It’s the time of year when the Treasury Inspector General for Tax Administration (TIGTA) starts producing the annual reports required of it by the Restructuring and Reform Act of 1998. It recently produced its report regarding the Collection Due Process program. The report is short.
To produce the report, TIGTA looked at a sample of CDP and Equivalent Hearing cases designed to produce a picture of CDP performance with a 95% accuracy rate. This year it reported that in FY 2021 there were 28,667 CDP and Equivalent Hearing cases closed. It sampled 91 of those cases finding that “Appeals complied with most of the I.R.C. and Internal Revenue Manual 8.22.4, Collection Due Process Appeals Program (May 12, 2022), requirements for processing hearing requests.”
The one area where TIGTA dinged Appeals, an area where it has dinged Appeals before and we have discussed before, here, here and here, concerned the statute of limitations on collection (CSED). TIGTA found that in 20% of the reviewed cases the IRS got the CSED wrong. In 10 of the cases it got the CSED wrong in a way that incorrectly extended the statute of limitations. Based on this sample, it projected that 3,233 of the CDP and Equivalent Hearing cases closed in 2021 would have incorrect CSED in which the IRS sought to collect from taxpayers after the CSED expired. This is way too high an error rate and it’s not the first time a high CSED error rate has been reported. The IRS has got to learn how to calculate the CSED.
TIGTA found that in 8 cases in its sample the IRS miscalculated the CSED in a way that wrongly reduced the period the IRS had to collect. It extrapolated that this meant 2,586 of the CDP cases closed in 2021 had the CSED shortened. While shortening the CSED does not imping on the taxpayer rights of the individual taxpayer, it does mean that collectively the taxpayers of the United States may not have as much collected from people who owe.
Calculating the CSED is hard with the exceptions that currently exist and the way they operate. If the IRS cannot get this right – and it has demonstrated over a relatively long period of time that it cannot – perhaps Congress should look at simplifying the process. The most obvious place to simplify it would be to do away with the really confusing extension related to installment agreements. Eliminating that statute extension would probably bring the IRS error rate down significantly but TIGTA does not provide us with an analysis of the mistakes that it found. Had it done so, it would have provided the IRS and the public with a better roadmap for pursuing success.
TIGTA found that Appeals correctly classified CDP and Equivalent Hearing requests; however, it did so based on the criteria published in the IRM and not based on case law. TIGTA does not address cases in which a taxpayer sends in a CDP request after the 30 day period based on a good excuse or sends the CDP to the timely but not to the office requested by the IRS. Because it does not look for these types of cases, TIGTA misses an opportunity to assist the IRS in updating its outdated IRM provisions. It audits based on what the IRS says and not what the IRM should say.
TIGTA also does not audit the CDP letter which does a poor job of advising taxpayers of their rights. It might consider in future years looking at why the uptake rate of CDP cases is so low and how that relates to the notice received by taxpayers.
For this year we know that the Appeals, and the IRS generally, struggles with the CSED. Looking for ways to fix that other than continuing to point to IRM compliance might provide an overall benefit to the system.