Fed report says IRS halts efforts to collect unpaid taxes too soon, billions may be at stake

The IRS failed to take all required steps for collecting unpaid taxes from people it can't locate in over half the cases that investigators studied, according to a federal report released Monday.

The study does not estimate how much money that costs the government overall. But it says that in 2012, the IRS declared $6.7 billion in unpaid taxes to be uncollectable — and closed nearly 483,000 cases — because it couldn't find the taxpayer.

In tracking down people with overdue bills, IRS workers are supposed to take actions like tracing postal, motor vehicle, court and other records. But in a study of 250 cases, investigators said that 57 percent of the time, they found no evidence that agency workers had completed all required research before declaring the money uncollectable.

In addition, 7 percent of the cases lacked a required, formal warning that the government might put a lien on a taxpayer's property, according to the report.

The report was written by the Treasury Inspector General for Tax Administration, which audits the IRS.

IRS officials said in their written response that they generally agreed with the report but contested some of its findings, saying the investigators overestimated the value of some of the unpaid taxes.

The investigators' report conceded that even if the IRS did a better job of tracking down those owing money, "It may be difficult for the IRS to collect on these outstanding liabilities considering that these taxpayers have already proven to be difficult to contact or locate."

The study estimated that about $53 million was at stake in cases where required notices had not been filed warning taxpayers the government will file a lien against them.

IRS officials responded that the report overestimates the revenue involved in cases where lien notices had not been issued, saying it was "significantly less" than $53 million. They also said they believed that "the government's interest is adequately protected" by the lien notices they have filed.

IRS officials said they were implementing some of the report's recommendations, such as creating a checklist of research steps that workers are required to take.