Objective

To determine the extent of implementation of the two recommendations included in our initial audit report, Efforts to Collect Delinquent Taxes (Report 2019-S-61).

About the Program

The Department of Taxation and Finance’s (Department) mission is to efficiently collect tax revenues in support of State services and programs while acting with integrity and fairness in administering State tax laws. When a tax debt has been billed and the taxpayer has exhausted all applicable protest rights, or protest rights have expired, the tax is considered delinquent, and the Department may initiate collection actions through its Civil Enforcement Division. Not all debts include a tax amount; some include only penalties and/or interest. Department procedures describe appropriate collection actions staff must take prior to completing or closing a collection case.

Collection actions may include filing a warrant, serving a levy (a legal seizure of property), and performing applicable searches to locate delinquent taxpayers and/or identify potential sources of payment. In addition to pursuing collection of delinquent taxes, the Department has the authority to waive or abate (reduce or eliminate) some tax liabilities – including interest and penalties – under certain circumstances, such as when a tax liability has been deemed legally uncollectible or not legitimate or when there is reasonable cause to abate. The Department publishes a monthly list of both the top 250 individual and top 250 business tax debtors for whom it filed at least one warrant in the prior 12 months. The December 2022 lists for individuals and businesses totaled almost $407 million and $255 million, respectively, for the amount due and owed at the time the warrant was filed. These amounts are about 29% and 40% higher than their respective totals as of March 2021, which we cited in our initial audit report.

The objective of our initial audit, issued August 24, 2021, was to determine whether the Department is making adequate efforts, in accordance with Department policy, to collect unpaid amounts – including taxes, interest, penalties, and fees – from delinquent individual and business taxpayers. We found that, for a significant number of the delinquent tax assessments we reviewed, we were unable to determine, based on documentation, that the Department took adequate collection actions prior to completing or closing cases for one of the five collection steps we tested: using applicable search tools to identify taxpayer resources that might be pursued to satisfy the debt. We also found that the Department generally followed relevant policies – with certain exceptions – in cases where it abated amounts due.

Key Finding

The Department has made significant progress in addressing the issues we identified in the initial audit report and has implemented both recommendations from the report.