The Internal Revenue Service sometimes writes off debts as uncollectible before it finishes researching the cases, putting billions of dollars that should be going into the government coffers at risk, according to a federal watchdog report released Monday.
In a review of 250 cases involving unpaid taxes, the Treasury Inspector General for Tax Administration found that IRS employees in 57 percent of the incidents didn’t always complete all of the research steps before closing the cases as “currently not collectible” or “unable to contact or unable to locate.”
In fiscal 2012, the IRS closed nearly 483,000 cases involving $6.7 billion for such reasons, the audit notes.
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IRS field employees are required to perform up to 10 research tasks – including tracing postal records, checking vehicle records and searching courthouse files for property records – before closing out a case as uncollectible.
Furthermore, a small percentage of cases didn’t have a “notice of federal tax lien” filed. That happens when a taxpayer doesn’t respond to IRS letters regarding delinquent taxes; at that point, the IRS is supposed to file a “notice of federal tax lien” at local government offices. The audit estimated that $53 million wasn’t protected because such liens weren’t filed when required.
“If the IRS does not take all of the required research steps prior to closing cases, there is increased risk that the government’s interest may not be protected and that taxpayers will not be treated equitably,” J. Russell George, Treasury Inspector General for Tax Administration, said in a statement.
In a response attached to the audit, the IRS said it generally agreed with the audit but said the watchdog likely overstated potential lost revenues when federal tax lien notices aren’t filed. “We believe that the government’s interest is adequately protected in these cases,” the IRS said.
Twitter: @beckyyerak