IRS May Have Lost Billions for Failing to Complete Research with CNC Status Taxpayers
According to a new report by the Treasury Inspector General for Tax Adminstration (TIGTA), the IRS may have failed to collect billions of dollars from delinquent taxpayers because not enough research was done before moving the client to a Currently Not Collectible Status–Unable to Contact/Unable to Locate (CNC-UTC/UTL). TIGTA performed the audit because for Fiscal Year 2012 the IRS closed 482,611 tax modules with an estimated $6.7 billion as CNC-UTC/UTL.
IRS employees may move taxpayers to a CNC status if it is determined there are no income or assets available or if they are unable to contact (UTC) or unable to locate (UTL) the delinquent taxpayers. However, IRS employees must do the necessary research or follow a checklist before moving these clients to CNC-UTC/UTL.
TIGTA reviewed a stratified sample of 250 cases in the CNC-UTC/UTL status and found that there was no evidence that all research steps were taken in 57% of the cases. To make matters worse, 7% of the cases with tax debt over $10,000 never had a a Notice of Federal Tax Lien (NFTL) filed for all applicable tax periods as required.
80% of Field Cases & 21% of ACS Cases Showed a Lack of Proper Research
In 165 of 204 Field Cases (Collection Field function of IRS), there was a lack of research completed. Unlike the ACS (Automated Collection System), these cases have to be approved by managers. In 38 ACS cases, 8, or 21% of the cases, IRS ACS employees failed to complete the necessary research.
TIGTA had recommendations for the IRS. These are:
- Directors, Enterprises Collection Strategy and Field Division must ensure controls are in place so that the necessary research is completed and NFTL determinations are made where applicable
- Ensure managers document that all case actions are done before approving any CNC-UTC/UTL case closure.
- Make sure that all CNC-UTC/UTL cases closed in Fiscal Year 2012 had NTFL filed for all applicable tax periods
- Get an analysis done to ensure that the additional research steps undertaken before moving a taxpayer to CNC-UTC/UTL status are justified
The IRS agreed with the recommendations but TIGTA believes the corrective actions they are making will not address all recommendations.