Pennsylvanians in Support of the FairTax Act - In the News - National Editorial - IRS Abandons $16.5 Billion (newsIRSwashtimes032004.html)

By Jonathan Weisman
Washington Post Staff Writer
Saturday, March 20, 2004; Page A01

The Agonist: thoughtful, global, timely

Struggling with rising workloads and stagnant staff levels, the Internal Revenue Service walked away from more than 2 million delinquent tax accounts last year, totaling nearly $16.5 billion, according to the Treasury Department.

In written answers to Senate Finance Committee questions, Deputy Treasury Secretary Samuel W. Bodman used the escalating delinquencies to renew a Bush administration push to bring private debt collectors into the IRS tax collection process. Many of the scofflaws would pay up if they were simply contacted by telephone, Bodman said.

"Fundamental fairness requires that . . . we have an effective program to collect outstanding tax liabilities," Bodman said in written testimony. "We owe that much to the millions of Americans who do their best to pay their fair share."

Last year, the IRS opted not to pursue 2.25 million tax cases, costing the government $14.1 billion in individual income taxes and $2.3 billion in corporate taxes, the Treasury document states.

The median size of the delinquent accounts was $14,000. The largest account not being pursued involved more than $50 million.

"That the IRS has deferred collection on more than $16 billion in delinquent tax debt is but another example of one step forward, two steps back," said Sen. Max Baucus (D-Mont.), the ranking minority member of the Senate Finance Committee, in a written statement. "The especially troubling fact is that the agency knows who owes these back taxes, but isn't taking the time to make the 30-cent phone call that could result in hundreds, thousands, or even millions of dollars in lost revenue."

In recent days, IRS law enforcement has come under increased congressional scrutiny. On Monday, the Treasury's inspector general for tax administration released a report that found that the IRS is routinely failing to pursue even criminal tax cases in which scofflaws were tried and convicted but failed to pay back taxes, penalties and interest assessments. That report identified 27 convicted tax evaders who failed to comply with the terms of their sentences, costing the government more than $2.5 million in fines and back taxes.

The accounts in "deferred status" are more routine, said Greg Jenner, the Treasury Department's acting assistant secretary for tax policy. Some filed their tax returns but failed to enclose a check for taxes due. Others began making installment payments on back taxes but then stopped.

"These taxpayers are aware of their outstanding tax liability," Bodman wrote. "The IRS, however, is unable to continuously pursue each taxpayer with an outstanding tax liability."

According to government budget documents, the amount of money the IRS knowingly left on the table last year equaled 1.8 percent of the total individual and corporate income tax take expected for 2003. It could have fully covered NASA's 2004 budget, the government's international aid programs, or the budgets of the departments of Commerce and Interior combined.

But Jenner said the failure to pursue such accounts goes beyond dollars lost.

"Looking at only the numbers, you could say, 'Gee, is this significant?' But there's more to it than that. Right now we have a tax system that requires everybody to pay their fair share," he said.

The IRS vowed last year to clamp down on tax cheats, and the number of shelved accounts in 2003 was slightly lower than in 2002. But the dollars lost jumped by $619 million. President Bush has requested an IRS budget for 2005 of nearly $10.7 billion, a 4.6 percent increase that in part would fund the hiring of 2,942 more enforcement employees, according to administration budget documents.

But few expect that to improve enforcement significantly. Former IRS Commissioner Charles O. Rossotti said before his 2002 retirement that the agency needed 35,000 more workers to pursue just those cases it is aware of, a 67 percent increase over then-current employee levels.

Bush is pursuing an alternative -- private debt collectors. And after years of resistance, Congress appears ready to try it. The Senate Finance Committee has approved the administration plan as a way to offset the cost of manufacturers' tax cuts in a major business tax bill now before the Senate. House Ways and Means Committee Chairman Bill Thomas (R-Calif.) is weighing the plan as a way to offset the cost of his version of a business tax cut this year.

Jenner said the private agencies would be restricted to contacting taxpayers who know they owe money and would be easy to find. They would not be empowered to place liens on income or seize assets, and they would be limited to scripted requests for payment, either immediately or in installments.

Treasury has estimated that the plan would bring in $1.5 billion between 2005 and 2014, a sliver of the total delinquencies. But Jenner said that figure was an extremely conservative estimate.

"The last thing we wanted to do was overstate this and create too high expectations," he said.

The plan is strongly opposed by the National Treasury Employees Union, which represents IRS workers and wants the agency to increase its payrolls instead.

Many Democrats are also skeptical. A pilot program employing private collectors in 1997 failed when IRS computers were unable to match the agencies with the appropriate delinquent accounts. An internal IRS audit found at least 294 instances in which collection calls were placed early in the morning or late at night. In some cases computers used to transmit sensitive taxpayer data were found to be inadequately secure.

"The question is, who should be responsible for doing the work of the IRS and who should be accountable for it?" asked Colleen Kelly, president of the National Treasury Employees Union.

© 2004 The Washington Post Company

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