Internal Revenue Service:
Composition and Collectibility of Unpaid Assessments
AIMD-99-12, Oct 29, 1998
Pursuant to a congressional request, GAO provided information on the composition and collectibility of the Internal Revenue Service's (IRS) September 30, 1997, balance of unpaid assessments.
GAO noted that: (1) most of IRS' $214 billion in unpaid assessments as of September 30, 1997, are not taxes receivable and are not collectible; (2) of this balance, $76 billion, or 36 percent, consists of write-offs, which are typically over 6 years old and have no potential for collection; (3) write-offs consist primarily of corporate income and payroll taxes owed by bankrupt or defunct businesses, including failed financial institutions resolved by the Federal Deposit Insurance Corporation and former Resolution Trust Corporation during the savings and loan and banking crises of the 1980s and early 1990s; (4) another $48 billion, or 22 percent, of the unpaid assessments represents compliance assessments, which are amounts IRS has identified as owed to the federal government, but which have not been agreed to by taxpayers or a court; (5) many of these unagreed assessments result from IRS' various compliance efforts; (6) the lack of acknowledgement by the taxpayer or courts of the amounts owed, and evidence of little or no payment activity on compliance assessments, diminish prospects for their collection; (7) GAO noted less than $75,000 in collections since 1995 on $2.6 billion of unpaid compliance assessments; (8) only $90 billion, or 42 percent of the September 30, 1997, balance of unpaid assessments, represents taxes receivable under federal accounting standards; (9) these are distinguished from compliance assessments in that they are amounts that either taxpayers or courts have agreed are owed to the federal government; (10) however, of this amount, only an estimated $28 billion, or 13 percent of the total balance of unpaid assessments, will likely be collected; (11) the accounts comprising this $28 billion balance show evidence of both willingness and ability on the part of the taxpayers to pay their tax liability; (12) GAO found little or no evidence of payments made on these uncollectible taxes receivable; (13) these cases are older debts, with most predating the 1990 tax year; (14) growth in the overall unpaid assessments balance reported by IRS in the last several years is largely due to the accrual of interest and penalties; (15) regardless of collection potential, IRS accrues interest through the statutory collection period of the delinquent tax debt, which can last 10 years or more; (16) as of September 30, 1997, $136 billion, or 64 percent, of IRS' balance of unpaid assessments represented interest and penalties; and (17) most of these amounts will not likely be collected.