Reexamining How to Collect

Last week National Taxpayer Advocate Nina Olson blogged about collection statistics and what they might tell us.  We welcome her back to the world of blogging.  We will use her blog as a springboard for focusing on collection matters this week.

In the blog she examines the quantity of IRS collection enforcement action, primarily the filing of the notice of federal tax lien and the issuance of levies, against the amount of money collected by the IRS over a period of years. The conclusions she draws from this examination will cause you to stop and think about the best ways to collect unpaid taxes.  The expected correlation between enforcement action and increased collection dollars did not exist.

I do not want to jump too fast to say that the data the NTA displays in her blog post necessarily and inextricably leads to the conclusion that the IRS could collect more dollars if it reduced its enforced collection action but the data should make the IRS and others interested in in efficient and enhanced collection at the lowest cost with the least taxpayer pain sit up and take notice. We have all read Mark Twain’s take on the use of numbers to prove a point – “lies, damn lies and statistics” but that cautionary note does not distract from the power of the numbers the NTA has marshalled.  If we want to examine the collection process with a cool eye rather than a hot head, these numbers provide a good place to start.

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The blog post does not mark the first time the NTA has written in an effort to bring about a discussion of the most effective methods for promoting compliance. In her annual reports she has written about this numerous times and from a variety of angles.  Here is a link to her annual reports to Congress. She correctly reminds us over and over that collecting from taxpayers might best occur by providing them with the information and tools to pay the proper tax up front and this might best occur if the IRS could quickly pick up the phone and answer a question or quickly respond to a written request.

She wrote with passion about the problems created by the IRS when it decided about five years ago to essentially create a default to filing the tax lien whenever a taxpayer owed more than $5,000.   I joined her in writing about that topic.  In 2012 the IRS listened to these arguments and amended its approach to low dollar collection through the creation of the Freshstart program.  The statistics presented in her blog could result from the changes the IRS adopted in that program.  It has existed now for long enough to allow some examination of its success.

So, given the background of the NTA’s writings over the past 14 years since she took the job, what is unique about the information in the blog post last week? The statistics displayed in her post provide a stark reminder that the amount of money the IRS collects through its enforcement actions may not increase as the stronger enforcement actions increase.  The empirical evidence she marshals provides the basis for a new conversation about how best to go about collecting dollars not voluntarily paid to the IRS at the time of assessment.  Where can this conversation take us?

Whether or not Congress gets its act together on how to properly fund the IRS, the agency can use these statistics to engage in a self-examination about allocation of resources. Collection of taxes is a critical and core function of the IRS.  (The NTA voiced loud complaints when Congress tried to outsource collection from the IRS because of the core governmental aspect of this work.)  We all suffer when others do not pay their fair share.  I want the IRS to collect every dollar of unpaid tax as a goal because every dollar collected reduces the need to increase taxes on those who pay willingly.  Collection of every dollar, while a lofty ideal, will never happen so the IRS must build the most efficient system for capturing every possible dollar at the least cost both in expenditures and in injury to those against whom it seeks to collect.  Notices of federal tax liens and levies take a toll on anyone subjected to them and they cost money to implement.

The NTA’s statistics suggest that the reduced enforced collection action in the past few years has not harmed collection because the amounts collected during that same period have increased. Does this mean the Freshstart program has succeeded?  Has the improving economy allowed taxpayers to pay back more than they could in the years immediately following the recession or can we find a new path for the IRS to follow in its efforts to collect?

The NTA’s blog post does not provide answers but provides a basis for a discussion. She signals that more will come shortly as she dusts off her keyboard and restarts her blogging career. The IRS will always need to use its enforcement tools on some taxpayers but when and how it decides to use those tools can have a big impact on the success of its collection program.  Let’s have a discussion about what the statistics mean.  Let’s see if a better path to successful collection exists.  Maybe it’s time to rethink how we structure collection.  These statistics provide a great starting point for the discussion.  Study them and engage in the debate.

I plan to write more about this first wave of statistics and to follow the new data she promises to release. This post seeks to alert you to the new data she has released and to the conversation she seeks to start.  As always, we welcome comments on our site and we welcome guest bloggers who want to engage in the debate here.  This is not about criticizing the IRS as it performs a core function but about finding a way for it to succeed or at least to improve during the midst of adverse times for the IRS and relatively hard times for 99% of the population.