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Tracking IRS Violations of Fair Tax Collection Practices

Posted on Oct. 17, 2016

On September 14, 2016, the Treasury Inspector General for Tax Administration (TIGTA) issued a report on the way the IRS tracks violations of Fair Tax Collection Practices (FTCP) found in IRC 6304.  We have written about Section 6304 previously here, here and here.  This code section came into the Code in 1998 along with many other collection changes.  It brings into the Code a concept previously codified to stop abusive collection practices by private debt collection agencies.  Almost no litigation has occurred regarding Section 6304; however, a fair amount of litigation has occurred with respect to the provision upon which Congress modeled Section 6304.  As with many other provisions of the Restructuring and Reform Act of 1998, TIGTA was tasked with doing annual, and in some cases semi-annual, reports to describe IRS compliance with the now 18 year old provisions.  The requirement that TIGTA perform these annual reports has no sunset provision, so each year they dutifully prepare another report.  Many of these reports provide interesting insights into the collection function of the IRS even though some of the reports or some parts of the reports have taken on a routine aspect.

I found the recent report on FTCP interesting because of the extremely low number of complaints. My thought that the number of complaints was too low does not come from a belief that IRS collection division employees behave badly as a routine matter.  Quite the contrary, I may disagree with decisions they make but very rarely encounter bad behavior and almost never behavior which rises to level of wanting to complain about the behavior as opposed to the underlying decision.  My surprise concerning the low number results from the fact that one of the actions that can drive a complaint due to a violation of FTCP stems from the failure of the IRS to notify an authorized representative.  While this failure may on occasion result from purposeful behavior, I believe that it almost always results from a system or individual failure not driven by a desire to cut out the representative.  Whether by design or not, however, the failure to properly notify a representative, as require by the FTCP, happens quite a lot and regularly has bad consequences for the taxpayer.  I expected more complaining about this than 12 cases in a year.  This extremely low number results from the failure of representatives to complain in a manner that makes it onto the IRS system.  Representatives may bear responsibility for their own failure to complain about violations of FTCP and the report indicates that the IRS may also bear some of the responsibility for that failure.

The TIGTA report suggests that complaints about 6304 violations all focus on Revenue Officers. Complaining about the actions of a Revenue Officer (RO) can happen easily because of the ability to readily identify the RO and the RO’s group manager.  ROs handle only a small portion of collection cases and, I suspect, commit only a tiny fraction of the 6304 violations.  Most of the problems I encounter with the failure of the IRS to alert me when it takes some action concerning my client happen when a more automated segment of the IRS handles the case.  When this happens the representative does not have a specific person to complain about and does not know who to whom to direct the complaint.  The TIGTA report talks about the failure of the IRS to have a good system of capturing in its records the 6304 complaints lodged against ROs but that seems a minuscule part of the problem.  Instead of a problem that happens 12 times a year, this problem occurs thousands of times a year and has significant consequences for taxpayers.

The failure to timely and properly notify a representative of collection action can cause the taxpayer to miss a deadline to request a Collection Due Process (CDP) hearing, to request a Trust Fund Recovery Penalty (TFRP) hearing, to correct a missed Installment Agreement payment, or many other actions that must occur in responding to the collection of past due taxes. To capture the many times that the IRS violates 6304 by not notifying a representative, the IRS needs to have a system that allows representatives to easily report the violation.  Such a system would allow the IRS to identify the system problems that may create barriers to properly notifying representatives.  The data TIGTA collects does not identify system problems, but rather identifies problems with individual employees in one small part of the collection system – an important part but one that grows smaller with each passing year.  IRM broadly discusses FTCP but does not provide a basis for reporting violations.

TIGTA should take on the responsibility of requiring the IRS to build a system that identifies all of the violations of 6304 and not just the violations by the dwindling cadre of ROs who have the best training and may be the least likely group to violate 6304. The problem may lie with the CAF unit or interfaces between the CAF unit and other systems at the IRS.  It routinely manifests itself in correspondence, some of which is correspondence regarding a fundamental right that once passed cannot be recovered.  A RO might, on rare occasion, bypass a representative inappropriately but the matter on which the bypass occurs generally does not involve a fundamental right such as the right to request a CDP or TFRP hearing.  The loss of these fundamental rights must have concerned Congress when it required TIGTA to look at this area each year and yet TIGTA has focused its review on the system the IRS has developed rather than the system it should have developed.  To meaningfully capture the failures of the IRS to properly inform representatives, TIGTA should make recommendations requiring the IRS to establish a system making it easy for representatives to report a failure in notification.  Such a system may not identify specific individuals who failed but would make it much easier to identify systems that failed and capture a much truer number of the scope of the problem.

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