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Post Date:  10/1/2014
Last Updated:  10/1/2014

Summary
Cross References
- Treasury Inspector General For Tax Administration report dated August 25, 2014

A recent report by the Treasury Inspector General for Tax Administration (TIGTA) says delinquent taxes may not be collected by the IRS because required research was not always completed prior to closing some cases as currently not collectible.

If an IRS employee is unable to contact or unable to locate a delinquent taxpayer, the collection case may be closed as currently not collectible (CNC). If all of the required research steps are not taken prior to the case closure, there is a risk that the government’s interest may not be protected and that taxpayers will not be treated equitably.

In fiscal year 2012, the IRS closed 482,611 tax collection cases involving approximately $6.7 billion as CNC. The audit by TIGTA was initiated to determine whether these cases were adequately researched, documented, and approved to ensure that all actions were taken to collect outstanding taxpayer liabilities.

What TIGTA found. The TIGTA audit found that required case actions were not always completed before closing cases as CNC. Of a stratified sample of 250 cases reviewed, there was no evidence that IRS employees completed all of the required research steps for 57% of the cases prior to their closing. Moreover, 7% of the cases did not have a Notice of Federal Tax Lien filed on all delinquent tax periods as required.

Collection field function employees did not complete all research in 165 of the 204 cases, while automated collection system function employees did not complete all research in eight of the 38 automated collection system cases. Automated collection system function employees use an electronic checklist to guide them; however, collection field function employees do not have a checklist. Managers approved the case closures even though the required research steps were not completed.

Collection field function employees are required to complete more extensive research than automated collection system function employees before they close cases as CNC. However, the IRS does not track whether the additional research and time spent is productive.

IRS response. The IRS generally agreed with recommendations made by the TIGTA report, but disagreed with some of its conclusions and the amount of potential uncollected taxes.

The IRS said that TIGTA overstated the potential revenue that is not protected when a Notice of Federal Tax Lien is not filed for every delinquent tax owed by the taxpayer. For one thing, a number of these assessments were made as a result of an IRS substitute return prepared by the IRS under IRC section 6020(b). For example, the IRS preparers substitute returns using the standard deduction rather than itemized deductions, even when mortgage interest reported in Form 1098 exceeds the taxpayer’s standard deduction. Likewise, the IRS assigns zero cost basis to stock transactions listed on Form 1099-B, even when evidence suggests the same stock is traded multiple times during the year. In many of these cases, all or part of the assessment may be abated when the taxpayer is located and files an accurate return.

Author's Comment: It should also be noted that even if all procedures were followed, much of the uncollected tax liability mentioned in the TIGTA report would remain uncollected given the fact that the government would still not be able to locate all of these taxpayers.

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