TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
INSTALLMENT AGREEMENT USER FEES WERE
NOT PROPERLY CALCULATED OR ALWAYS COLLECTED
Issued on May 13, 2008
Highlights
Highlights of Report
Number: 2008-40-113 to the Internal Revenue Service Deputy Commissioners for
Operations Support and for Services and Enforcement.
IMPACT ON TAXPAYERS
Each year, the Internal Revenue
Service (IRS) initiates approximately 1.5 million installment agreements with
taxpayers allowing them to pay delinquent Federal tax in installment
payments. The IRS charges a user fee for
setting up these agreements. Our review
of the IRS cost estimates for the installment agreement user fees established
in January 2007 indicated that the user fees charged taxpayers were set
incorrectly and were sometimes waived without justification, and some taxpayers
were charged duplicate fees.
WHY TIGTA DID THE AUDIT
This audit was initiated as
part of the Fiscal Year 2006 Annual Audit Plan.
Installment agreements are considered a special service and taxpayers
are charged a fee to offset the IRS’ cost of providing that service. In Fiscal Year 2006, the IRS received
approval from the Office of Management and Budget to increase its user fees for
installment agreements—from $43 to $105 for new agreements and from $24 to $45
for reinstated/restructured agreements.
It also received approval to charge a reduced user fee of $43 for
low-income taxpayers and $52 for taxpayers who entered into installment
agreements by direct debit payment method.
The overall objective of this
audit was to evaluate controls over establishing installment agreement user
fees, recognizing user fee revenue, accounting for user fees, and correcting
duplicate user fee payments.
WHAT
TIGTA FOUND
The cost estimates used to
establish user fees required to be re-evaluated every 2 years to keep the
costing current should be based on the best available records and represent
the full cost of providing the service. However, for installment agreement user fees, the
IRS did not perform the required reviews every 2 years. Furthermore, the new user fees in 2007 were
based on inaccurate cost estimate assumptions and contained calculation errors
and unsupported costs resulting in a higher user fee estimate than was
justified by the supporting documentation.
Based on our recalculations, the IRS is potentially overcharging
taxpayers $16.85 for initiating an installment agreement and $7.77 for
restructuring/reinstating an installment agreement. Since January 2007, TIGTA estimates that the
IRS has collected excess amounts for user fees which could total $10.3 million
for initial agreements and $2.5 million for restructured/reinstated
agreements.
IRS
examiners were also improperly waiving user fees and failing to document the
reasons behind the waivers. The amount
of uncollected installment agreement user fees could be $629,021 as a result of
improperly waiving the initial user fee.
Moreover, $457,982 in waived restructured/reinstated installment
agreement user fees is questionable due to the lack of documentation. Duplicate user fees were also being charged
with 15 percent of the duplicates going uncorrected, which could have
resulted in 435 taxpayers being overcharged user fees totaling $18,705 in the
second quarter of Fiscal Year 2006.
WHAT TIGTA RECOMMENDED
The Chief Financial Officer
should ensure that the methodology used to support installment agreement user
fee rates is properly revised. The Commissioner, Wage and Investment Division, should
establish a system control to ensure that fees for an initial installment
agreement are not waived and the justification for
waiving restructured or reinstated fees is documented. To ensure collection of the user fee, the
practice of processing installment agreement tax payments without a coupon should be revised, and the information provided to
examiners on duplicate payments should be expanded to include
information on the number of duplicates that exist.
IRS management agreed with five
of our recommendations and partially agreed with one recommendation. However, the IRS disagreed with our
conclusions that taxpayers were overcharged for user fees based on a revised
methodology developed but never sent forward to the Office of Management and
Budget for approval. The IRS has decided
to re-examine its revised methodology, which is scheduled to be completed by
May 2009. TIGTA believes the IRS cannot
with any certainty establish the actual cost of providing an installment
agreement to a taxpayer until it conducts a thorough analysis and validates its
approach and data.
READ THE FULL
REPORT
To view the report, including the scope, methodology, and full IRS response, go to: http://www.treas.gov/tigta/auditreports/2008reports/200840113fr.html.
Email Address: inquiries@tigta.treas.gov
Phone Number: 202-622-6500
Web Site:
http://www.tigta.gov