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Taxpayer Advocate Targets IRS Collection Policies

Alternative Minimum Tax, Federal Tax Gap Also Hit

January 10, 2007

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The alternative minimum tax (AMT), the federal tax gap and the Internal Revenue Service's collection policies are the most serious problems facing taxpayers, as National Taxpayer Advocate Nina E. Olson sees it.

In her annual report to congress, Olson said the AMT symbolizes the broader problem of tax-law complexity. The tax gap remains a high priority because noncompliance by some taxpayers requires every compliant taxpayer to pay, on average, more than $2,200 in extra tax each year to subsidize that noncompliance.

"With a new Congress convening, I am pleased to see these issues have been identified as priorities by the leadership of the House and Senate tax-writing committees," Olson said. "Simplifying the tax code, particularly by repealing the AMT, and reducing the inequities caused by the tax gap will go a long way to helping America's taxpayers."

IRS Collection Policies

By law, the National Taxpayer Advocate each year is required to identify at least 20 of the most serious problems encountered by taxpayers. Seven of the most serious problems discussed in this year's report relate to IRS collection policies.

"Rather than intervening early and making personal contact with taxpayers," Olson said, "the IRS often waits until taxpayers' debts become so large that they warrant the intervention of much more expensive IRS field collection personnel."

The lack of early, meaningful interventions by the IRS on delinquent tax accounts contributes to long-term financial problems for many taxpayers and costs the government billions of dollars in lost revenue, the report noted.

Taxpayers are harmed because many taxpayers could pay off all or most of the original debt if contacted promptly but are unable to pay off the debt by the time the IRS personally contacts them after interest and penalties have accrued. The government is harmed because the IRS collects only about 15 cents on the dollar on tax debts that are two years old and virtually nothing on tax debts that are older than three years.

In the last fiscal year, the IRS reported more delinquent tax dollars as "currently not collectible" (CNC) than it actually collected on active balance due accounts, installment agreement accounts, and offers in compromise combined.

Once accounts are designated with CNC status, IRS data for the preceding six years show the agency collected less than 2 percent of the amounts due.

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