If you live in fear of a letter or call from the IRS, you may have more reason to worry this year. Tax collections are up, but so are aggressive enforcement strategies. If you haven't filed yet, it's time to get those W-2 forms together.
A new report from the Treasury Department's Inspector General shows that tax collections are on the rise, thanks in part to the hiring of more inspectors. And agents are squeezing more out of delinquent taxpayers than ever before. "Collections are up: they're up by 5.5 percent, which is good," said Dan Devlin, an assistant inspector general who worked on the report.
The study shows that during the last fiscal year the tax agency improved its collection enforcement with more liens and levies issued by the IRS than in 1997, the previous high-water mark for collection efforts. "Overall, many compliance activities increased and their results did improve during the 2006 fiscal year," said Mike Phillips, Treasury's deputy inspector general for audit. The IRS collected almost $49 billion in 2006 thanks to its examiners and revenue agents, whose ranks have increased by nine percent in the past year. The average amount a tax examiner or revenue agent brought in rose to $555,000, more than double the level of 1999, according to the report.
Examinations of individual returns were up four percent last year. This is bad news for taxpayers who fear that an overestimation of their charitable contributions or a little white lie on the home office deduction might catch up with them. To date, Uncle Sam has already received more than 75 million individual tax returns as Americans rush to beat the April 17 filing deadline.
"But at the same time the backlog and the amount of accounts receivable -- that is the amount of taxes that are owed to the IRS -- also continues to expand," said Devlin. "So both collections and amounts due are both equally increasing simultaneously." This high volume of assessments has led to a backlog of work. The tax agency might send a letter telling a taxpayer they made some errors and owe a few hundred dollars, but never collect a dime if the person doesn't respond.
Last year the IRS "shelved" more than 6.8 million accounts that were worth more than $28 billion, flushing some of the lower-priority cases out of the agency's case files. Phillips says some of those accounts are now being sent to collection agencies, in the hope that private firms might be able to recover some of the money due to the Treasury. The audit report says the private collections program has raked in almost $13 million so far. "They have set up good processes and controls and have had a lot of oversight of the program, but it's still a little too early to call it a success," said Phillips.
So what should you expect if the tax man has decided to review your filings? The IG report says about 70 percent of the examinations take place via the mail. So most people will never have to come face to face with an agent.
