Senators Vent Frustration At IRS's Failure To Stop Tax Delinquency

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

23 March 2004

A Treasury Department report has shown that the Internal Revenue Service’s failure to follow up cases of tax delinquency cost the government almost $16.5 billion in tax revenues last year.

According to the Treasury’s findings, the IRS chose to ignore non-payment of tax in 2.25 million cases costing the government $14.1 billion in individual income tax receipts and $2.3 billion in corporate tax revenues. The median size of these delinquent accounts equaled $14,000, whilst the largest case not pursued involved $50 million in unpaid tax. The figures have led to calls by many that private collection agencies should be employed to tackle the problem.

Describing the figures as “another example of one step forward, two steps back” for the IRS’s fight against tax avoidance, Max Baucus, the Ranking Democrat on the Senate Finance Committee stated: “The especially troubling fact is that the agency knows who owes these back taxes, but isn't taking the time to make the 30-cent phone call that could result in hundreds, thousands, or even millions of dollars in lost revenue.”

Chairman of the Finance Committee Charles Grassley added: “The IRS appears to be ignoring its greatest weapon to stop tax cheating. That’s making the cheaters pay. It looks like the IRS has locked the jailhouse door and left the key in it. The message seems to be that crime pays. The IRS needs to use its resources to enforce these penalties.”

Whilst the Bush administration is calling for a $10.7 billion increase in the IRS budget for 2005 to help pay for almost 3,000 extra enforcement staff, some say this will still not be enough to substantially tackle the problem. Former IRS Commissioner Charles Rossotti for example, commented before his retirement in 2002 that the agency needed an additional 35,000 workers to clear up the backlog of non-payers.

As a result, the use of private debt collectors in tax cases is now a strong possibility in the more simple cases of non-payment that the IRS can easily identify. Indeed, measures have already been proposed as an offsetting measure in a bill providing tax cuts to manufacturers.

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