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IRS’ Lack of Protocol Loses Billions of Dollars

October 08, 2014  |   Tax News   |   Tags: , ,  

$6.7 Billion is a good sum of money no matter how one looks at it. This is how much money the IRS gave up looking for and declared Currently Not Collectible (CNC) in 2012 according to a report published in August by the Treasury Inspector General for Tax Administration. What surprised many about the report was that the IRS failed to follow protocol thoroughly to track down these unpaid tax dollars.
moneyIn 2012, the IRS ruled that 16% of those who owed the IRS they were either unable to locate (UTL) or unable to contact (UTC). The Treasury Inspector General took a sample of 250 of these cases and learned that 57% of the time, the IRS did not pursue all paths to locate or contact the taxpayer. 51% of cases had one to three missing steps. 5% of cases had four to six missing steps. 1% had seven or more missing steps. The IRS must complete 10 actions without success before declaring a taxpayer untraceable therefore uncollectible.

According to IRM 5.16.1 for field employee requirements, all of the following steps are necessary before giving up on a tax debt.

  • Telephone directories
  • IRS’s Information Returns Processing data
  • Send a postal tracer
  • Motor vehicle records
  • Employment commissions
  • Courthouse records for real and personal property
  • Local licensing when the taxpayer owns a business
  • Online resources (Accurint)
  • Integrated Data Retrieval System tax return research, if the due date of the last filed return was within the past two years.
  • Currency and Banking Retrieval System research when Integrated Data Retrieval System research reflects that a taxpayer has filed a Foreign Bank Account Reporting form, and possible use of a Tax Attaché for International accounts.

It is easy enough to see that most of these steps could be successfully completed even by an amateur, and even more easily to an IRS field employee who has access to more advanced resources. For a government bureaucracy devoted solely to collecting money, it is fairly surprising that so little was done to collect on over half of a random sampling. It may even seem as if the IRS was trying to take it easy on these taxpayers. However, once declared CNC (which is the certain fate for those the IRS states they unable to track or locate); these taxpayers will be slapped with a lien. Many of these people may be unaware that they even owed the IRS and most of them will not know that they have a lien until they try to buy a car or sell their house.

In addition to these findings, the Treasury Inspector General also found that 7% of the time that the IRS places a lien on a taxpayer’s property, they do not file a Notice of Federal Tax Lien (a required, public warning). Not only does this leave a taxpayer in the dark who otherwise may want to rectify the situation, but it also defeats the purpose of a lien to encourage taxpayers to comply with collections. Despite all of this, 2014 is the third straight year that the IRS has increased the amount of taxes collected despite budget cuts.