Tax Administration:

Administrative Improvements Possible in IRS' Installment Agreement Program

GGD-95-137: Published: May 2, 1995. Publicly Released: May 2, 1995.

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James R. White
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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) Installment Agreement Program, focusing on the: (1) increase in installment agreements since IRS streamlined the processing and approval of taxpayers' requests for installment agreements; (2) effects these changes had on IRS collection activities; (3) internal auditors' concerns regarding these changes; (4) information that IRS provides taxpayers on their liabilities under installment agreements; and (5) administrative practices that could improve the installment agreement program.

GAO found that: (1) the 2.6 million new installment agreements approved in fiscal year (FY) 1994 represented a 136-percent increase over the number of FY 1991 installment agreements; (2) the amount of taxes paid through new installment agreements increased 135 percent between FY 1991 and 1994 and accounted for 33 percent of the delinquent taxes paid in FY 1994; (3) installment agreement program changes have affected IRS collection activities by reducing Automated Collection System collections and the routine collection process workload; (4) IRS internal auditors have raised concerns about the ease of entering into installment agreements and IRS failure to instruct taxpayers to amend their withholding or estimated taxes to prevent future delinquencies; (5) IRS may be permitting financially capable taxpayers to avoid paying their tax debts in one on-time payment and to accumulate tax debts by adding new tax balances to existing agreements; (6) IRS is taking steps to reduce the problems the auditors identified; and (7) administrative changes to improve the installment agreement program and reduce costs include informing taxpayers of the applicable penalties and interest that will be added to their installment agreements, allowing taxpayers to make electronic direct debit payments, and sending some default notices by regular mail instead of certified mail.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS recently included an interactive installment agreement process as part of its World Wide Web page. The process allows taxpayers to determine whether they are eligible to enter into an installment agreement and, if so, helps them to calculate the estimated total cost of the agreement. To use the process, the taxpayer enters the total amount of tax owed, indicates whether payment can be made within 60 months, and enters the amount he can afford to pay each month. The calculator then tells the taxpayer the number of months it will take to pay off the amount due including the prevailing rate of interest.

    Recommendation: The Commissioner of Internal Revenue should notify taxpayers about projected total costs and payoff periods when setting up agreements with taxpayers and when mailing monthly reminder notices.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: Form 9465, Installment Agreement Request, dated January 1996, gives taxpayers the option of requesting a direct debit installment agreement via a checkoff box.

    Recommendation: The Commissioner of Internal Revenue should experiment with Form 9465 to test whether having space for taxpayers to authorize direct debit installment payments increases the frequency with which this option is used.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Not Implemented

    Comments: IRS management determined that it was not feasible to implement this recommendation.

    Recommendation: The Commissioner of Internal Revenue should send agreement default notices to taxpayers by regular mail instead of certified mail unless an account is being referred for levy action.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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