IRS delays causing increased taxpayer penalties

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The Internal Revenue Service should improve the way it deals with balance-due payments from delinquent taxpayers, according to a recent report by the Treasury Inspector General for Tax Administration (TIGTA).

The report says that the IRS often is not prompt in processing taxpayer responses to balance-due notices, which results in unnecessary delays and penalty and interest costs. Streamlined installment agreements sometimes are used improperly, as some taxpayers are able to pay their back taxes in full, while others don’t have the income to pay the determined amount.

In a sample of 60 randomly chosen balance-due cases over two separate weeks in late 2008, 57 involved streamlined installment agreements, according to TIGTA in a March 1 report. Of the 57 agreements, 17 were set up when the taxpayers could have paid their tax debts without incurring the additional costs of penalties, interest, and a $105 user fee for new agreements.

“We estimate that for the weeks in which we selected our sample, 1,874 taxpayers may have had the ability to pay their tax liabilities in full,” the report stated. In other cases, some taxpayers could not afford the payment amounts required by the agreements.

In a written response, Steven T. Miller, IRS Deputy Commissioner for Services and Enforcement, said the review assessed “low-dollar, low-risk” cases. “The IRS does not have sufficient resources to conduct a full financial analysis on all of these agreements; therefore, an online payment agreement application was created to assist taxpayers who meet streamlined criteria so their proposed installment agreements could be approved systematically.”

The report also said that cases were not properly documented in 13 of the samples. In addition, taxpayers should be provided with a final response addressing all issues within 30 calendar days, but in 39 of the samples, the required practice did not occur. Letters that acknowledged the delay were either late or not sent in 26 of the cases. TIGTA estimates that during the weeks sampled, “4,343 taxpayers were adversely affected when processing of their balance due notices exceeded 30 calendar days.”

Another problem noted was an inconsistency with how balance-due cases are counted as closed.

Recommendations for improvement include ensuring that the streamlined installment agreements benefit the IRS and the taxpayers. The IRS is making corrections and agrees with most of the recommendations, the report stated.

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