WASHINGTON — The Internal Revenue Service (IRS) could potentially collect additional revenue each year by reducing the time elapsed between notices it sends to taxpayers who owe taxes, the Treasury Inspector General for Tax Administration (TIGTA) concluded in a report publicly released today.
The IRS sends a series of balance due notices to taxpayers with unpaid tax liabilities. TIGTA determined that the first notice was the most effective notice, by a wide margin, because the first notice closed the most cases, collected the most money, and generated the most taxpayer responses.
Also, while the IRS allows 35 days between notices for the taxpayer to respond, TIGTA found that the time between notices can be reduced to reflect taxpayer response times. As these liabilities progress within the notice stream, the probability of collection diminishes. By reducing the time between sending notices by seven days, TIGTA estimated the notice stream could potentially collect an additional $363 million each year, although a study analyzing the impact of reducing the time would be needed to quantify the benefits. In addition, taxpayers could potentially save $1.8 million each year in interest payments.
TIGTA also found that the notice stream does not always treat taxpayers with more than one delinquency the same. As a result, the IRS may not use collection resources most effectively.
“The notice stream is the least costly of the IRS’s three-phase approach to collecting unpaid taxes,” said J. Russell George, Treasury Inspector General for Tax Administration. “While the notice stream collects billions of dollars in delinquent taxes annually, reducing the time between notices could potentially result in the collection of millions more. Further, if the IRS does not effectively pursue collection of unpaid tax through the notice stream, it could create an unfair burden on the majority of taxpayers who fully pay their taxes on time,” Mr. George added.
TIGTA recommended that the IRS consider reducing the time between each notice by seven days and establishing a business rule to address taxpayers with multiple balance due modules entering the notice stream at the same time. IRS officials agreed with the recommendations and said they are open to modifying the time between each notice, subject to budget constraints and programming issues. In their response, IRS officials also stated that 35 days between notices were necessary to process taxpayer inquiries and correspondence. In its report, TIGTA had noted the IRS has controls in place to prevent the next notice from being sent when taxpayers’ correspondence is being processed.