The U.S. Treasury Inspector General for Tax Administration (TIGTA) this week released its most recent audit of the IRS’s Fresh Start Initiative. TIGTA in this report recommended the IRS improve the means by which it monitors the Initiative’s impact on revenue collections.
The Fresh Start Initiative is a palate of IRS tax policy responses to the Great Recession, enacted between 2009 and 2012, designed to aid people and businesses stricken by tax debt.
Prior to Fresh Start, people and businesses with debts to the IRS as large as $25,000 could enter into installment payment plans, and repay those debts over as long a span as 60 months. The Initiative enabled people and small businesses with as much as $50,000 in debt to enroll in installment payment programs and extended the repayment span to 72 months.
Fresh Start “streamlined” installment payment agreements for small businesses that owe less than $25,000 and are capable of repaying that debt in 24 months or less.
The Initiative also introduced a new “offer-in-compromise” program for people with less than $50,000 in debt and earn less than $100,000 a year.
While TIGTA’s audit comments on the execution and outcome of several of these policy tweaks, the bulk of it deals with changes to the conditions under which the IRS can file a “Notice of Federal Tax Lien” (NFTL).
Total Number of Notices of Federal Tax Liens Filed Per Year
Source: IRS Data Book for Fiscal Years 2009 through 2013.
Prior to Fresh Start, the IRS could file an NFTL against anyone or any small business that owed more than $5,000. The Initiative raised that threshold to $10,000, “though exceptions may still be made for balances of less than $10,000 if it will help protect the Government’s interests, such as those instances in which taxpayers have a pending bankruptcy or other urgent circumstances,” according to the TIGTA report.
NFTLs Filed For Debts Under $10,000 Per Year
Source: TIGTA analysis of IRS data.
In addition to raising that threshold, the IRS also withdrew NFTLs filed against some people and small businesses after they made a series of three consecutive, timely payments. TIGTA criticized the IRS because it failed to re-file NFTLs against people who made some payments on a payment plan and then went into default a second time.
The IRS enacted these particular changes to collection policies pertinent to NTFLs in 2011. By November of 2013, according to the TIGTA audit, there
were 4,002 taxpayers whose NFTLs were withdrawn as part of this Initiative. We also identified 670 taxpayers who defaulted on their Direct Debit Installment Agreement after their NFTLs were withdrawn. We determined that 524 of those 670 taxpayers did not reestablish their Direct Debit Installment Agreements nor did the IRS file new NFTLs.
TIGTA estimated these 670 defaulters owe the IRS a total of $10.5 million.
Most defaulted before making 24 payments; a substantial percentage of them did so in less than a year after enrolling in a payment plan. Many of these defaulters now only receive “an annual reminder notice in attempt to resolve the delinquency,” according to the audit.
TIGTA concluded that the IRS failed to properly monitor the effect of these decisions on the government’s ability to collect debt. The IRS conceded that it could improve monitoring in this area, but “limited information technology resources” currently prevent it from doing so.