IRS Collection Practices.
The report from the Taxpayer Advocates Offices expresses continuing concern that IRS collection practices emphasize collection of past-due liabilities even where doing so inflicts unnecessary or disproportionate harm on taxpayers and jeopardizes future tax collection. The conventional wisdom seems to be that more hard-core enforcement actions like liens and levies mean more revenue,? Ms. Olson said. ?But the data don’t bear that out. Since FY 1999, the IRS has increased lien filings by about 475 percent and levies by about 600 percent, yet inflation-adjusted revenue raised by the IRS Collection function has actually declined by about seven percent over that period.?
Lien filings can badly damage a taxpayers financial viability because lien filings appear on credit reports, causing the taxpayers credit score to drop an average of about 100 points immediately and causing lasting harm because they typically remain on the taxpayers credit record for at least seven years. Many employers, mortgage companies, landlords, car dealerships, and credit card issuers check credit reports, so the filing of a tax lien can adversely affect the taxpayers ability to obtain and retain a job, purchase a home, rent an apartment, or obtain credit generally. Accordingly, a lien filing may reduce the taxpayers income or increase his expenses, thereby impairing his ability to pay tax in the future. Last year, the IRS filed nearly one million liens against taxpayers.
The report also notes that the IRS has issued at least four public statements over the past year-and-a-half pledging to assist financially struggling taxpayers who are having difficulty paying their tax bills. Yet the number of liens and levies has continued to rise, the number of offers-in-compromise the IRS is accepting is near an all-time low, and there is little evidence the IRS is changing its collection practices.
After publication of her 2009 Annual Report to Congress, Ms. Olson issued several Taxpayer Advocate Directives to the IRS on lien issues, including directives (i) to discontinue its policy of automatically filing tax liens in cases where the IRS has determined that the taxpayers account should be placed into ?currently not collectible? status based on financial hardship and (ii) to require managerial approval for the filing of liens in cases where the taxpayer owns no assets. She has also urged the IRS to expand the availability of the offer-in-compromise program for financially struggling taxpayers who cannot reasonably pay their tax debts in full.
In response to these concerns, the IRS has convened a senior-level task force to conduct a comprehensive review of collection practices. Ms. Olson writes that she appreciates the IRS’s willingness to examine the issue. However, she remains concerned that it will take years to conduct the comprehensive review, and that in the interim, the IRS will continue both to damage taxpayers? credit ratings and to undermine long-term tax compliance without any significant revenue gains to show for their actions. Accordingly, IRS collection practices will remain a key area of focus for TAS in FY 2011.  Right on Nina right on!!!