities,” he added.
Streamlined installment agreements allow taxpayers owing tax liabilities equal to $25,000 or less to make payments over a 60- month period or by the collection statute expiration date. However, because the IRS does not consider current and future accruals of penalties and interest when computing streamlined installment agreement payments, many accounts will not be fully paid within the 60-month period.
TIGTA recommended that the IRS revise its streamlined installment agreement procedures. The IRS agreed with TIGTA’s recommendations and plans to take steps to address TIGTA’s concerns.
“We agree that the payment amount should fully pay the entire liability, including accrued penalties and interest before the Collection Statute Expiration Date,” wrote Faris R. Fink, commissioner of the IRS’s Small Business/Self-Employed Division.
However, IRS officials disagreed with the reported outcome measure because they did not believe all taxpayers would have waived their appeal rights to avoid paying an installment agreement user fee. TIGTA maintained that the reported outcome measure was reasonable. TIGTA agreed with the IRS, however, that it was unknown whether all taxpayers would have waived their appeal rights, which is why the outcome measure was reported as “potential.”
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