Originally published on Forbes.com Nov 21st, 2014
Can the fact that the number of taxpayer delinquent accounts in the IRS inventory is around 11 million, a common estimate of the number of illegal aliens, be entirely coincidental? Please, I realize it is like comparing apple sauce and crank-case oil. Delinquent accounts are not people, since a person can have more than one delinquent account and many of the delinquent accounts are probably associated with corporations, which some of us don’t think of as people. Still I think there might be some sort of cosmic message from the universe in the coincidence, pointing us to other things that the two phenomena have in common and raising the question of whether there might be commonalities in the solutions to the problems.
Although President Obama made it clear that the plan he announced last night was not an amnesty, I think you could look at it that way. He told people that are in the United States illegally that if they jump through some hoops they can stay. The President had two pretty compelling arguments why his plan might be a good idea. One was that we don’t really have the resources to round all those people up and kick them out. The other is that most of us wouldn’t really like that to happen anyway. He was actually able to quote President Bush on that one – “They are a part of American life.” He also quoted Scripture to the effect that we shall not oppress a stranger, for we know the heart of a stranger – we were strangers once too.
It took me a bit to hunt that down. Personally I favor the King James Version of the bible, because it sounds so, well biblical. Anyway Exodus Chapter 22 Verse 21 reads:
Thou shalt neither vex a stranger, nor oppress him: for ye were strangers in the land of Egypt.
I think that must have been the scripture he was referring to. I couldn’t find anything in the Koran.
Even if you view this as the greatest abuse of presidential power since the Emancipation Proclamation, I think you have to admit, there is some logic to the approach. We can’t round them up and kick them out and we probably don’t want to anyway. So let them stay and focus enforcement resources on deporting people we do want to kick out and stopping more people coming in. It’s like the Boy Scout first aid lesson I remember “Stop the bleeding. Treat for shock.” Also you get a few million people out of the shadows living as semi-outlaws.
The problem of the 11 million (Probably 12 by now. According to the IRS Databook the count started 2012 at 10,809,000 and grew to 11,721,000 by the end of 2013. The total owed is over $120 billion ) delinquent accounts has similar attributes to the problem of the 11 million illegal immigrants. Even the majority of us who pay what we are supposed to pay on a timely basis, don’t want really draconian measures to be taken against the delinquents. And then there is the matter of enforcement resources. A recent TIGTA report highlights the enforcement resource problem. It concerns the IRS Automated Collection System.
HAL And The Minions – How Can We Help?
Russell Haynes is an attorney who works quite a bit in the collection area with the firm founded by his father Burton Haynes. He gave me a great image of an IRS Automated Collection office. It is a combination of HAL from 2001 A Space Odyssey
and the minions from Despicable Me
According to Russell, HAL can keep in its memory up to ten points of levy sources for each account. So one of the minions can push a button and drain your bank accounts to settle your tax debt. (It is of course quite a bit more complicated than that. It is just an image, remember.)
So how does the inventory of delinquent accounts grow? It turns out that there are fewer and fewer minions in ACS, thanks to IRS budget cuts, but it gets worse. Apparently one of the most important criteria for whether ACS is doing a good job or not is whether the phone gets answered. I can see that. The thing is the people in the ACS inventory are the type of people who tend to ignore notices. They are not proactive about being in compliance.
What motivates them to call? In some cases nothing will, but notifying them that their bank account is going to be levied might work. So if you put people into actively executing collection actions, you won’t have enough people to answer the phone. On the other hand, if you don’t take aggressive collection actions, not as many people will be calling. You probably think I am making this up. Here is a quote from the report:
The ACS uses levies as a method to collect outstanding taxes from sources such as bank accounts and wages. Most ACS levy source research is performed systemically by a computer system rather than by an ACS contact representative. ACS management sometimes scales back issuing levies at a controlled rate in an effort to limit incoming calls to a manageable level. By not issuing these levies immediately, there is a higher risk of decreased collection potential.
I used to think that by encouraging people to be in compliance, I was not only encouraging the right thing, but also the wise thing even from a selfish point of view. I’m becoming less and less sure of the latter. There is a quite decent chance that somebody who does not pay will be able to wait out the ten year statute of limitations particularly if their account is classified currently not collectible.
This phenomenon, though, gives us another group of people who are living in the shadows wondering whether the IRS will get its collection engine fired up again. Their situation is compounded by the fact that most ordinary tax advisers do not understand their problems. Ordinary tax advisers are oriented toward reducing your tax liability as much as they can legitimately and expecting that you will pay the balance due. As I discussed with Russell, once you owe more than you can afford, it is a totally different ball game. You need an adviser like him who spends his time studying the collection procedures in the Internal Revenue Manual.
That’s why I think President Obama should reach out to another shadowy group and offer some sort of amnesty not only to people with delinquent accounts but also non-filers and people who have filed extremely sketchy returns that would like to come clean. Something like forgiveness of interest and penalties and maybe even a cut back on the tax depending on how much time is left on the ten year clock.
Might This Work?
Given the number of delinquent accounts out there you would think I would know a few people who have them. Well I don’t, but there is this friend of a friend of mine who knew somebody I could speak to. You know how it goes. I asked this fellow or gal, whom I will call Tracy, whether a program like this might be meaningful. Tracy had a large outstanding balance that he or she never paid. There has been no word from the IRS for some time, but it hasn’t been ten years. Tracy, as usual, has no money now, but is certain that if an offer came in for a sum certain payable in three months arrangements might be made.
It seems like it might be a good deal all the way around. One more citizen out of the shadows, a bird in the hand for the government and IRS resources freed up to fight identity theft or enforce Obamacare – whatever – as long as its not harassing the Tea Party. That is counterproductive.
Russel also thought the idea had some merit, although he sees some hurdles.
I think they’re a great idea. The states run them from time to time. Maryland and Virginia both ran amnesty programs last in 2009 that gave delinquent taxpayers a chance to come forward, get back in compliance, set up payment plans for what they owed, and escape a significant amount of penalties and interest. A copy of the Virginia one is attached. They probably collected a bunch of money and I’m sure some percentage of the participants remain in compliance today, although I haven’t seen any data released to the public showing the results of those programs. The IRS already runs voluntary settlement programs, e.g. the OVDP, the VCSP, etc. I don’t see why they couldn’t run one for a limited time for regular, vanilla income tax issues. My concerns would be:
(1) Whether the IRS is nimble enough to actually pull one off. It takes them so long to process tax returns, could they process delinquent returns quick enough to settle the resulting assessments under the amnesty?
(2) could the Service’s institutional reluctance to waive penalties prevent them from announcing a program with a sweet enough carrot to actually encourage people to participate?
(3) Whether it would be politically possible for them to get authorization for this. For the state amnesty programs, they originate with their respective legislatures. Could you imagine Congress members being seen politically as cutting tax cheats a break during a time when the country is bitching about being broke. Holy hell would break loose. Even though economically, it would make a ton of sense to try and get these people to come in from the cold.
I think the political calculus might run in the President’s favor on this one. The Republicans did great this time around by running against Lois Lerner. It might be tough for them to criticize cutting tax delinquents a break.
In case you missed the President’s speech. Here it is.
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