Tax Administration

Hundreds of millions of dollars in increased taxes may be collected from delinquent accounts that the Internal Revenue Service (IRS) has deemed "currently not collectible" (CNC); some taxpayers who reported incomes of more than $70,000 have never paid a dime toward their tax debts. At the end of fiscal year 1992, IRS' inventory of individual and business delinquent accounts totaled more than $130 billion, about 40 percent of this classified as CNC. Yet GAO found that CNC determinations were sometimes based on inadequate work, were questionable given available information, or did not fully provide for future collection potential. For example, IRS did not give its employees specific guidance with which to make CNC determinations, and IRS reviews were not spotting and correcting problems with CNC determinations.

GAO found that: (1) IRS is losing the potential to collect millions of dollars in delinquent taxes because of its weak controls over its CNC accounts; (2) IRS does not provide its employees with specific guidance to make CNC determinations; (3) IRS has failed to challenge some taxpayers' claims of necessary living expenses, include some income in its computations, and follow asset and address leads; (4) IRS does not adequately provide for future collection because it sometimes fails to file liens on delinquent taxpayers' property or establishes excessively high reactivation income levels; (5) IRS sometimes does not require payments from taxpayers whose income exceeds its maximum $30,000 reactivation level; (6) IRS has maintained collection action suspensions on CNC accounts that should have been reactivated because of its 65-week reactivation hold period; (7) IRS tracks only one taxpayer when monitoring a joint CNC account and fails to reactivate the account if the other taxpayer can pay the delinquent taxes; (8) IRS does not consider asset sales and interest- and dividend-generating monies in determining its future collection of delinquent taxes; (9) IRS collection practices for reactivated CNC accounts are inefficient, particularly when it treats reactivated CNC accounts as new delinquencies or does not provide its staff with the original case file; and (10) supervisory reviews and postreviews are inadequate and do not provide information to eliminate inappropriate CNC determinations.

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.

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