IRS Collection Division

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In October 2016, the IRS declared that in-person conferences will no longer be the default method for Appeals conferences. The IRS also made several key Collection and Examination policy clarifications to ensure that Compliance functions as the finders of fact and Appeals does not take investigative actions.

Appeals Conferences

Historically, Appeals conferences have, for the most part, been conducted in-person. In an attempt to make the most of its limited resources, IRS Appeals conferences will, as of October 1, 2016, be conducted over the phone unless the taxpayer requests an in-person meeting. The revised procedures in Internal Revenue Manual (“IRM”) 8.6.1 provide that if the taxpayer requests an in-person meeting, it must be approved by the Appeals team manager and should be limited to certain situations including when:

  • There are substantial books and records to review that cannot be easily referenced with page numbers or indices.
  • The Appeals Technical Employee cannot judge the credibility of the taxpayer’s oral testimony without an in-person conference.
  • The taxpayer has special needs (e.g., disability, hearing impairment) that can only be accommodated with an in-person conference.
  • There are numerous conference participants (e.g., witnesses) that create a risk of an unauthorized disclosure or breach of confidentiality.
  • An alternative conference procedure (e.g., Post Appeals Mediation or Rapid Appeals Process) involving separate caucuses will be used.

In addition, language was added to IRM 8.6.1.4.4 that permits Appeals to invite IRS Chief Counsel and/or Compliance (which includes Examination, Collections, and Accounts Management) to the Appeals conference. However, the IRM notes that the prohibition against ex parte communications must not be violated and thus Appeals still may not communicate with IRS Chief Counsel or Compliance without the taxpayer also being present.

Key Collection Policy Clarifications

The IRS made some key collection policy clarifications to ensure that Compliance functions as the finders of fact and Appeals does not take investigative actions. These policies ensure taxpayers have a true appeal right so that Appeals reviews a final determination made by Compliance. The key collection policy clarifications include:

Appeals will not take investigative actions with respect to financial information provided by taxpayers. Financial information that warrants investigation will be sent to Collection.

  • Appeals will only consider assets that were documented by Collection or introduced by the taxpayer.
  • Appeals will not make recommendations to file Notices of Federal Tax Liens.
  • All Offers in Compromise submitted to Collection Due Process or Equivalent Hearings will be reviewed by Collection for a preliminary recommendation or acceptance.
  • In non-Collection Due Process or Offers in Compromise cases, Appeals will only determine the acceptability of the Offer in Compromise and will not offer other collection alternatives.

Key Collection Examination Policy Clarifications

The IRS also made some key examination policy clarifications that are effective October 3, 2016 and apply to docketed examination cases where a taxpayer submits new information or evidence or raises a new issue. The key examination policy clarifications include:

  • Appeals will attempt to settle a case based on the factual hazards when not fully developed by Examination (i.e. cases will not be sent back to Examination for further development).
  • Appeals will not raise new issues or reopen issues on which the taxpayer and Examination have reached an agreement.
  • Appeals will return non-docketed cases to Examination when a taxpayer submits new information or evidence or raises a new issue that merits investigation or additional analysis.
  • Appeals will retain jurisdiction of docketed cases when a taxpayer submits new information or evidence or raises a new issue that merits investigation or additional analysis, but will request assistance from Examination in performing those functions.
  • For most work streams, Appeals will engage Examination for review and comment when a taxpayer raises a relevant new theory or alternative legal argument.

What Taxpayers Need to Know

Taxpayers should fully cooperate with the IRS’s compliance function during the development of their cases so that their file is complete when it goes to Appeals. When a taxpayer appeals a compliance function’s decision, the taxpayer should specifically identify in their protest the items in dispute. If a taxpayer introduces new information in Appeals, it may result in Appeals returning the case to the compliance function. The policy changes discussed above ensure that taxpayers have an opportunity for an impartial appeal by ensuring Appeals reviews a final determination made by the compliance function. The aim of the policy clarifications is to improve the appeals process by strengthening a taxpayer’s right to an independent appeal.

 

 

 

 

 

On September 8, 2016, the IRS issued its final report on taxpayer compliance through fiscal year 2015 (the federal government’s fiscal year begins on October 1 and ends on September 30). The report is a compilation of statistical information collected by the IRS and provides taxpayers with information about how the IRS focuses its compliance resources and the impact of those resources on revenue and compliance over time.

For fiscal year 2015, the IRS continued to experience losses in the number of employees available to provide services to taxpayers and those needed to enforce the tax laws. In addition, after an increase in the in the IRS’s budget in 2014, the IRS’s budget for 2015 decreased $345 million (3 percent), from $11.3 billion to $10.9 billion. Despite fewer resources, however, total tax revenues received and collected climbed to $3.3 trillion, an increase of 8 percent from 2014. On the other hand, enforcement revenue collected decreased from $57.1 billion in 2014 to $54.2 billion in 2015, a decline of 5 percent. Unpaid assessments increased to $412 billion.

Total Tax Revenue by Type of Tax

Revenue

Source: TIGTA analysis of the IRS Data Book.

Amount of Enforcement Revenue Collected
Compared to Unpaid Assessments

 Enforcement Revenue

Source: Offices of Research, Analysis, and Statistics and the Chief Financial Officer.

For 2015, while some areas of compliance declined, collections on delinquent accounts increased in every collection program except Field Collection (which consists of revenue officers who handle face-to-face contacts with taxpayers to collect delinquent accounts or secure unfiled returns). However, the number of liens, levies, and seizures by the IRS all declined in 2015. In addition, although the number of offers in compromise and installment agreements decreased in 2015, the amount of delinquent taxes collected through these payment options increased.

Notably, examinations continued to decline in 2015, with 28 percent fewer tax returns examined than in 2011. The report attributes the decline in the number of examinations to the 24 percent decrease in revenue agents and tax compliance officers during the same period.

Percentage Change from FY 2011 of All
Tax Returns Filed and Examined

Percent Change

Source: TIGTA analysis of the IRS Data Book.

Number of Revenue Officers in the Field Assigned
Delinquent Cases at the End of Each Fiscal Year

Revenue Officers

Source: Collection Activity Report 5000-23.

 

According to a July 2015 report by the U.S. Government Accountability Office, inactive tax receivables have ballooned to $380 billion, a 23 percent increase since 2009. As a result, the Fixing America’s Surface Transportation Act (the “FAST Act”), was enacted in December of 2015, which requires the IRS to use private debt collection agencies to recover inactive tax receivables that the IRS has been unable to collect due to lack of time or resources.

In an apparent reversal of policy, the FAST Act reauthorizes the IRS’s private debt collection program which was initially authorized by Congress in the Jobs Creation Act of 2004 but ended in 2009 by the then IRS Commissioner Doug Shulman. Citing the results of a cost-effectiveness study that showed that IRS collection is more cost effective than private contractors, Commissioner Shulman decided to end private collection and made clear that the decision was in no way based on the performance of the private contractors.

On September 26, 2016, the IRS announced that it has contracted with the following four collection agencies to begin private collection on these overdue tax debts, which may begin as early as spring 2017:

  1. CBE Group, 1309 Technology Pkwy., Cedar Falls, IA 50613
  2. Conserve, 200 CrossKeys Office Park, Fairport, NY 14450
  3. Performant, 333 N Canyons Pkwy., Livermore, CA 94551
  4. Pioneer, 325 Daniel Zenker Dr., Horseheads, NY 14845

The new program enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables. However, as a condition to receiving the contract, the agencies agreed to be courteous and respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act (the “FDCPA”). Under the FDCPA, if a taxpayer sends the private collection agency a letter stating that it does not want to work with the private collection agency and requests that the case be handled by the IRS, the private collection agency must honor this request.

These private collection agencies will work to collect on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts because they are older or the high cost of collection prevented the IRS from working the cases.

The IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming this transfer.

It is important to be on the lookout for scams via phone call, email or regular mail from anyone claiming to be collecting on behalf of the IRS. There are various ongoing scams where individuals impersonate IRS agents and request immediate payment. Private collection agencies will not ask for payment on a prepaid debt card. The IRS will inform taxpayers about electronic payment options for taxpayers on IRS.gov and payments by check should be payable to the U.S. Treasury and are sent directly to the IRS, not the private collection agency.

Since the fall of 2013, the Treasury Inspector General for Tax Administration (“TIGTA”) has been tracking and investigating impersonation scams, and to date, more than 1.8 million people have reported to TIGTA that they have received an impersonation call; more than 9,600 victims reported that they paid the criminal impersonators a total amount that exceeds $50 million.  Recently, J. Russell George, Inspector General for the TIGTA, announced that after an exhaustive three-year joint investigation, the U.S. Department of Justice obtained an indictment on 56 individuals, some of whom are located in the United States, and five call centers located in India.  This is the largest single domestic law enforcement action to date involving this type of scam.  Despite this significant legal action, the Inspector General encouraged all members of the public to keep their guard up, as scammers like these are still in the business of cheating people.