IRS Often Fails to Collect Judgments
Tax officials are failing to enforce monetary judgments against some convicted tax cheats, costing the government millions of dollars in lost revenue, according to a U.S. Treasury Department audit released Monday.
The audit by the department’s inspector general for tax administration blamed the problem on lax oversight and lack of internal controls. The report recommended that the Internal Revenue Service initiate procedures to monitor court judgments and improve communication between IRS offices.
“The IRS appears to be ignoring its greatest weapon to stop tax cheating. That’s making the cheaters pay,” Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, said in a statement. “The message seems to be that crime pays.”
The Treasury’s inspector general examined tax convictions from 2000 through 2002. Over that time, the IRS’ criminal investigation arm won about 7,000 convictions. In more than 1,000 of those cases, individuals were ordered to pay back taxes as a condition to end probation and avoid possible additional prison time, the report said.
The inspector general audited 37 of those cases and found that in about half of them, tax officials failed to tell others charged with following up that there were provisional sentencing terms. As a result, the report said, 18 of the sentenced individuals failed to make their payments during probation.
During probation, which generally follows prison time, the court has the ability to add penalties if the original judgment isn’t followed.
In addition, the inspector general looked at 135 cases out of the 1,000 in which the record did not indicate a date for the completion of probation. In 36 of the cases, the probationary period had passed unnoticed.
In nine of those 36 cases, individuals managed to avoid paying back taxes and penalties during the probationary period. These nine cases -- in addition to the 18 uncovered in the audit -- were responsible for $2.5 million in unpaid taxes and penalties after conviction, the report said.
“This is an area where we’ve fallen down,” IRS Commissioner Mark W. Everson said at a National Press Club luncheon Monday, according to an IRS transcript of his remarks. “It needs to be addressed. I’ve asked Deputy Commissioner Mark Matthews to look at this and have it cleaned up promptly.”
In some instances, convicted taxpayers simply can’t pay a monetary judgment, the report noted, but in the cited cases there was no indication that any effort had been made to determine whether the individuals could pay. Courts have the ability to impose additional prison time when taxpayers don’t meet terms of probation. Courts did impose added prison time in three of eight such cases called to their attention, the report said.
“This illustrates that the monitoring process can have the intended effect if followed,” the report said.
Tax experts say reforms to improve monitoring are crucial.
“Anyone who ... violates the law or judgment with impunity opens the door to others who believe that they likewise may be able to commit violations without punishment,” said Elliott Kajan, partner with the Beverly Hills tax law firm Kajan Mather & Barish.