Tax Administration

Administrative Improvements Possible in IRS' Installment Agreement Program Gao ID: GGD-95-137 May 2, 1995

This report evaluates the Internal Revenue Service's (IRS) use of installment agreements as a means for individual taxpayers to pay their tax debts. IRS changed the rules for installment agreements in April 1992 to streamline the process for taxpayers to request installment agreements and for IRS to approve them. GAO discusses (1) the increase in installment agreements following the April 1992 changes, (2) the effect that these changes had on IRS' collection activity, (3) concerns raised by IRS' internal auditors regarding these changes, and (4) information that IRS provides taxpayers on their liability under installment agreements. GAO also notes administrative practices that may provide opportunities to improve the installment agreement program and provide descriptive information on taxpayers who elect to pay past-due taxes through installment agreement procedures.

GAO found that: (1) the 2.6 million new installment agreements approved in fiscal year (FY) 1994 represented a 136-percent increase over the number of FY 1991 installment agreements; (2) the amount of taxes paid through new installment agreements increased 135 percent between FY 1991 and 1994 and accounted for 33 percent of the delinquent taxes paid in FY 1994; (3) installment agreement program changes have affected IRS collection activities by reducing Automated Collection System collections and the routine collection process workload; (4) IRS internal auditors have raised concerns about the ease of entering into installment agreements and IRS failure to instruct taxpayers to amend their withholding or estimated taxes to prevent future delinquencies; (5) IRS may be permitting financially capable taxpayers to avoid paying their tax debts in one on-time payment and to accumulate tax debts by adding new tax balances to existing agreements; (6) IRS is taking steps to reduce the problems the auditors identified; and (7) administrative changes to improve the installment agreement program and reduce costs include informing taxpayers of the applicable penalties and interest that will be added to their installment agreements, allowing taxpayers to make electronic direct debit payments, and sending some default notices by regular mail instead of certified mail.

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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