IRS Issues Apologies to Taxpayers

The Internal Revenue Service issued apologies to 20,000 taxpayers Friday, admitting that its agents had violated federal law by collecting back taxes from individuals and families beyond a 10-year legal time limit.

The apology appears to be the most sweeping acknowledgment yet that the agency has employed overly aggressive and, in some instances, unethical practices in assessing and collecting taxes.

The agency publicly apologized in November for its misdeeds, but that statement involved four specific taxpayers whose cases were examined in Senate hearings. Experts said Friday that they could not recall a time when the agency has ever admitted such serious wrongdoing, involving such a large class of taxpayers.

IRS officials acknowledged Friday that agents across the nation have jawboned taxpayers improperly to get them to sign waivers of their rights on back taxes just before the statute of limitations would have freed them from their tax debts.

The practice was aimed at taxpayers making installment payments under plans set up by the agency for individuals who file returns but are unable to pay the full amount of their taxes. Under federal law, the IRS has 10 years from the date of assessment to collect owed taxes.

In cases where the deadline was about to expire, IRS agents would approach the taxpayers and pressure them to sign a waiver, said Lee Monks, the IRS’ taxpayer advocate in Washington. Such a request is a violation of the law, Monks said.

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If the taxpayer agreed to waive the limit, the IRS would continue collecting the installment payments. But if the taxpayer refused to sign the waiver, the IRS would in some cases threaten to terminate the installment plan and execute seizures or levies on the taxpayer’s assets, Monks said. In an unspecified number of cases, the IRS actually did execute levies and seizures after improperly terminating installment plans.

“There are just a handful of cases like that,” Monks said.

Robert S. Schriebman, a Rolling Hills Estates tax attorney, said he has seen a large number of cases involving taxpayers who have been subjected to serious threats by IRS collections officers to sign waivers to their rights.

“They pay you a personal visit and put a waiver in front of you and say, if you don’t sign it, they will garnish your wages and seize your bank account and your home,” Schriebman said. “Whether it was dirty or not, that’s the kind of game they play.”

The problem, Schriebman added, was an outgrowth of installment plans that the IRS knew would fail to fully recover taxes and ultimately saddle taxpayers with insurmountable debt. But the plans helped IRS agents to clear their inventory of collections cases and made the local offices look like they were efficient, he said.

The IRS is permitted to terminate installment balances only for specific reasons, such as a failure by the taxpayer to make regular payments or a sudden increase in a taxpayer’s income.

IRS officials said they are sending letters of apology to taxpayers who may have been affected. The agency is setting up a special team in Philadelphia to provide “appropriate relief.” That would include refunds on any amounts that taxpayers were improperly forced to pay.

The IRS practices were compounded by poorly structured installment plans, which in some cases collected less back tax each year than the interest accumulating on the balance--meaning that by the end of 10 years the tax debt had mushroomed and the taxpayers would have little hope of ever paying off the bill.

Monks said the apologies and refunds signal a new way of doing business at the IRS.

Sen. William V. Roth Jr. (R-Del.), chairman of the Senate Finance Committee, applauded the IRS disclosure and apology, saying the action shows that IRS Commissioner Charles O. Rossotti is attempting to improve the agency’s practices.

“A couple of years ago, the IRS would probably not have admitted a mistake and certainly would not have apologized and corrected the taxpayer accounts,” said Rep. Rob Portman (R-Ohio), co-sponsor of legislation to reform the IRS. “Instead of apologies, we need to set up policies, systems and management to avoid just this kind of situation.”