IRS’ costly collection shortcuts

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A lack of follow-through could be costing the U.S. Treasury billions of tax dollars, according to a new report by the Treasury Inspector General for Tax Administration, or TIGTA.

© LUCAS JACKSON/Reuters/Corbis

If an Internal Revenue Service employee is unable to contact or cannot locate a delinquent taxpayer, the case may be closed as currently not collectible. The TIGTA analysis found that in fiscal year 2012, the IRS classified almost a half a million cases as not collectible.

Those 482,611 cases involved approximately $6.7 billion.

The oversight group says Uncle Sam might have gotten that tax money if IRS employees simply had been more diligent.

IRS collection shortcuts

IRS workers are supposed to take up to 10 actions in tracking down individuals with overdue bills. This includes things such as tracing postal, motor vehicle and real and personal property records, as well as local business licensing data.

In a sampling of 250 cases, TIGTA found that 57 percent of the time IRS employees did not always complete the mandate tracking actions before closing cases as not collectible.

Compounding the collection problem, says TIGTA, the IRS did not file a required notice of tax lien in seven percent of the cases, which accounted for $1.9 billion.

“If the IRS does not take all of the required research steps prior to closing cases, there is increased risk that the government’s interest may not be protected and that taxpayers will not be treated equitably,” said J. Russell George, Treasury Inspector General for Tax Administration, in a statement accompanying the report’s release.

IRS agrees, to a point

“We generally agree with your recommendations which should assist in improving our case work and have already initiated some of the recommended actions,” wrote Karen Schiller, commissioner of the IRS Small Business/Self-Employed Division, in a reply letter included in the TIGTA report.

Schiller said the IRS has developed a checklist of research requirements for revenue officers and group managers to use. That checklist will be incorporated into a continuing education course administered to IRS employees.

The IRS, however, took issue with TIGTA’s estimate of the value of some of the unpaid taxes. Schiller said the analysis “overstates the potential revenue that is not protected” when lien notices are not filed for every delinquent tax case.

TIGTA did acknowledge that even if the IRS employees had followed research procedure completely, collection of the outstanding taxes may have been difficult.

Still, taxpayers should expect — no, demand — that the agency do its job thoroughly, even when it’s tough to collect.

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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and co-author of the e-book “Future Millionaires’ Guidebook.”