Levies & Liens Are Up, But That’s Not the Whole Story

In war tax resistance circles, there have been whispers of a recent increase in the speed and number of IRS enforcement actions such as liens and levies.

The IRS itself has recently been crowing about increased enforcement:

The bottom line for our enforcement efforts shows that dollars collected rose again last year. There’s a strong trend line going up. was a watershed year for us, with a number of big initiatives that helped push enforcement revenues up 10% to $47.3 billion. In , enforcement revenues — the monies we get from our collection, examination, and document matching activities — increased to a record $48.7 billion.

The press release breaks down the numbers a little more thoroughly. For instance, sure enough:

In our collection activities, levies and liens continue to top their levels. Levies increased by 36% to 3,742,276. Liens rose nearly 20% to 629,813.

These numbers are data but the IRS seems over-eager to jump from that to conclusions about the underlying situation. Are increased enforcement efforts leading to more enforcement revenue, or is there just more tax money in general lying around for audits to discover — either because improving financial markets have caused people and corporations to owe more than in recent years or because they are more likely to be trying to illegally evade their taxes? Hard to say.

I’m even more skeptical of the IRS’s own spin on the numbers when I learn how resistant the agency is to providing the raw data to groups like Transactional Records Access Clearinghouse so that they can do independent analyses. (TRAC characterizes it as “continuing intransigence and unwillingness to providing public access to detailed statistics about many agency activities, along with a closed-door policy on releasing any meaningful results from taxpayer-financed studies on how our tax system is functioning.”)

Today, for instance, TRAC released its own analysis of IRS audit numbers for big corporations (which “controlled 90% of all corporate assets and received 87% of all the corporate income”).

TRAC finds that “the annual audit rate for these corporations, all with assets of $250 million or more, while increasing in has now receded to about the level it was in and is much lower than levels that prevailed a decade or more ago.”

In addition, the number of hours that the IRS spends on each of these audits has declined. In , it spent 1,210 hours per audit of such corporations; in , it spent 958. But perhaps it is just being more efficient and effective and doesn’t need to spend as much time as it used to? TRAC’s opinion:

Some economists and tax experts believe that other explanations are possible, namely that a massive surge in non-compliance is believed to have swept through corporate America. Although government enforcement activities can be measured, accurately tracking the number individuals or corporations who secretly decide to break the law is extremely difficult. In recent years, however, [IRS] Commissioner Everson, his immediate predecessor and many others have argued that case-by-case evidence strongly suggests more and more corporations are skirting the law. The bottom line: a real increase in the number of non-compliant taxpayers may explain the increase in enforcement revenues.

Therefore, while it is true that enforcement dollars are up, particularly for recommended audit adjustments among the largest corporations, the reason remains unclear. In the face of lowered coverage and audit hours, this increase could be due to a more effective IRS audit program. However, if corporate noncompliance is up, it could be that the dollars require less effort to find.

At Everything Tax Law, “The Peoples Tax Lawyer” highlights a recent case in which a taxpayer went into tax court and seems to have won his case mostly by calling the IRS’s bluff:

At the end of the day, the taxpayer prevailed on every issue.…

Odds are that the IRS attorney did not take this case serious[ly] because the amounts in dispute were small and/or the issues were not complicated. If that is the case, the lesson from this case is that small taxpayers should litigate their cases rather than paying the underlying tax. I bet that is not a lesson that the IRS wants taxpayers to learn.