IRS Urged To Correct Weaknesses In Unpaid Tax Collection

by Leroy Baker, Tax-News.com, New York

17 July 2008

The US Internal Revenue Service (IRS) is under pressure from the Senate to move faster to eliminate "material weaknesses" in its efforts to collect billions of dollars in unpaid tax debts.

Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Chuck Grassley (R-Iowa) issued a joint statement on Wednesday in response to a new Government Accountability Office (GAO) report that found the IRS has not yet adopted agency-wide cost-benefit data analysis and related performance measures that the GAO recommended in the past.

The report said the reforms could help resolve the annual tax gap, or the difference between the taxes legally owed and the taxes timely paid each year. The Senators sent a letter to GAO requesting a follow-up report on legislative and administrative options to help the IRS efficiently collect more unpaid taxes.

"The GAO has identified the collection of unpaid debt as a serious problem at the IRS since 1990, and has made reasonable recommendations that the IRS has had plenty of time to implement. The American taxpayer can’t afford to wait while the IRS drags its feet," Baucus commented.

"I challenge the IRS to take a fresh look at its collection function and tell me what it needs. I've asked the GAO to follow up on today’s report and explore administrative and legislative options to close the underpaid portion of the tax gap," he added.

According to Grassley, for fiscal years 2002 through 2007, while collections increased by USD10bn, unpaid debts increased by the same amount. During this same time, the IRS wrote off from 31% to 46% of unpaid debts because it essentially ran out of time to collect these debts.

For fiscal year 2007, the IRS classified only USD100bn out of USD290bn of unpaid tax debts as collectible. Of the USD100bn potentially collectible debt, the IRS is not actively pursuing USD25bn with USD2.5bn being shelved because of a claimed lack of resources, Grassley noted.

“This report, like all the others, presents some troubling facts," he observed.

"The longer a debt is outstanding, the less likely it will be collected. Any business person can tell you that. Knowing that the IRS isn’t going to collect the debt also gives tax cheats additional incentives not to pay. Those not paying their taxes eventually cause tax increases for those who do. This report is another piece of evidence that the private debt collection program should have a chance to work," Grassley concluded.

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