Legislative Change Needed To Enable IRS To Assess Taxes Voluntarily Reported by Taxpayers in Bankruptcy

Gao ID: GGD-83-47 June 20, 1983

Pursuant to a congressional request, GAO was asked to examine the effects of bankruptcy laws on tax administration. GAO reviewed the impact that the 1978 Bankruptcy Reform Act's restriction on tax assessments is having on the Internal Revenue Service (IRS) and bankrupt taxpayers.

GAO believes that the assessment restriction should be amended to allow IRS to assess the taxes that bankrupt taxpayers report on their returns. Moreover, removing the assessment restriction would ensure consistent treatment for all bankrupt taxpayers. IRS needs to modify its collection procedure to ensure that it does not violate the legislative restriction on initiating collection action against bankrupt taxpayers. Some bankruptcy court districts permit IRS to assess taxes against bankrupt taxpayers, but IRS officials informed GAO that they cannot change the computerized collection procedures to stop collection notices from being sent to bankrupt taxpayers once taxes are assessed, but not paid.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Jennie S. Stathis Team: General Accounting Office: General Government Division Phone: (202) 512-5407


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