Governments at all levels are faced with the need to raise more revenue in the wake of the current fiscal crisis. Both the Treasury Inspector General for Tax Administration and the Government Accountability Office have issued reports addressing the weakness in unpaid tax collection, the role of private debt collectors in attempting to collect some of that debt, and the misreporting of rental real estate activities that contribute to the tax gap. The GAO said that while collecting unpaid tax debt is part of any strategy to help ensure compliance and confidence in the tax system and reduce both the annual tax gap and the cumulative unpaid tax debt inventory, Congress and other stakeholders have raised questions about the effectiveness of the Internal Revenue Service collection process in helping ensure compliance.
The report identified material weaknesses in IRS controls over unpaid tax assessments and collections, partly due to the lack of agency-wide cost-benefit data and related performance measures that the GAO recommended in the past.
The reforms could help resolve the annual tax gap, according to the GAO.
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"The GAO has been reporting on IRS collection issues for more than 10 years," said Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Finance Committee. "This report, like all the others, presents some troubling facts. For fiscal years 2002 through 2007, while collections increased by $10 billion, unpaid debts increased by the same amount. During this same time, the IRS wrote off from 31 percent to 46 percent of unpaid debts because it essentially ran out of time to collect these debts."
Grassley generally has supported the move by the IRS to use private debt collectors, which was authorized by Congress and began being implemented in September 2006. A recent TIGTA report found that the IRS and private contractors have generally taken actions consistent with the procedures developed for the program. The report did not address whether the program has been successful or whether the policy to use private debt collectors is appropriate.
"There's been a lot of union opposition to private debt collection and that has dominated the debate," said Jeff Trinca, a vice president at based Van Scoyoc Associates. Trinca, who served as tax counsel at the Senate Finance Committee and was chief of staff of the National Commission on Restructuring the IRS, believes the IRS can use all the help it can get in reducing the tax gap.
"There were $290 billion in gross accounts receivables as of a year ago. Part of that figure is financial receivables," he explained. "These are debts that are collectible on their face if the IRS takes action."
A BROKEN SYSTEM?
"The GAO report highlighted what it called the IRS's 'complicated system,'" Trinca said. "In reality, it's broken up into three pieces. Endless notices is one, where they send you a threatening note and you pay up. It's very inexpensive, just the cost of computer-driven notices."
