Internal Revenue Service employees may not be properly closing more than half of all uncollectible delinquent federal tax cases, according to the Treasury Inspector General for Tax Administration.
“There was no evidence that employees completed all of the required research steps for 57 percent of the cases prior to their closing,” TIGTA said in a report completed in August but only made public Monday.
“Managers approved the case closures even though the required research steps were not completed,” TIGTA said.
The agency handled more than 482,000 delinquent tax cases in 2012, the most recent year for which data was available. The cases collectively were worth an estimated $6.7 billion, according to TIGTA.
The report’s conclusions were based on a stratified sample of 250 cases.
The audit criticized both IRS employees and its management for a lack of thoroughness and recommended mangers “document all case actions” before closing an account.
The report said that, while the IRS had agreed in principle with TIGTA’s suggested reforms, the tax agency’s planned correction for two of the changes “did not fully address the recommendations.”
“There is increased risk that the government’s interest may not be protected and that taxpayers will not be treated equitably” as a result of the incomplete research, the report said.
Go here to read the full report.
UPDATE: IRS disputes TIGTA
The IRS issued a statement in response to the TIGTA report disputing both its conclusions and methodology:
“We have already taken actions to improve verification processes related to closing these cases. However, the IRS disagrees with the methodology used by TIGTA, which we believe overstates the amount of potential unprotected revenue.
“The IRS generally agrees with TIGTA’s recommendations and has already taken action to develop a checklist of research requirements for revenue officers and group managers to verify all necessary actions prior to case closure. We have also updated the Internal Revenue Manual so that cases based on undeliverable mail follow normal collection processing.
“However, the IRS does not agree with TIGTA’s ‘outcome measure,’ or measurable impact, that its recommended corrective actions will have related to Notice of Federal Tax Liens (NFTLs). We believe TIGTA’s methodology overstates the potential revenue that is not protected when an NFTL is not filed for every delinquent tax module owed by the taxpayer.
“Additionally, the business cases include assessments resulting from returns prepared by the IRS under IRC 6020(b). These are for people who have not filed a tax return, and the IRS does not have a full picture of their tax situation. In many cases, all or part of the tax assessment may be abated when the taxpayer is located and files a tax return.”
