The Internal Revenue Service’s Automated Collection System lacks key controls for selecting which delinquent tax cases to pursue, according to a new report by the Government Accountability Office.
The IRS's ACS is one of the main means for pursuing taxpayers who have failed to fully pay their taxes or file their tax return in a timely manner, the GAO noted. However, the collections staff has fallen victim to budget cuts. From fiscal years 2012 through 2014, ACS staff has declined 20 percent while the number of unresolved collection cases at year-end has increased 21 percent. Given those trends, the GAO noted, the IRS needs to make informed decisions about the collection cases it pursues to ensure the program is meeting its objectives and mission.
The ACS has a multistep, automated process to prioritize and select cases of unpaid taxes and unfiled tax returns to pursue. It assesses cases to determine the order to work on cases based on the IRS's collection program priorities, the likelihood the case will be resolved, and the type of tax and the amount owed. The ACS also reviews cases to determine what action to take based on whether a levy source or contact information is known for taxpayers. The system will then contact taxpayers according to its assigned priority and may issue a levy or lien against the taxpayer.
ACS managers balance the cases that are worked on to ensure the ACS achieves its case closure and taxpayer service measures. These decisions include how many notification and enforcement actions to take and how many cases to assign to IRS staff so that cases are worked on in a timely manner. About half of the cases closed in the ACS in fiscal year 2014 were high priority, such as when employers failed to pay federal employment taxes.
Of the 3.5 million cases closed or transferred out of the ACS in fiscal year 2014, the IRS collected nearly $6.2 billion. The IRS generally had more success in collecting from individual taxpayers than from business taxpayers, according to the GAO. However, because the IRS has not identified its objectives for the collection program or the ACS, the GAO acknowledged it is difficult to assess the program's overall effectiveness.
The ACS has processes for managing risk and reviewing performance, but the IRS has not implemented other key internal controls for the system, according to the report. This increases the risk that the collection program's mission of fair and equitable application of the tax laws will not be achieved. The GAO identified deficiencies in a number of internal control areas:
The IRS officials responsible for the collection program and the ACS were unable to produce documentation on the collection program or the ACS’s objectives. Although fairness is specified in the collection mission statement, the IRS has not defined or operationalized it in any ACS or collection program documents. In the absence of clearly documented objectives and a clearly communicated definition of fairness, the IRS cannot know how well the ACS contributes to the collection program mission and ensure the case prioritization and selection process is fair, the GAO pointed out. “The lack of clearly articulated objectives undercuts the effectiveness of IRS efforts to assess risks and monitor ACS performance,” said the report.
The IRS also has little formal documentation written describing the ACS prioritization and selection process. Without adequate documentation, the GAO said it is difficult for the IRS to determine whether the ACS case prioritization and selection process effectively supports the collection program mission.
In addition, the IRS lacks procedures for periodically evaluating the ACS case prioritization and selection process and has not acted on implementing recommendations from a recent ad hoc study. Given the fact that key components of the ACS process have remained relatively unchanged since its creation, the IRS may be missing opportunities to better prioritize its workload, which could improve collection results, the GAO pointed out.
The GAO recommended the IRS take four actions to help ensure the collection program meets its mission, including establishing, documenting, and implementing objectives for the collection program and the ACS, and establishing, documenting, and implementing procedures to complete periodic evaluations of the ACS case prioritization and selection process. In commenting on a draft of the report, the IRS said it generally agreed with all of the GAO’s recommendations.
“In the Collection sphere, the concept of fairness has both a collective and individual component,” wrote IRS deputy commissioner for services and enforcement John M. Dalrymple. “We take into account the responsibilities and obligations that all taxpayers share, and we pursue those individuals and businesses who fail to fully pay or file their taxes to ensure fairness to those who do, and we do so while taking into account the individual ability of each taxpayer to meet his or her responsibilities.”