IRS Collection Action, IRS Levy, IRS Tax Lien, IRS Audit

IRS collection action is down. There are fewer IRS audits, IRS levy and IRS Tax Lien filings. The IRS budget expenditures are lower and there is a reduced IRS workforce. While IRS collection action is down, taxpayer service and taxpayer rights are being jeopardized.  [See The 2017 IRS Data Book (released March 29, 2018) describing activities conducted by the IRS from Oct. 1, 2016, to Sept. 30, 2017].

Examinations and appeals – fewer audits:

Compared to the prior year, there were fewer IRS audits and IRS collection action is down (e.g., IRS levy, IRS Tax Lien filing) during fiscal year 2017.  The IRS audited almost 934,000 individual income tax returns during the fiscal year, the lowest number of audits since 2003. The chance of being audited fell to 0.6 percent, the lowest coverage rate since 2002.

Tax-related Identity theft – the fight continues:

In fiscal year 2017, the IRS also continued a years-long effort to fight tax-related identity theft. The IRS Criminal Investigation Division completed 524 criminal investiga­tions of tax-related identity thefts.

Changes in IRS enforcement activities – IRS Levy action down and fewer IRS Tax Lien filings:

IRS collection action fell during the fiscal year. IRS levy action was down 32 percent compared to the prior year, and the agency filed about 5 percent fewer IRS tax liens than in fiscal year 2016.

FY 2016

FY 2017

Number of offers received



Number of offers accepted



Number of federal tax liens filed



Number of notices of levy requested on 3rd parties:



Number of seizures



IRS budget and workforce levels when compared to fiscal year 2016 – down.

IRS’s actual expenditures were $11.5 billion for overall operations in Fiscal Year (FY) 2017, down from more than $11.7 billion in FY 2016

In FY 2017, the IRS used 76,832 full-time equivalent positions in conducting its work, a decrease of 14.9 percent from 2012.

The National Taxpayer Advocate also sheds some light on the current situation.

Taxpayer Services Reduced.

National Taxpayer Advocate Nina Olson, informed lawmakers recently that only about 4 in every 10 callers to IRS hotlines will be able to get through to a live operator to answer their tax questions during the fiscal 2018 filing season. The IRS plans to reduce telephone interactions with taxpayers and rely instead on more web-based services and tax practitioners. “Because of the IRS’s archaic telephone technology and operations, taxpayers face long wait times with the worry that the IRS’s telephone assistors will not be able to answer their questions if they are able to get through.”

Private Debt Collectors – a negative cash flow.

According to the Taxpayer Advocate, the use of Private Debt Collectors is not generating net revenues, appears to have been implemented inconsistently with the law, and burdens those taxpayers experiencing economic hardship. The Taxpayer advocate summarizes that according to the IRS, for Fiscal Year 2017, the Private Debt Collection program generated $6.7 million of payments from  taxpayers, but cost $20 million. At the same time, the IRS pays commissions to PCAs on payments from taxpayers that are attributable to IRS, rather than Private Debt Collector action.

Offer in Compromise Program – Still needs improvement.

The IRS continues to hold an exaggerated view of  taxpayer’s reasonable collection potential. This results in the IRS rejecting an Offer in Compromise which should have otherwise been accepted. The Offer in Compromise may be considered a potential alternative to IRS collection action.  However, an Offer in Compromise, absent special circumstances,  will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. This involves determining the taxpayer’s reasonable collection potential.

Citing a prior 2004 report, the Taxpayer Advocate advised that the IRS  is often overly optimistic in its view as to the collection potential from taxpayers with rejected offers.  Now, updated with the results of a current study,  the Taxpayer Advocate, advises that, “The IRS secures at least as much (often more) than the offered amount in 60 percent of the OICs it rejects. However, in the remaining 40 percent, the IRS has only collected a third of the amount offered through subsequent payments.  Overall, even after we factor in refunds offset to satisfy the delinquent liabilities, the IRS still collects significantly less than the amount offered on rejected or returned OICs” (emphasis added).

The Taxpayer Advocate, continued: “…when examining rejected OICs, the IRS determined reasonable collection potential was over 15 times the amount offered, and over 40 times the amount actually collected. While the rejection of the OIC is sometimes appropriate, in many instances, the IRS often has an exaggerated view of the taxpayer’s reasonable collection potential, with the dollars collected being less than the amount offered, and significantly less than the amount the IRS determined as the taxpayer’s reasonable collection potential.”

The Taxpayer Advocate recommended that the IRS should consider devoting more resources to obtaining acceptable OICs from taxpayers who seek to compromise their liabilities. See Offer in Compromise acceptance rate, and  IRS Offer in Compromise – will mine be accepted or rejected?

Reduced Training and reduction in competent advice and taxpayer services.

“The IRS has reduced its employee training budget by nearly 75 percent since fiscal year (FY) 2009. Not only has the budget for training drastically declined, but the way in which employees receive that training has shifted from in-person face-to-face training to virtual training. IRS employees cannot be expected to provide competent advice and adequate service to taxpayers who present myriad issues when they do not receive training timely or effectively. The downstream consequences to the IRS and taxpayers, including rework, misleading or incomplete advice, improper compliance actions, and distrust in the IRS serve to further degrade the relationship between the IRS and taxpayers, and violate the taxpayer rights to be informed, to quality service, and to a fair and just tax system. Employees must receive timely, comprehensive, and effective training in order to protect taxpayer rights and provide top quality service to taxpayers.” (Taxpayer Advocate Service – 2017 Annual Report to Congress).

For additional problems and recommendations, see the NATIONAL TAXPAYER ADVOCATE

Annual Report to Congress 2017.