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TIGTA Report on ACS Details the Impact of Shrinking Budget on Tax Collection Efforts

Posted on Nov. 13, 2014

On September 18, 2014, the Treasury Inspector General for Tax Administration (TIGTA) issued a report about ACS.  The title gives a good preview of the article, “Declining Resources Have Contributed to Unfavorable Trends in Several Key Automated Collection System (ACS) Business Results.”  The fact that ACS cannot perform as well when it loses a significant percentage of its staff does not rise to the level of shocking news but the report itself provides an interesting insight in the impact of the dwindling resources and how the IRS goes about shuffling the deck chairs in what appears at the moment a losing effort at keeping up with its workload.  The report does not suggest that a tipping point is near when the lack of resources will cause a major shift in voluntary compliance.

The report does a good job of describing ACS and how it fits into the collection system the IRS has developed. It occupies the second chair in a three part process:  1) the notice stream; 2) ACS; and 3) field collection.  The report talks about how the breakdown in ACS has, and will, continue to impact field collection and it makes some suggestions on how to lessen that impact if no resources appear on the horizon.  The descriptions and the statistics show the tough choices the IRS must make as it tries to meet workload demand in a time of significantly less resources.  Because of the reduction in staff, ACS no longer calls out to taxpayers seeking their compliance; it  has evolved into an organization that responds to calls from taxpayers receiving correspondence from the notice stream.  This description of the change in the work of ACS shows how the original goal of ACS – as a quick point of contact with delinquent taxpayers – no longer exists.  Its mission is to answer as many of the calls as it can but it cannot even cope with that mission.

The report contains several excellent charts displaying statistics on the actions of ACS. It has lost 24% of its workforce in the past three years (see Figure 2 below).  Because of issues with identity theft, the IRS has redeployed its smaller workforce to address that problem instead of using this workforce to cover as many collection cases as possible.  This, in turn, is driving some of the collection decision.  ACS issues less levies (see Figure 10 below) because it knows that when it issues levies the taxpayers will call.  I always thought that the reason for the levy was to get taxpayers to call who did not seem motivated to do so through correspondence.  The problem with having them call is that ACS then becomes overwhelmed.  The report states, “ACS management sometimes scales back issuing levies at a controlled rate in an effort to limit incoming calls to a manageable level.”

The report also details that more cases go into the Queue (see Figure 12 below). The Queue exists to warehouse collection cases no one can work.  Sending a case to the Queue does not mean that the IRS has given up on collecting the liability but just that it cannot pay attention to that case at the moment.  If the taxpayer files a refund return, the IRS will still offset the refund but absent having money fall into its lap or the taxpayer suddenly having a desire to pay the taxes about which many notices were previously sent, the taxpayer will simply not hear from anyone at the IRS while the case sits in the Queue.  A case could sit in the Queue for 10 years and then go away because of the statute of limitations on collection.  The report states that “ACS sent 12 percent more cases to the Queue during F& 2013 than during FY 2012.”

The problems in ACS and its inability to work cases impact field cases adversely simply because cases now take longer to reach the field (see Figure 7 below). I have read studies before finding that once a tax debt goes unpaid for two years the likelihood of the IRS collecting the debt dwindles to about 15%.  Now, cases do not get out of ACS to the filed until they have already aged past that point.

On average, a case is in the notice stream for nearly five months prior to entering ACS inventory. Cases that are not resolved by ACS can remain in ACS inventory for more than two years before being systemically routed to either the CFf (field collection aka revenue officers) or the Queue.  TDAs (tax delinquent accounts) that are routed to the Queue will have aged on average more than three years before being assigned to a revenue officer.  If and when these cases are eventually assigned to the CFf, they have aged and their collection potential has significantly decreased.

If revenue officers do not get cases until three years after assessment, they have a steep hill to climb to obtain payment. The original plan in creating ACS was to have speedy contact with taxpayers because quick collection means a much higher chance of success with collection.  Instead of the original plan, ACS now stands as a bar to quick collection and perhaps a bar to collection at all.  If staffing levels have fallen so far that ACS cannot do what it was designed to do and now serves as a drag on collection rather than a turbo charge, the time has come for redesign.

The report notes that the reduction in the filing of notices of federal tax liens as a result of changes a couple of years ago when the Freshstart initiate took place, may have really helped ACS (see Figure 11). After reading that ACS curtailed levy action to assist ACS responders, I almost got the feeling that those of us who thought we had done a successful job of lobbying for a better notice of lien filing policy only won because the IRS could not keep up with servicing the notices of federal tax lien filed at the lower level.

The report concludes with some dire remarks about the future of collection at the IRS. “[I]nventory continues to be routed to the ACS even when inventory cannot be worked.  When inventory is not worked or not worked timely, case dispositions may be adversely affected.  This may also have a substantial impact on the amount of Federal taxes that remain uncollected.”  The report urges IRS collection officials to align inventory routing with capabilities.  What will this mean?  If a case is headed to the Queue, routing it through ACS does not make too much difference to the action that will occur on that case.  It does not matter much if a case sits in the inventory of ACS or in the Queue if no one seeks to take affirmative action to collect.  From the taxpayer’s perspective, the location of the account between an inactive ACS and the Queue does not matter.

So, the IRS could shoot cases at Queue dollar levels straight to the Queue and not bother to load up the inventory of ACS. Because Queue dollar levels may stand at high levels, this could mean that accounts with less than $50,000 or $75,000 simply go straight to the Queue without sitting in ACS while ACS concentrates on quickly moving the higher dollar cases destined for revenue offices if ACS fails to collect.  To accomplish the direct move into the Queue, the IRS may have to raise to even higher levels the point at which it files the notice of federal tax lien or takes levy action.  Good news if you have a mid-level tax debt amount and bad news if you would like others to pay their fair share.

TIGTA reports often trouble me because they exhort the IRS to work better, faster, smarter and do not look at the system within which the IRS function works to see if better design could solve the problem more effectively. This report seems to acknowledge that the problem does not stem from the ACS not working efficiently and suggests a “better” system by suggesting a system that will move work out of ACS that cannot handle the volume in its current depleted state.  In the roughly 30 years of its existence, ACS has drawn much criticism.  If the IRS continues to shrink, ACS may simply cease to exist because it just gets in the way of collection and no longer has the ability to seek payment of tax from delinquent taxpayers.

TITGA ACS Fig 2TITGA ACS Fig 10TITGA ACS Fig 12TITGA ACS Fig 7TITGA ACS Fig 11

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