Text File

____________________________________________________________________________ ___ Title: Internal Revenue Service Receivables Subtitle:

Report No.: GAO/HR-93-13 Date: December 1992 ____________________________________________________________________________ ___ Author: United States General Accounting Office

Addressee: High-Risk Series

This file contains the text of a GAO report. Delineations within the text indicating chapter titles, headings, and bullets are preserved. No attempt h as been made to display graphic images or pagination of the typeset report. Footnotes appear in brackets at the reference point in the text. Underlined text is indicated by underscore characters (_Introduction_). Superscript characters are preceeded by a backslash (\a). Figures may be omitted or replaced with tables. Tables may not resemble those in the printed version.

A printed copy of this report may be obtained from the GAO Documents Distribution Facility by calling (202) 512-6000 or faxing your request to (301) 258-4066 or writing to P.O. Box 6015, Gaithersburg, MD 20877. ____________________________________________________________________________ ___

____________________________________________________________________________ ___

CONTENTS

Overview - The Problem - The Causes - GAO's Suggestions for Improvement IRS Collections Billions of Dollars Uncollected Lack of Information - How Many Accounts Are Valid - Which Accounts Are Valid - Which Tools Work Best Inefficient Collection Process Balancing Collection Efforts With Taxpayer Protection Decentralized Organizational Structure Uneven Staffing Conclusions and Action Needed Related GAO Products High-Risk Series - Lending and Insuring Issues - Contracting Issues - Accountability Issues

Figures ======= Figure 1: IRS' Delinquent Tax Collections and Accounts Receivable Trends, Fiscal Years 1988 to 1991 Figure 2: District Office Staff Collections Compared to Dollars Added to Currently Not Collectible Status, Fiscal Years 1987 to 1991 Figure 3: Percent Change in Revenue Officer Case Closures per Staff Year, Fiscal Years 1987 to 1991

____________________________________________________________________________ ___

Office of the Comptroller General Washington, DC 20548

December 1992

The President of the Senate The Speaker of the House of Representatives

In January 1990, in the aftermath of scandals at the Departments of Defense and Housing and Urban Development, the General Accounting Office began a special effort to review and report on federal government program areas that we considered "high risk."

After consulting with congressional leaders, GAO sought, first, to identify areas that are especially vulnerable to waste, fraud, abuse, and mismanagement. We then began work to see whether we could find the fundament al causes of problems in these high-risk areas and recommend solutions to the Congress and executive branch administrators.

We identified 17 federal program areas as the focus of our project. These program areas were selected because they had weaknesses in internal controls (procedures necessary to guard against fraud and abuse) or in financial management systems (which are essential to promoting good management, preventing waste, and ensuring accountability). Correcting these problems is essential to safeguarding scarce resources and ensuring their efficient and effective use on behalf of the American taxpayer.

This report is one of the high-risk series reports, which summarize our findings and recommendations. It describes our concerns over the Internal Revenue Service's (IRS) ability to collect the tax debts owed the federal government. It focuses on what IRS needs to do to increase collections. We believe it is time for IRS to consider fundamental changes that would lead t o improved staffing decisions, a shorter collection process, accountability, a nd delinquency prevention.

Copies of this report are being sent to the President-elect, the Democratic and Republican leadership of the Congress, congressional committee and subcommittee chairs and ranking minority members, the Director-designate of the Office of Management and Budget, the Secretary-designate of the Treasury , and the Commissioner of Internal Revenue.

Signed: Charles A. Bowsher

____________________________________________________________________________ ___

OVERVIEW ---------------------------------------------------------------------------- ---

The Internal Revenue Service (IRS) is responsible both for routine tax collection and for pursuing delinquent payments. Although IRS routinely collects about a trillion dollars each year, its efforts to collect delinque nt taxes have been inefficient and unbalanced. As a result, billions of dollars in taxes remain uncollected, representing a serious loss of revenue for the government.

Moreover, IRS' poor performance in collecting overdue tax debts suggests to taxpayers that IRS is neither fair nor serious about collecting delinquent taxes. If IRS were to improve its efforts, the result could be not only increased revenue but also greater compliance. IRS recognizes its collection problem and has a number of initiatives under way that address it. But progress has been slow, and much vigor is needed in the future to enhance these efforts and bring them to fruition.

============================================================================ === THE PROBLEM

As of the end of September 1991, IRS reported an accounts receivable invento ry totaling about $111 billion. IRS estimated that nearly 75 percent of that amount cannot be collected because either the records are inaccurate and taxpayers do not actually owe the money, IRS cannot locate the taxpayers, or the taxpayers cannot pay. That leaves almost $30 billion that IRS has estimated as potentially collectible.

IRS based these estimates on its record of success at collecting delinquent taxes. If IRS were to improve its ability to collect, it could recoup more o f the unpaid debt. Yet IRS' collections have actually declined, dropping by 5 ercent in fiscal year 1991. Meanwhile, reported delinquent tax debts--the accounts receivable inventory--continue to grow and age.

============================================================================ === THE CAUSES

Several problems have interfered with IRS' ability to collect unpaid taxes.

First, the agency's records are inaccurate and insufficient. Because IRS doe snot know how many accounts are valid, its estimates of receivables are unreliable as a measure of performance. Because IRS employees do not know which accounts are valid, they waste time and money pursuing nonexistent debts. And because IRS cannot tell which of its many collection tools produc es the best results, the agency has not known how best to direct its efforts.

Second, the collection process is lengthy, antiquated, rigid, and inefficien t. The first step of the process alone may take 6 months. By comparison, delinquencies in the private sector are usually resolved in 6 months.

Third, IRS has had difficulty balancing collection efforts with the need to protect the taxpayer--an objective embodied in legal restrictions on IRS' efforts.

Fourth, IRS' decentralized structure tends to blur lines of responsibility a nd accountability.

And fifth, IRS does not have enough information to allocate staff effectivel y. Staffing varies dramatically among districts and is independent of collectio n needs.

============================================================================ === GAO'S SUGGESTIONS FOR IMPROVEMENT

We have made numerous recommendations to IRS over the years to improve its collection efforts; IRS has responded to some. For example, IRS has begun to develop much-needed information on the age of delinquencies and the types of taxpayers and taxes making up the accounts receivable inventory.

But many areas remain to be addressed. Among other actions, IRS should gathe r more and better data and use that data as a basis for decisions. IRS could also shorten and improve its debt collection process and remove organization al impediments to collections and determine the appropriate size and mix of collection staff. Further, Congress could revisit the issue of the appropria te balance between the need to protect taxpayers and the need to collect delinquent tax debts.

The government has the opportunity to realize substantially more revenue fro m taxes already owed if it could more effectively and efficiently carry out th e process of collecting those debts. Still, even as IRS works to improve collection methods, it should also give attention to preventing taxpayers fr om becoming delinquent in the first place. In addition to pursuing its current strategy for increasing compliance, IRS would do well to examine existing ta x rules, whose complexity may encourage delinquencies. A good example is IRS' recent simplification of employment tax deposit rules--another of our recommendations. And, in general, ensuring that IRS' operations are competen t and evenhanded may also help maintain public trust and voluntary compliance with our tax laws.

____________________________________________________________________________ ___

IRS Collections ---------------------------------------------------------------------------- ---

IRS is responsible for collecting $1 trillion in taxes each year and for ensuring that people pay their fair share of taxes. Some Americans do not report all of their income or claim too many deductions. The taxes that they should have paid make up the so-called "tax gap." As part of its job, IRS attempts to identify delinquent taxes--whether they stem from honest mistake s, inability to pay, or outright fraud. Once debts are identified, IRS classifi es them as accounts receivable.

Few people would question the wisdom of pursuing known delinquencies. Yet IR S' poor performance in collecting unpaid taxes has suggested that the agency ha s not been seriously committed to this task. For many years, IRS has collected only a small portion of the billions of dollars of reported accounts receivable, and its own numbers showed that its collections have actually declined even as the accounts receivable inventory has grown. Moreover, IRS' collection efforts have been unbalanced; they have not always been proportionate to the severity or the geographic distribution of the delinquencies themselves.

Inefficient and inequitable collection efforts not only mean lost or delayed revenue, but they have broader consequences as well: the public comes to believe that IRS is not fair in its operations and is not serious about collecting unpaid taxes. Allowing some people to get away without paying the ir tax debts may discourage voluntary compliance among the millions of taxpayer s who do pay their share. At the same time, IRS does little to prevent taxpaye rs from becoming delinquent in the first place. An approach emphasizing delinquency prevention could help reduce the need for collections.

____________________________________________________________________________ ___

BILLIONS OF DOLLARS UNCOLLECTED ---------------------------------------------------------------------------- ---

As of the end of September 1991, IRS reported that its accounts receivable inventory totaled about $111 billion. On the basis of experience, IRS estimated that nearly 75 percent of the inventory will never be collected because either records are inaccurate and the taxpayers do not actually owe the money, IRS cannot locate the taxpayers, or the taxpayers cannot pay. Thi s leaves almost $30 billion that IRS has estimated as potentially collectible, assuming that IRS maintains its current rate of collections. Clearly, improv ed collection efforts would mean more of this debt would be recovered.

As figure 1 shows, even as the reported accounts receivable inventory has continued to grow and age, collections have not kept pace. For fiscal year 1991, IRS reported that collections of receivables actually declined by 5 percent while its receivables inventory increased by 15 percent.

____________________________________________________________________________ ___ Figure 1: IRS' Delinquent Tax Collections and Accounts Receivable Trends, Fiscal Years 1988 to 1991

The following table represents the data for this chart in the printed versio n of the report. The actual figure appears in the printed report.

(Dollars in Billions)

Change in Total Change in Change in Delinquent Accounts Total Tax Over Accounts Fiscal Year Collections 1 Year Old Receivable =========== =========== ========== =========== 1988 0.000 0.000 0.000 1989 0.183 7.811 11.522 1990 2.156 16.552 20.794 1991 0.973 27.214 29.122

Note 1: All values include interest and penalties on Individual and Business Master File accounts.

Note 2: Fiscal year 1991 inventory and age data have been adjusted from a 10-year to a 6-year statutory collection period.

Source: IRS data. ____________________________________________________________________________ ___

Several conditions have interfered with IRS' ability to collect unpaid taxes . These include a lack of complete and accurate information about accounts, an inefficient collection process, the need to balance collection efforts with taxpayer protection, a highly decentralized organizational structure, and uneven staffing among offices.

____________________________________________________________________________ ___

LACK OF INFORMATION ---------------------------------------------------------------------------- ---

IRS' collection efforts have long been hampered by erroneous and insufficien t information. To begin with, IRS' accounts are riddled with errors and duplications; many of the recorded debts do not even exist. Moreover, IRS do es not collect some information that could help it better guide its efforts. These problems mean that IRS does not know how many accounts are valid, whic h accounts are worth pursuing, and which of its collection tools are most effective in particular cases. As a result, IRS wastes valuable resources because it cannot productively focus its collection efforts.

============================================================================ === HOW MANY ACCOUNTS ARE VALID

In general, IRS has reported accounts receivable significantly higher than could ever be collected; IRS itself estimated that less than $30 billion of ts $111 billion inventory is collectible. Yet because IRS does not know how many records are valid, no one really knows the true number of receivables, much less how many of them are collectible. We are now reviewing IRS account s receivable as part of our onging financial audit required by the Chief Financial Officers (CFO) Act of 1990. Our preliminary data suggest that even IRS' estimate of $30 billion in potential collections may be overstated.

Because Members of Congress and the public have relied on IRS' information, many have an exaggerated idea of the impact increased collections could have on reducing the deficit. Members have also depended on these inflated figure s when making decisions about IRS' staffing needs.

The financial audit should provide, for the first time, a reliable estimate of IRS' collectible receivables, based on a detailed analysis of a statistical sample of individual accounts. IRS' annual audited financial statements will also give Congress credible information on receivables and IRS' other operations for oversight and accountability.

============================================================================ === WHICH ACCOUNTS ARE VALID

While the overall number of valid accounts can be estimated from an analysis such as ours, no one knows specifically which accounts are valid and which ones are not. This uncertainty has several implications.

First, because IRS employees trying to collect individual tax debts do not know which accounts are valid, they waste time and money pursuing debts that are not real and will not generate revenue. In addition, taxpayers who are contacted about nonexistent debts feel harassed and may lose confidence in IRS' competence and fairness.

Second, no one knows how invalid accounts are distributed among IRS' various offices. Nor does anyone know how much time it takes to resolve an invalid account. Because of these uncertainties, there is no way to determine whethe rsome offices are managing proportionately more workload with less payoff.

Third, what summary information IRS does have reflects both valid and invali d accounts. This makes it unreliable as a basis for decisions on staffing or collection strategies.

In the last few years, IRS has taken steps to develop such basic information as the age of the accounts receivable, types of tax owed, and how closed accounts were resolved. IRS is now working on the largest accounts to identi fy and remove errors, prevent future errors, and identify obstacles to increasi ng collections. IRS also plans to study why some tax debts have been abated. Th is is a start, but it will not be enough. IRS needs accurate and complete information on all of its accounts.

============================================================================ === WHICH TOOLS WORK BEST

To develop a good collection strategy, IRS needs far more information than i t currently has about the nature of tax debts, the characteristics of delinque nt taxpayers, and the relative effectiveness of collection tools. Without these data, IRS does not know which of its approaches work best, in which cases th ey work best, or when in the collection process they work best.

Congress has provided IRS with an extensive array of collection tools: IRS m ay negotiate installment agreements, settle for lesser amounts, garnish wages, levy bank accounts, and seize assets. IRS uses these tools frequently and often automatically, but it has no solid data with which to guide their use. For example, IRS knows that its employees garnish wages or levy bank account s more than 2 million times each year. But IRS does not know how much money is collected in this way, how often the debt is satisfied as a result, or how often the bank account is empty by the time the levy notice arrives. Nor doe s IRS know whether one of these techniques is more productive than the other o r whether it is more effective to use one before the other.

Similarly, IRS does not know the most effective collection approaches for specific types of tax debts or taxpayers. For example, employment taxes (employee wages withheld for social security and income taxes as well as the employer's share of social security taxes) make up about a third of reported accounts receivable--a sizable amount. IRS has specific tools to apply to employment tax debts. But IRS does not know whether these tools are in fact used for such accounts, much less whether they are successful.

Since the late 1970s, we have been pointing out that IRS needs better information to manage and evaluate its collection activities. Without it, IR S has no empirical basis for selecting a cost-effective mix of collection tool s and programs. With it, IRS could allocate staff and other resources in a way that would recover more revenue.

IRS' annual audited financial statements should help in part by enabling the agency to better measure its collection performance and, in turn, better direct its collection efforts. The ability to tie program decisions to financial results in this way is one goal of the CFO Act.

____________________________________________________________________________ ___

INEFFICIENT COLLECTION PROCESS ---------------------------------------------------------------------------- ---

Good business practice dictates that after a debt arises, efforts be made to secure some type of payment agreement as quickly as possible. IRS' decades-o ld collection process, however, is not based on this premise. The IRS collectio n process involves three steps. In step one, IRS mails the taxpayer a series o f three to five computer-generated bills, at 30-day intervals, to notify the taxpayer that a tax debt is owed. In step two, IRS telephones the taxpayer t o collect the money or otherwise resolve the debt. In step three, a revenue officer visits the taxpayer. In most IRS offices, smaller debts are not handled until a revenue officer becomes available or until the debt (which i s accumulating interest) grows large enough to be of higher priority. If not handled, the revenue will be lost when the 10-year statute of limitations expires.

The process is outdated, costly, and inefficient. A comparison with private sector debt collection illustrates several areas in which the IRS process needs improvement.

First, IRS' process takes too long. Delinquencies in the private sector are usually closed after 180 days. By that time, IRS has probably not even tried to telephone the taxpayer. IRS officials have explained that one reason the agency spends up to 6 months sending bills is to clear up as many errors as possible before employing more intrusive and more costly collection techniques. Correcting errors is important, especially since so many occur, but this could be done more quickly by telephone. Another reason IRS takes s o long is to allow enough time to receive and verify any replies from the taxpayer and to update the taxpayer's account. This is a time-consuming process in IRS' antiquated computer environment.

IRS is now in the midst of a long-term massive computer modernization effort that should eventually create an environment in which taxpayer information i s not only timely and accurate from the beginning but is also available to any IRS employee that needs it to do the job. Recent IRS commissioners have recognized the importance of this modernization initiative and have built on their predecessors' efforts to bring it to reality. This trend must continue .

Second, the process is too rigid. IRS follows the same three-step process fo r all types of accounts. If a debt remains unpaid, IRS will eventually use its more powerful tools, regardless of the taxpayer's compliance history. In contrast, private debt collectors often tailor their collection process to t he individual delinquent on the basis of experience or analyses of the behavior of specific types of delinquents. IRS is beginning to make some changes. For example, the agency now allows employees who have early contact with delinquent taxpayers to attempt collection before the first bill is sent. Bu t such movement toward change has been slow.

Third, the IRS collection process relies too heavily on step three, visits b y a revenue officer. Private sector companies avoid personal contact because o f the cost and potential dangers involved. Although IRS may need some personal contact--to exercise its seizure power, for example--it may not need to give this method the emphasis it currently has.

____________________________________________________________________________ ___

BALANCING COLLECTION EFFORTS WITH TAXPAYER PROTECTION ---------------------------------------------------------------------------- ---

IRS' attempts to collect debts using the same tools regardless of the taxpayer's compliance history--and, in some cases, even when the debt was no t actually owed--led, understandably, to complaints from taxpayers. To ensure that IRS always treats taxpayers fairly and does not abuse the substantial powers it has to enforce the tax laws, Congress passed the Taxpayer Bill of Rights in 1988 to strengthen taxpayer protections and placed conditions on IRS' use of certain collection tools. An unintended result of this legislati on was to hamper tax collection, both because of elements of the legislation itself and because IRS has evidently become reluctant to take actions that might provoke further constraints.

For example, one provision of the 1988 legislation prohibits IRS from evaluating staff members on the basis of dollars collected. IRS already had a similar policy, but Congress was concerned that the policy was not followed and that IRS employees, perceiving a "quota" system, were too harsh in their collection efforts. We said then, and continue to believe now, that taxes collected is a reasonable basis on which to judge the performance of employe es whose job it is to collect taxes, as long as other criteria, such as fair an d courteous treatment of taxpayers, are also evaluated. Virtually all private sector collection managers with whom we talked said that dollars collected w as one criterion used to evaluate employees and that it would be difficult to have an effective collection operation if dollars collected could not be use d to evaluate performance.

Under IRS' current system of evaluating staff performance, accounts classifi ed "currently not collectible" are given the same weight as dollars collected. This could contribute to the fact that the single largest segment of the accounts receivable inventory--and one of its fastest growing portions--is accounts deemed "currently not collectible." As shown in figure 2, district office staff now declare more tax debt "currently not collectible" than they collect.

____________________________________________________________________________ ___ Figure 2: District Office Staff Collections Compared to Dollars Added to Currently Not Collectible Status, Fiscal Years 1987 to 1991

The following table represents the data for this chart in the printed versio n of the report. The actual figure appears in the printed report.

(Dollars in Billions)

Dollars Collected by Dollars District Added to Office Currently Not Fiscal Year Staff Collectible =========== ========= ============= 1987 6.4 3.2 1988 6.4 4.3 1989 6.7 6.0 1990 7.0 7.8 1991 7.2 8.4

Source: IRS data. ____________________________________________________________________________ ___

Further, perhaps to avoid prompting further legislative intervention, IRS collection agents now seem reluctant to use some of the tools available to them. For example, the number of cases in which IRS seized property dropped from 25,000 in 1985 to less than 10,000 in 1991. Also, IRS staff has stopped collection action, even when taxpayers earn a substantial income, if the taxpayers have reported an equal amount of expenses to maintain their existi ng lifestyle.

These results reflect IRS' struggle to balance the need to protect the right s of taxpayers with the need to collect tax debts. IRS must be fair; its employees should follow appropriate laws and procedures and not harass taxpayers. But on the other hand, taxpayers need to know that IRS is serious about collecting taxes.

____________________________________________________________________________ ___

DECENTRALIZED ORGANIZATIONAL STRUCTURE ---------------------------------------------------------------------------- ---

IRS' organizational structure has impeded its ability to implement nationwid e changes. IRS is a highly decentralized organization: all 7 regions, 63 districts, and 10 service centers share responsibility for collecting tax debts. Each district has a great deal of independence in deciding which accounts to pursue and which tools to use in pursuing them. Assistant commissioners in IRS' National Office direct various functions--including collection, examination, returns processing, taxpayer service, and criminal investigation--but none of these people has direct line authority over field operations.

In 1991, IRS took a step toward establishing a unified collection strategy b y appointing an accounts receivable executive officer who reports to IRS' chie f financial officer. IRS also appointed multifunctional task forces to study specific aspects of the collection problem. The accounts receivable executiv e officer and the task forces face the challenge of operating in a decentraliz ed organization in which they have no line authority over the people directly responsible for collections.

IRS is also using a strategic planning process to improve accountability. Executives are expected to meet goals and annual targets. The 1992 collectio n target, for example, calls for the accounts receivable inventory to remain level or decrease and for debt collections to increase by 8 percent. The strategic planning process seems to have prompted better interunit cooperation, but so far tax debt collection has not improved.

____________________________________________________________________________ ___

UNEVEN STAFFING ---------------------------------------------------------------------------- ---

IRS' traditional solution to collection problems has been to add staff. Give nincreasing tax debts and number of accounts waiting to be handled, it would be easy to conclude that more staff is the best response. However, although we supported the staff increase Congress authorized IRS for 1991, we noted that more staff is not necessarily the answer in the long term. We also cautioned policymakers not to overestimate the amount of additional revenue that would result from adding staff. Debt collections actually declined that year.

IRS' own experience suggests that there is reason to doubt that adding staff will automatically lead to better collections. To begin with, productivity o f collection staff has not been constant. As figure 3 shows, the number of accounts closed per staff year in district offices has fluctuated considerab ly since 1987.

____________________________________________________________________________ ___ Figure 3: Percent Change in Revenue Officer Case Closures per Staff Year, Fiscal Years 1987 to 1991

The following table represents the data for this chart in the printed versio n of the report. The actual figure appears in the printed report.

(Percent Change From Prior Year)

Fiscal Year =========== 1987 0.00 1988 -21.07 1989 7.39 1990 1.19 1991 -15.65

Source: GAO analysis of IRS data. ____________________________________________________________________________ ___

Further, IRS may not be making the best use of the staff it already employs. Imbalances are common. In some districts, enough staff is available to pursu e small debts as well as large ones while in other districts large debts go uncollected because staff is not available. Aside from the potential revenue losses, such imbalances mean that taxpayers in different parts of the countr y are treated differently.

Therefore, rather than simply adding staff, IRS must ensure that it is makin g effective use of its staff. Because of IRS' lack of data, little is known about the optimum size and mix of staff for collections. Without better information, IRS cannot make rational decisions on how best to allocate staf f in the long term.

____________________________________________________________________________ ___

CONCLUSIONS AND ACTION NEEDED ---------------------------------------------------------------------------- ---

We have made numerous recommendations over the years to IRS on ways to impro ve its tax debt collection efforts. In the last several years, IRS has begun responding to some of these recommendations. For example, IRS is developing much-needed information on the age of delinquencies and the types of taxpaye rs and taxes making up the accounts receivable inventory. And IRS has improved its review process for evaluating the performance of field offices and start ed to identify performance measures that reflect its mission. IRS has also responded to our most significant recommendation on preventing employment ta x delinquencies by simplifying the requirements for employment tax deposits, making it easier for employers to understand and comply with the rules. In addition, as required by the CFO Act of 1990, IRS is now preparing an annual financial statement that we are auditing.

But many areas still need improvement, and the next commissioner must build upon the successes of prior commissioners. Most of our recommendations have addressed IRS' need to gather more and better data and to use that data as a basis for decisions. Among other steps, we have recommended that the agency develop more specific information on the validity and characteristics of accounts that are written off to determine whether new collection measures might help. We have recommended that IRS gather more extensive information o n employment tax delinquencies and measure the effectiveness of IRS programs f or dealing with them. And we have recommended that IRS find ways to give Congre ss more reliable estimates of revenues expected from proposed staffing increase s.

We have also proposed ways in which IRS could improve the collection process--for example, by analyzing the experience of private industry and by setting priorities on the basis of likelihood of collection rather than on t he size of the debt. In addition, IRS should identify and correct elements of i ts organizational structure that impair its collection ability and should work with the Office of Management and Budget to determine the appropriate size a nd mix of collection staff. And we have suggested that Congress revisit the iss ue of balancing the need to protect taxpayers and the need to collect delinquen t tax debts.

Perhaps most important, IRS must remember that collections are only part of its job. Even as it works to improve collection methods, IRS should also giv e attention to preventing taxpayers from becoming delinquent in the first plac e. Preventing delinquencies would reduce the problem--and cost--of collecting t ax debts later on. In addition, tax revenues would be more certain, and the mon ey would be available for use sooner. IRS' delinquency prevention programs are modest; the agency has agreed that it could do more in this area and recentl y introduced a strategy called Compliance 2000.

By ensuring that its operations are evenhanded and competent, IRS could do much to prevent the loss of public trust that can contribute to delinquency. In addition, although IRS has taken a step forward by simplifying employment tax deposit requirements, IRS needs to take a close look at the complexity o f other tax rules, which are often thought to cause taxpayers to become delinquent. Taxpayers plan their finances on the basis of their understandin g of the rules. By the time they learn their understanding was wrong, they may not have the money to pay additional taxes. IRS needs to identify the specif ic rules that cause the most problems and work with the Department of the Treasury and the Congress to simplify them.

The federal government has the opportunity to realize substantial revenue fr om taxes already owed if it can more effectively and efficiently carry out the process of collecting those debts. The delinquency problem is not straightforward, and it will not be easy to fix. But given the loss of billions of dollars in revenue--and the corresponding loss of public confidence in the system--IRS must aggressively address this problem as quickly as possible.

____________________________________________________________________________ ___

RELATED GAO PRODUCTS ---------------------------------------------------------------------------- ---

_An Update on IRS' Progress on Accounts Receivable and Strategic Management_ (GAO/T-GGD-92-26, Apr. 2, 1992).

_Tax System Modernization: Progress Mixed in Addressing Critical Success Factors_ (GAO/T-IMTEC-92-13, Apr. 2, 1992).

_Tax Administration: IRS' System Used in Prioritizing Taxpayer Delinquencies Can Be Improved_ (GAO/GGD-92-6, Mar. 26, 1992).

_Federal Contractor Tax Delinquencies and Status of the 1992 Tax Return Fili ng Season_ (GAO/T-GGD-92-23, Mar. 17, 1992).

_Tax Administration: Federal Agency Tax Compliance Problems Remain; Improvements Are Planned_ (GAO/GGD-92-29, Feb. 18, 1992).

_Tax Administration: IRS' Implementation of Certain Compliance Initiatives_ (GAO/GGD-92-45FS, Jan. 30, 1992).

_Tax Administration: Opportunities to Increase Revenue Before Expiration of the Statutory Collection Period_ (GAO/GGD-91-89, Sept. 30, 1991).

_Simplifying Payroll Tax Deposit Rules_ (GAO/T-GGD-91-65, Sept. 12, 1991).

_Tax Administration: Efforts to Prevent, Identify, and Collect Employment Ta x Delinquencies_ (GAO/GGD-91-94, Aug. 28, 1991).

_Identifying Options for Organizational and Business Changes at IRS_ (GAO/T-GGD-91-54, July 9, 1991).

_Management Challenges Facing IRS_ (GAO/T-GGD-91-20, June 25, 1991).

_Collecting Back Taxes: IRS Phone Operations Must Do Better_ (GAO/IMTEC-91-3 9, June 18, 1991).

_Tax Administration: Changes Are Needed to Improve Federal Agency Tax Compliance_ (GAO/GGD-91-45, Apr. 16, 1991).

_IRS' Budget Request for Fiscal Year 1992 and Status of the 1991 Tax Return Filing Season_ (GAO/T-GGD-91-17, Mar. 20, 1991).

_Tax Administration: IRS Does Not Investigate Most High-Income Nonfilers_ (GAO/GGD-91-36, Mar. 13, 1991).

_Tax Administration: Extent and Causes of Erroneous Levies_ (GAO/GGD-91-4, Dec. 21, 1990).

_IRS' Accounts Receivable Inventory_ (GAO/T-GGD-91-2, Oct. 18, 1990).

_IRS' Accounts Receivable Inventory_ (GAO/T-GGD-90-60, Aug. 1, 1990).

_Tax Policy: Federal Tax Deposit Requirements Should Be Simplified_ (GAO/GGD-90-102, July 31, 1990).

_Tax Administration: Trends in the Growth and Age of IRS' Accounts Receivabl e_ (GAO/GGD-90-111FS, July 30, 1990).

_Tax Administration: IRS Needs More Reliable Information on Enforcement Revenues_ (GAO/GGD-90-85, June 20, 1990).

_Tax Administration: Erroneous Penalties for Failure to File Returns or Pay Taxes Can Be Reduced_ (GAO/GGD-90-80, Apr. 13, 1990).

_IRS' Accounts Receivable Inventory_ (GAO/T-GGD-90-19, Feb. 20, 1990).

_Tax Administration: IRS Can Improve the Process for Collecting 100-Percent Penalties_ (GAO/GGD-89-94, Aug. 21, 1989).

_Tax Administration: Statistics on IRS' Use of Levies to Collect Delinquent Taxes_ (GAO/GGD-89-97FS, July 17, 1989).

_Tax Administration: Periodic Evaluation Needed If IRS Uses Levies to Collec t Deferred Accounts_ (GAO/GGD-89-34, Feb. 14, 1989).

_Managing IRS: Actions Needed to Assure Quality Service in the Future_ (GAO/GGD-89-1, Oct. 14, 1988).

____________________________________________________________________________ ___

HIGH-RISK SERIES ---------------------------------------------------------------------------- ---

============================================================================ === Lending and Insuring Issues

_Farmers Home Administration's Farm Loan Programs_ (GAO/HR-93-1).

_Guaranteed Student Loans_ (GAO/HR-93-2).

_Bank Insurance Fund_ (GAO/HR-93-3).

_Resolution Trust Corporation_ (GAO/HR-93-4).

_Pension Benefit Guaranty Corporation_ (GAO/HR-93-5).

_Medicare Claims_ (GAO/HR-93-6).

============================================================================ === Contracting Issues

_Defense Weapons Systems Acquisition_ (GAO/HR-93-7).

_Defense Contract Pricing_ (GAO/HR-93-8).

_Department of Energy Contract Management_ (GAO/HR-93-9).

_Superfund Program Management_ (GAO/HR-93-10).

_NASA Contract Management_ (GAO/HR-93-11).

============================================================================ === Accountability Issues

_Defense Inventory Management_ (GAO/HR-93-12).

_Internal Revenue Service Receivables_ (GAO/HR-93-13).

_Managing the Customs Service_ (GAO/HR-93-14).

_Management of Overseas Real Property_ (GAO/HR-93-15).

_Federal Transit Administration Grant Management_ (GAO/HR-93-16).

_Asset Forfeiture Programs_ (GAO/HR-93-17).