Perhaps the citing of one of the taxpayer rights listed in the Taxpayer Bill of Rights (TBOR) should not receive extraordinary attention. Still, I was impressed when I found that on the first page of its report about new collection notices, TIGTA cited to the taxpayer’s right to be informed as influencing the new collection notices. Before I get into the details of these two reports I wanted to make special note of the TBOR sighting which suggests it has some importance in the development of administrative processes within the IRS. The citation to TBOR also helps me as I prepare to speak on taxpayer rights and collection at the upcoming International Conference on Taxpayer Rights. Les is also a speaker at the conference.
The TIGTA report discusses the taxpayer right immediately after discussing the statutory requirements. Getting cited in a report prepared by an arm of the Treasury Department does not carry the same importance as a citation by a Court or independent body as the basis for action but it does signal that the rights are having an impact. I understand that some states and localities have begun adopting taxpayer rights statements following the lead of the IRS. Success in advocating based on these rights may yet occur.
While the citation to the first right listed in TBOR, deserves passing mention, the TIGTA report itself demands attention from those doing collection work not only because it describes the new notices in the collection stream but also because of all of the statistics about the notices that it provides. The IRS carefully monitors the effectiveness of the letters it sends in the collection notice stream. Even a 1% change in taxpayer behavior based on these letters can have a significant impact on the number of cases in the IRS collection inventory. Because of the impact of the language of the notices in effectively collecting revenue, the IRS measures the impact of these notices and tests the results of the chosen language.
When you combine the TIGTA report with the GAO report concerning the automated collection system issued shortly thereafter, it is possible to obtain a very detailed picture of the inner workings of the IRS collection process. In this post we generally focus on statutory rights taxpayers have in dealing with the collection system but the administrative process provides a far more important topic for most taxpayers because the way the IRS administers the collection of taxes, while guided by the statutes, has a much more practical impact. Understanding how the IRS guides cases through this process can assist in making decisions about what to do when your client has a problem with the collection system. As I will discuss further below, understanding the significant problems the IRS now faces in administering the system, may also influence advice to clients on next steps.
If you want to take the time to read the reports, and I recommend reading them if you want to understand how the collection process at the IRS works, read the TIGTA report first because it covers the first part of the life of a case in collection. This report focuses on the notices that the IRS sends to taxpayers. It is easy to think of these notices by letter number or to not think of these notices at all but the notices generate a lot of money for the IRS. The wording of the notices, the timing and everything about them requires careful choreography in order to maximize successful revenue impact. The TIGTA report provides very granular detail concerning each of the notices and how successfully the notice produces payment. Because the IRS recently went through a notice revision process, you can see in the report the impact of the changes in the language in the notices on taxpayer behavior. I cannot say that the new improved notices provide the best way to gently guide taxpayers to compliance but knowing that the IRS pays careful attention to this, while considering taxpayer rights, gives me positive feelings about the tax collection process.
The GAO report essentially picks up where the TIGTA report leaves off. It describes the three phases of IRS collection as notice, telephone (essentially Automated Call Sites or ACS) and in-person (Revenue Officers.) Page 9 of the report has one of many helpful charts in the report and lays out this three step process. Of course, not every collection case will go through this process and, as the report details, the IRS ability to handle the telephone phase is decreasing rapidly. Its ability to handle the in-person phase, which I sometimes call its collection concierge service, has degraded significantly over the past two decades. This report focuses on the second phase and does not analyze the in-person phase where I believe the loss of resources would equal or exceed the telephone phase.
While the TIGTA report had some positive numbers for the IRS concerning its success with notices, the GAO report starts off with some stark and troubling numbers for the IRS with respect to the telephone segment of its collection process. “ACS has experienced significant declines in staffing, with full-time equivalents decreasing by 20 percent (from 3,672 to 2,932) from fiscal years 2012 through 2014. Over the same period, the number of unresolved collection cases at the end of each year increased by 21 percent (from 4.2 million to 5.1 million).” As staffing and inventory move in opposite directions at a rapid pace, this creates an interesting quandary for those giving advice to taxpayers who owe federal taxes. The IRS sends fewer levies because sending levies generates phone calls. It must monitor the number of levies it sends because of its limited ability to answer the phones in response to the levies.
The GAO report details how the IRS prioritizes the cases in collection. While the report focuses on the perceived failure of the IRS to have adequate detail in its plan for prioritization and selection of cases, it is clear that the IRS does have a detailed process even if it has not linked that process to its mission. It is also clear as you read the report who is likely to receive attention. Nothing in the report is overly surprising, except perhaps the rapid rate in the past three years of the decline in the IRS ACS capabilities but, as with the TIGTA report, the amount of detail and the number of charts provides a significant level of granularity concerning this function of the IRS. Table 3 on page 43 of the report gives the numbers of the dropping enforcement actions taken by ACS between 2012 and 2014: Notices of Federal Tax Liens Filed down 11.29%; levies issued down 36.6%; letters sent by ACS down 30.9% and outgoing calls down 40.4%. In addition to the loss of employees in ACS, some sites were shut down for over a year between 2013-2014 to work identity theft cases.
While I am focusing on the gloomy numbers, the GAO provides much detail on many of the sub-parts of the IRS ACS function. Taken together these two reports can really instruct anyone interested in knowing about the systems at the IRS for collection as opposed to the statutes that apply. Understanding the systems and the numbers can help you explain to clients what is happening in their case and why.