6 surprising facts about IRS collections

Anyone who has read any of my other articles knows that I think the tax code is convoluted, irresponsible, and morally bankrupt.  The IRS operates through the fear of the unknown; once you understand the facts, they are much less intimidating. I am going to share six surprising facts about IRS collections that just might help you out if you happen to owe back taxes to the IRS or if you find yourself scratching your head and wondering how such a small group of people can control the US economy, and by extension, the global economy.


#1: IRS collections is incredibly small


How many people do you think are employed to make sure that you pay your federal tax bill? Before you answer, consider this: the US tax code is the most expansive regulatory scheme this world has ever seen. Not only that, but it affects approximately 100,000,000 US taxpayers around the globe. No matter how you look at it, that's an incredibly expansive reach.


Before you answer, consider this. The population of New York is 8.5 million. If we assume that approximately 55 million tourists spend about a week in NYC each year, we can average in another million people at any given time, bringing us to a grand total of 9.5 million. For reference, there are 34,450 uniformed NYPD cops. That leaves us with a ratio of 1 police officer per every 275 people. That seems like a pretty reasonable ratio.


Now, what do you think the ratio is for IRS collections staff to taxpayers. 1 to 500? 1 to 1,000? 1 to 10,000? Try 1 to 20,000. With less than 5,000 collections employees and 100,000,000 taxpayers, IRS collections has 1 collections staff for every 20,000 taxpayers! For even more perspective, Ferrari put more cars on the road in 2014 (worldwide) than the IRS had collections employees! If this doesn't blow your mind, I don't know what will.


#2: IRS collections is getting even smaller


The current IRS budget is 89% of what it was at its high in 2010; it has shrunk from 12.1 billion to 10.9 billion dollars. And people say that you can't shrink the federal government! For collections, the figures are even more dismal. The two arms of IRS collections — Automated Collection System (ACS) and Field Collections — have seen drastic budget cuts. ACS, which typically sends the notices of past due balances (the notice stream) and staffs the call centers around the US, is dealing with a budget that is 70.3% of what it was in 2010. Not only that, but the number of staff has been cut from 2,939 to 2,234. No wonder hold times are over two hours!


For the 400 IRS field offices where the IRS Revenue Officers are employed, the budget has not seen such wild cuts. But, the number of Revenue Officers is at 70% of its high of 4,140 in 2010 (2,903 to 2014). The IRS has reduced the notices, levies, and liens it sends. And the worst part of it all? They're not the ones suffering because of it.


Guess what happens when you get a levy on your bank account from the IRS? Well, you will probably panic. And then you will either hire a firm like ours to seek the funds released or attempt to do it yourself. Either option results in one thing: a time-consuming call to the IRS. As we just discussed, IRS collections — which is shockingly small to begin with — is operating at about 70% of the staff that they used to. ACS managers target an expected call volume that will allow collections staff to answer calls in a "timely" manner (reality check: two hour phone calls that end in "courtesy disconnects" can not be considered "timely" in any sense of the word). Since the highs of four-to-five years ago, the IRS has issued 37% fewer levies and 31% fewer liens.


#3: It's not the IRS that suffers the most from a lessened budget


2/3 of all IRS collections cases are closed out simply by people making voluntary payments to the IRS. So the decrease in collections staff really hasn't hurt the US treasury. In fact, Federal tax receipts couldn't be higher!


Rather, the tax resolution industry is suffering big time because of the huge decrease in enforced collections. If there is anything that will convince a taxpayer to hire a firm, it is the fact that the IRS just took their money. Unfortunately the lack of levies, liens, and revenue officers has put the squeeze on legitimate firms, and has caused the not-so legitimate to put out ridiculous offers (i.e., all tax problems solved for $500) or pretend to provide services they simply aren't able to handle (like claiming they can help with an Offshore Voluntary Disclosure).


#4: The IRS isn't entirely transparent in what it takes to be a Revenue Officer


The joke "my recruiter didn't tell me the army was going to be like this!" rings similarly true with the IRS. Most people would feel uncomfortable kicking someone out of their house because of unpaid taxes. In order to address this rather worrying possibility, the IRS addresses this concern of prospective revenue officers on its recruitment page. Here's an excerpt with the relevant portion in bold:


"garnish bank accounts and wages as well as seize real and personal property to satisfy delinquent taxes. Real estate seizures do not involve taking immediate physical possession or evicting occupants from the property."


I don't know if I could call that a lie, but I could tell you this. Real property can be seized to satisfy tax debts. In the case of residential real estate property, there is a court proceeding; and yet, if the order to take possession is granted, physical possession is sort of immediate from that court order. So if someone is living on the property and that property is seized, that person will be evicted. Perhaps the eviction will not be by a Revenue Officer per say, but it will certainly be by someone directed by a Revenue Officer. The point is that most Revenue Officers do not go into the job to push people around. In fact, the IRS has to sell the job as the opposite to get people to apply.


#5: A less powerful IRS collections department isn't necessarily a good thing


I, for one, would love to see the personal income tax declared as the failure it is, and for the United States to move to a fairer system of taxation where people are taxed for what they use, rather than what they earn.


The other problem? Let's say you owe $15,000 for 2013 and you didn't hear anything from the IRS. In 2014, you might owe another $15,000. I can assure you that you will most likely owe another $15,000 for 2015. The question is, how much will you owe when the IRS finally decides to take a look at your case? The IRS will know its 10-year statute of limitations on collecting your tax debt will eventually expire. How reasonable do you think they will be when there's a chance for your debt to evaporate entirely? How big of a tax debt will you owe? Could it be that the reduced IRS collections staff is somehow akin to having a longer rope to hang yourself properly?


Consider the following: Is IRS collections — with its smaller budget and smaller staff — less powerful overall? Perhaps. But are they less powerful when they are on your case? Will the IRS feel any less powerful to you?  No, no, and a resounding no. Not at all. And when you are attempting to get levies or liens released, it can be even more difficult to find someone at the IRS to help you. 


#6: IRS collections wants your case gone


IRS collections is completely cool with you settling your back taxes for far less than what is owed. Sure, in some instances, we have seen Revenue Officers take cases personally, but the IRS offer in compromise rules have been severely relaxed. The IRS has such a huge inventory of cases that it really wants you to file an offer in compromise so they can scratch one off the list while getting paid. The IRS's reasons aren't altruistic and there are a number of myths about the IRS Offer in Compromise Program. Yet still, the IRS is just now beginning to face the reality that their limited resources has presented. 




Resources for this article:
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION Reduced Budgets and Collection Resources Have Resulted in Declines in Taxpayer Service, Case Closures, and Dollars Collected May 8, 2015 Reference Number: 2015-30-035

TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION The Internal Revenue Service Needs to Enhance Its International Collection Efforts September 12, 2014 Reference Number: 2014-30-054

TAXPAYER ADVOCATE REPORT The Diminishing Role of the Revenue Officer Has Been Detrimental to the Overall Effectiveness of IRS Collection Operations

TAXPAYER ADVOCATE REPORT A Comparison of Revenue Officers and the Automated Collection System in Addressing Similar Employment Tax Delinquencies

GOA REPORT: Automated Collection System Lacks Key Internal Controls Needed to Ensure the Program Fulfills Its Mission