Skip to main content

Tax Administration: IRS Can Do More to Collect Taxes Labelled 'Currently Not Collectible'

GGD-94-2 Published: Oct 08, 1993. Publicly Released: Nov 09, 1993.
Jump To:
Skip to Highlights

Highlights

Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) currently-not-collectible (CNC) accounts, focusing on whether IRS: (1) classification of certain CNC accounts is appropriate; and (2) efforts to monitor these accounts for future collection are adequate.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service The Commissioner of Internal Revenue should establish specific guidelines for determining taxpayers' ability to pay delinquent taxes, including criteria for determining dollar ranges for reasonable and necessary expenses.
Closed – Implemented
IRS issued new guidelines on September 1, 1995 establishing ranges and amounts for necessary living expenses, depending on the geographic area and income level of the taxpayer. The guidelines establish national standards for reasonable amounts for six necessary expenses: food, utilities, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. Except for the miscellaneous category, the standards are derived from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey, and will be updated yearly. The miscellaneous standard has been established by IRS. Local standards will be established for housing and transportation, and a local standard for utilities will be optional. Other expenses may be allowed if they meet the necessary expense test of providing for the health and welfare of the taxpayer, or taxpayer's family, or the production of income.
Internal Revenue Service The Commissioner of Internal Revenue should establish specific guidelines for selecting the income level at which unable to pay CNC accounts will be reactivated.
Closed – Implemented
On April 4, 1994, the IRS Director of Operations (Collection) issued a memorandum to the field entitled, "Determining Proper Reaction Codes for Hardship CNC Cases and Requesting Prior CNC Files." As part of new financial analysis procedures implemented in September 1995, IRS will now require payments from taxpayers earning over national standard expense levels unless the taxpayer can substantiate unusual additional expenses. Further, IRS improved its guidance for Revenue Officers on classifying accounts as CNC based on the above allowable expenses.
Internal Revenue Service The Commissioner of Internal Revenue should require, except in extraordinary situations, at least minimum payments from delinquent taxpayers with incomes above a specified level.
Closed – Not Implemented
IRS plans to issue new guidelines which will establish ranges or amounts for necessary living expenses, depending on the geographic area of the country and income level of the taxpayer. IRS also plans to provide extensive training to its staff on the new guidelines. IRS believes its new procedures equitably address this recommendation. IRS agreed with GAO that hardship situations should be exempted from minimum payments but it otherwise did not fully address the issue in the new guidelines which are to take effect in summer 1995.
Internal Revenue Service The Commissioner of Internal Revenue should eliminate the automatic 65-week reactivation hold period and allow employees to determine when each CNC account should be considered for reactivation purposes.
Closed – Not Implemented
IRS did not agree with eliminating the 65-week reactivation hold. The Commissioner felt that given the size of accounts-receivable inventories, continuing to revisit older accounts with reduced collection potential would adversely impact IRS' ability to service newer, revenue-productive accounts. GAO continues to believe that some change is necessary to ensure the timely reactivation of cases based on future income that was not considered during the CNC investigation.
Internal Revenue Service The Commissioner of Internal Revenue should track both taxpayers with joint delinquencies to ensure that each taxpayer's ability to pay or status is considered in the reactivation decision.
Closed – Not Implemented
IRS claims that the reprogramming of its master file computers to implement this recommendation would be costly and would impair its ability to achieve Tax System Modernization goals. The agency plans no action to implement this recommendation.
Internal Revenue Service The Commissioner of Internal Revenue should study the benefits of using other pertinent information, such as interest and dividend income and proceeds from the sale of assets, in addition to total income as reactivation criteria.
Closed – Implemented
An IRS internal audit report, as well as Collection's management reviews of cases, found that other income was not the best indicator of collectibility. Revenue officers are instructed to consider other assets at the time a case is classified as currently not collectible and should request mandatory followup if proceeds from a sale of assets is likely in the near future. This is a closed recommendation.
Internal Revenue Service The Commissioner of Internal Revenue should expedite the processing of reactivated cases by reducing the number of notices and making prior case files readily available for IRS employees working reactivated cases.
Closed – Not Implemented
On April 4, 1995, the Director of Operations (Collection) issued a memorandum containing instructions on retrieving prior CNC case files. IRS implemented an early intervention program in January 1995 which reduced the number of notices sent to delinquent taxpayers. IRS plans other enhancements to its collection process in late 1996 including the use of delinquency characteristics to determine the most appropriate collection enforcement action to resolve cases.
Internal Revenue Service The Commissioner of Internal Revenue should reinforce with supervisors and postreviewers the need to thoroughly review CNC determinations.
Closed – Implemented
Effective October 1, 1993, the CNC Post-Review Process was incorporated into the Collection Quality Management System. Management anticipates that the centralized site review will result in better quality products. Checklists were established for review operations. IRS management is negotiating with the National Treasury Employees Union for further changes in the supervisory review of CNC cases. The completion date is not known at this time.
Internal Revenue Service The Commissioner of Internal Revenue should establish processes that will ensure that the proper number of CNC postreviews are thoroughly done.
Closed – Implemented
Effective October 1, 1993, the CNC Post-Review Process was incorporated into the Collection Quality Management System, which will establish review samples. Checklists were designed for review operations. These actions are to ensure that the proper number of CNC post reviews are thoroughly done.
Internal Revenue Service The Commissioner of Internal Revenue should establish requirements for postreview reports that will ensure that they provide meaningful information that can be used in determining whether changes are needed.
Closed – Implemented
IRS has identified key CNC data and incorporated them in the Quality Management Post Review Process. At the end of 1994, IRS revised its system and is now able to develop national reports on CNC quality.

Full Report

Office of Public Affairs

Topics

Accounts receivableCollection proceduresDebt collectionDelinquent taxesGovernment collectionsInternal controlsPersonal income taxesTax administration systemsTax nonpaymentTax return audits