A series of reports from the Treasury Inspector General for Tax Administration (TIGTA) reveal a streak of failures in collectibility procedures and enforcement at the Internal Revenue Service.
While the information that TIGTA uncovered could be interpreted in contrasting ways, one thing is for certain: the IRS isn’t doing its job, and the result is billions lost in uncollected tax obligations.
In its first of three recent reports on the matter, dated September 7, 2016, TIGTA states that IRS employees failed to abide by their own collectibility procedures in various delinquent tax cases:
“TIGTA estimates there were 1,731 Office examination cases and 1,445 Field examination cases in which employees did not follow established collectibility procedures and the case was later worked and closed by the Collection function as currently not collectible — with the IRS having received no taxpayer payments.”
The watchdog says a breakdown in internal communication is partly to blame, noting that examiners did not always “discuss collectibility issues with their managers.” In addition, examination personnel also neglected to refer cases to Collection staff when required to do so or “complete financial information needed to assist in future collection efforts.”
The result is billions in “tax assessments that will never be collected,” according to J. Russell George, the Treasury Inspector General for Tax Administration. “Adherence to collectibility procedures and coordination between the IRS Examination and Collection functions helps ensure that the IRS is using its limited resources efficiently,” he added.
In this vein, TIGTA also notes that from “Fiscal Years 2010 to 2015, gross accounts receivable increased from $138 billion to $171 billion (24 percent), while the amount written off as uncollectible receivables increased from $103 billion to $130 billion (26 percent).”
In TIGTA’s two subsequent reports, the watchdog identified similar missteps by the IRS, including the agency’s failure to “identify and address approximately 1.9 million … non-filers with expired extensions” in tax years 2012 and 2013. As of May 2016, 670,000 had still not filed their returns, resulting in $7.4 billion in uncollected taxes.
Furthermore, the inspector general highlights the agency’s inadequacy in collecting from “high-income non-filers,” which the IRS had previously indicated as a priority: “The IRS identified high-income nonfilers as both a high compliance risk and one of the top eight high-priority areas in the annual work plan, but none of the high-income nonfilers with expired extensions were notified of their delinquency in Tax Years 2012 or 2013.”
TIGTA’s third report singles out the agency’s errors in enforcing “backup withholding requirements” and several more billions lost as a consequence. Backup withholding applies to income such as rents, commissions, and other non-employee compensation when the payer files a return with a missing or incorrect taxpayer identification number (TIN).
TIGTA found that “although the majority of information returns are submitted by payers with valid TINs, nearly $9 billion in backup withholding tax was not withheld by payers submitting Tax Year (TY) 2013 information returns with missing or incorrect TINs as required.”
What Does This All Mean?
There are those who will argue that we can’t blame the IRS for this clumsiness. Some will, in fact, use this as an opportunity to make the case that this is what we get with a “cash-strapped” agency that is spread out too thin and in dire need of more funding.
In fact, Robert E. Mckenzie — a tax lawyer with Arnstein & Lehr in Chicago — tells Forbes that it’s Congress who truly deserves our criticism, and not necessarily the IRS. “Our Congress continues to empower and enable noncompliant taxpayers by cutting the IRS budget,” he says. “The 81% of Americans who are fully compliant are receiving less and less service while the IRS lacks the resources to pursue known noncompliant taxpayers.”
“It’s a great time to be a tax dodger,” Mckenzie adds for good measure.
But is more taxpayer money for this unchecked agency that routinely produces failure after miserable failure really the answer?
One could similarly make the argument that the IRS has previously been provided with more than enough resources and yet, when the time comes to review its activities, the agency shrugs its shoulders and moans that it’s “not a big enough budget” that is to blame.
If the IRS is really in such desperate need of a budget increase in order for it to do its job, then why does it keep wasting the hard-earned tax money that Americans have already provided on “unusable” email technology, obsolete operating systems, and lavish conferences?
Let us know what you think in the comments below.