Office of Audit
Examination Collectibility Procedures Need to Be Clarified and Applied Consistently
Final Report Issued on September 7, 2016
Highlights
Highlights of Reference Number: 2016-30-070 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.
IMPACT ON TAXPAYERS
Throughout an examination, examiners are expected to follow Internal Revenue Manual procedures to consider the taxpayer’s ability to pay a potential assessment.
Taxpayers who have financial difficulties and cannot afford to make tax payments may be further burdened if the IRS audits them for additional assessments that they cannot pay. Further, taxpayers may be treated inconsistently when examiners do not follow procedures to consider a taxpayer’s ability to make payments.
WHY TIGTA DID THE AUDIT
In Fiscal Year 2015, 50 percent of all Field Collection closures and 19 percent of all Automated Collection System closures of taxpayer delinquent accounts resulting from an examination were closed currently not collectible.
This audit was initiated to determine whether the Small Business/Self-Employed Division Examination function is properly and accurately performing collectibility determinations before and during Field and Office examinations.
WHAT TIGTA FOUND
Examiners did not follow collectibility procedures in 62 (56 percent) of 110 sampled cases, which involved 101 separate instances in which procedures were not followed.
Specifically, examiners did not always consider collectibility, document their collectibility evaluations, or discuss collectibility issues with their managers.
Additionally, examiners did not always contact the Collection function when Examination function procedures required them to do so, refer required cases to the Collection function, or complete financial information needed to assist in future collection efforts.
TIGTA estimates there were 1,731 Office examination cases and 1,445 Field examination cases in which employees did not follow established collectibility procedures and the case was later worked and closed by the Collection function as currently not collectible—with the IRS having received no taxpayer payments.
Further, while examiners survey cases (i.e., close the case without conducting an examination) for some reasons, examiners rarely survey cases due to collectibility concerns.
Following collectibility procedures and coordinating with the Collection function helps ensure that both Examination and Collection function personnel are using their limited resources efficiently.
TIGTA also determined the Examination function has no reports or measurement systems related to the collectibility of examiner assessments. Without this information, IRS management does not have complete information to make changes or improvements to meet goals.
The ultimate goal of considering collectibility during an examination is to decrease accounts receivable and increase the quality of assessments.
Meanwhile, from Fiscal Years 2010 to 2015, gross accounts receivable increased from $138 billion to $171 billion (24 percent), while the amount written off as uncollectible receivables increased from $103 billion to $130 billion (26 percent).
Examination management informed us they were not aware that the Enforcement Revenue Information System allowed them to track collectibility data, so it was not being used for that purpose.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS take several corrective actions to improve collectibility determinations and communication between the Examination and Collection functions and use available data resources to measure and track collectibility as it relates to examination assessments.
