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MSP #15: Economic Hardship

The IRS Does Not Proactively Use Internal Data to Identify Taxpayers at Risk of Economic Hardship Throughout the Collection Process

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #15-1

Develop and utilize an algorithm to compare a taxpayer’s financial information to ALEs during IDS case scoring and as a template made available to Revenue Officers and telephone assistors responding to taxpayer inquiries.

IRS RESPONSE TO RECOMMENDATION: A comparison of taxpayer income to allowable living expense (ALE) standards would not yield a useful indicator of financial condition.  The ALE standards represent an average of all taxpayers; a given taxpayer may spend more or less or not incur the expense at all. A taxpayer’s financial condition can only be evaluated by looking at their individual facts and  circumstances.

TAS RESPONSE: We agree that a taxpayer’s financial condition can only be verified by looking at their individual facts and circumstances. That is why we are recommending a systemic indicator as a starting point to engage this population of vulnerable taxpayers and verify their financial status.

The IRS could use the TAS algorithm (or one similar to it) to apply a marker during case scoring to route the case to the appropriate group. For example, flagging potential economic hardship cases early on during Inventory Delivery System (IDS) scoring would allow the IRS to better use resources in later stages of the collection process and prevent economic harm to taxpayers who are at risk of economic hardship. The IRS could program their systems so when an assistor keys in the Social Security number of a taxpayer with an economic hardship risk indicator, a screen is generated with the income information, projected family size, and appropriate ALEs. This way, the assistor can simply run through some high-level information to verify its accuracy. This indicator would prompt the IRS employee to ask a few more detailed questions in order to ascertain the taxpayer’s ability to pay and identify more appropriate collection alternatives, including Currently Not Collectible (CNC) status.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #15-2

Apply this algorithm before sending any cases to PCAs, and exclude any case involving a taxpayer at risk of economic hardship from potentially collectible inventory.

IRS RESPONSE TO RECOMMENDATION: ​A comparison of taxpayer income to allowable living expense (ALE) standards would not yield a useful indicator of financial condition. The ALE standards represent an average of what all taxpayers spend; a given taxpayer may spend more or less or not incur the expense at all. A taxpayer’s financial condition can only be evaluated by looking at their individual facts and circumstances. Further, there is no authorization in the statute to exclude cases from private debt collection based on such an indicator.

CORRECTIVE ACTION: N/A

TAS RESPONSE: We agree that a taxpayer’s financial condition can only be evaluated by looking at their individual facts and circumstances. The IRS could use the TAS algorithm to apply a marker during case scoring and route the case to the appropriate group that would properly assist and engage those taxpayers who are at risk of economic hardship. For example, flagging potential economic hardship cases during IDS scoring and before routing the cases to be worked would allow the IRS to better use resources in later stages of the collection process and prevent economic harm to taxpayers who are at risk of economic hardship.  Many anxious or intimidated taxpayers seeking to resolve their liabilities as quickly as possible may be unaware  the IRS is required to halt collection actions if they are in economic hardship and thus agree to make tax payments they cannot afford.

Pursuing this category of taxpayers through private debt collection without first proactively identifying and engaging the taxpayers wastes resources and creates later rework for IRS employees due to the likelihood of taxpayers’ inability to pay. It also goes against the intent of Congress, which is to avoid putting taxpayers into economic hardship. For example, see Internal Revenue Code (IRC) § 6343(a)(1)(D), which requires the IRS to release a levy if it is determined that the levy is creating an economic hardship for the taxpayer.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #15-3

Route cases identified as at risk of economic hardship to a specific group within ACS and send those taxpayers a specific written notification to educate them on collection alternatives and additional assistance available, including TAS and LITCs.

IRS RESPONSE TO RECOMMENDATION: A taxpayer’s financial condition cannot be adequately pre-evaluated to perform this routing. Moreover, all ACS employees are already empowered to assist taxpayers facing economic hardship. Publication 594, The IRS Collection Process, is enclosed with Letter 1058 and the campus generated CP Notices 504, 523, and LT11.  It includes a section titled “Options if you can’t pay in full now” with information on installment payment agreements, Offers in Compromise, and Currently Not Collectible determinations. It also includes a section on “If you have questions or need help” as well as providing information on both the Taxpayer Advocate Service and Low Income Taxpayer Clinics.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS’s response does not go far enough to address the issue.  There is more work to be done in terms of educating vulnerable taxpayers.  As we explained in the Most Serious Problem, 40 percent of taxpayers who entered into a streamlined IA in ACS in fiscal year (FY) 2018 had incomes at or below their ALEs. These taxpayers agreed to pay their tax debts while, even by the IRS’s own standards, they could not pay for their basic living expenses.

While we are mindful of the IRS’s concern for resources, the IRS has never quantified the amount of employee time expended upon undoing the downstream effects of unnecessary and unwarranted collection actions. We believe there would be significant resource savings if the IRS used this indicator to prioritize the cases that were most likely to have collection potential and applied its resources to that population. After creating this indicator, if the IRS wanted to attempt some collection against taxpayers with this indicator, then it should first attempt to engage the taxpayers and verify their financial information.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #15-4

Create a new help line dedicated to responding to taxpayers at risk of economic hardship and helping them determine the most appropriate collection alternative, including OICs.

IRS RESPONSE TO RECOMMENDATION: ​A taxpayer’s financial condition cannot be adequately pre-evaluated to perform this routing. Moreover, all ACS employees are already empowered to assist taxpayers facing  economic hardship.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS needs to do more to educate these vulnerable taxpayers.  Notices directed at this population should include clear information about collection alternatives. Telephone assistors responding to taxpayers’ calls, or taxpayers entering into IAs online, could receive prompting to inquire about their financial situation. When there is no indication beforehand to prompt the assistors to verify the taxpayers’ financial status, we see that many of these taxpayers are still entering streamlined installment agreements without having their financial situation evaluated.  These taxpayers often do not know all the collection alternatives available to them and must rely on self-help tools available online.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #15-5

Partner with TAS and LITCs to develop issue-focused training for IRS employees who interact with taxpayers at risk of economic hardship.

IRS RESPONSE TO RECOMMENDATION: TAS reviews and provides input on the training materials used by our Collection employees.  All ACS employees and Field Collection Revenue Officers are already trained to assist taxpayers facing economic hardship.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate has written extensively about the gap in training at the IRS. In the context of economic hardship issues, we believe that the training is not enough. Issue-focused training is needed for employees who interact with taxpayers at risk of economic hardship. The IRS should work with TAS in this arena because more work is needed; and these are the taxpayers TAS works with on a daily basis.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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