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IRS Procedures Allowed Inconsistent Processing of Taxpayers' Streamlined Installment Agreements

September 27, 2011

TIGTA - 2011-61 Karen Kraushaar karen.kraushaar@tigta.treas.gov TIGTACommunications@tigta.treas.gov (202) 622-6500

IRS Procedures Allowed Inconsistent Processing of Taxpayers'

Streamlined Installment Agreements

WASHINGTON - Although the Internal Revenue Service (IRS) has been following

procedures for processing streamlined installment agreements, those procedures have

allowed for the inconsistent processing and treatment of taxpayers, according to a report

publicly released today by the Treasury Inspector General for Tax Administration

(TIGTA).

TIGTA reviewed whether the IRS consistently applied streamlined installment agreement

requirements to all taxpayers. According to the report, the streamlined installment

agreement program has brought in large amounts of revenue with minimal IRS

processing while decreasing taxpayer burden by reducing the amount of documentation

required. Approximately 3.1 million taxpayers entered into streamlined installment

agreements in Fiscal Year 2010, resulting in approximately $5.9 billion in collections.

However, due to inconsistencies, some agreements will not be paid off when expected,

according to the report. In addition, auditors found that the IRS has not consistently

communicated to taxpayers the options about how to avoid user fees associated with

these agreements. Taxpayers paid more than $1 million in user fees that could have been

avoided, and thousands of taxpayers may have been surprised to learn they still owed

taxes after they completed the terms of their streamlined installment agreements,

according to the report.

“The inconsistent processing and treatment of taxpayers may contribute to the inefficient

use of IRS resources and jeopardize the IRS’s ability to collect tax liabilities,” said J.

Russell George, Treasury Inspector General for Tax Administration. “Inconsistencies

can also create an economic hardship for taxpayers and may lead to future tax liabilities,”

he added.

TIGTA auditors estimated that at least 90,000 taxpayers using a streamlined installment

agreement to pay back taxes may still owe the Internal Revenue Service (IRS) after they

complete the terms of their agreement. Streamlined installment agreements allow

taxpayers owing tax liabilities equal to $25,000 or less to make payments over a 60-

month period or by the collection statute expiration date. However, because the IRS does

not consider current and future accruals of penalties and interest when computing

streamlined installment agreement payments, many accounts will not be fully paid within

the 60-month period.

TIGTA recommended that the IRS revise its streamlined installment agreement

procedures. The IRS agreed with TIGTA’s recommendations and plans to take steps to

address TIGTA’s concerns.