IRS Blows Millions of Dollars on Failed Effort to Chase Tax Scofflaws



Politicians like to work themselves into a lather over the "tax gap"—the amount of money the government says it's owed by taxpayers that doesn't get paid. The current estimate, based on 2006 figures, is that roughly $450 billion goes uncollected each year. That's an 83.1 percent tax compliance rate which (shhh…Don't tell anyone!) is probably the highest on the entire planet. But never mind. If government officials have to dig through the seat cushions for those elusive ducats, that's what they'll do. Even if they do that digging really, really badly.

The latest efforts at sofa cushion excavation involved a multi-million dollar Information Reporting and Document Matching Case Management System (IRDMCM—yes, really). The Internal Revenue Service spent $8.6 million on the scheme to squeeze information from banks, brokerage firms, and the like and square the data against individual sole proprietor and business returns.

The system doesn't work. It doesn't work in spectacular fashion. According to a report by the Treasury Inspector General for Tax Administration (Compiled in September but released last Thursday):

The IRDMCM System requirements were not sufficient. User Acceptance Testing generated a high number of problem tickets, 50 percent of which were to clarify requirements and businessrules. After a year of User Acceptance Testing, IRS officials acknowledged that the IRDMCM System could not effectively process business cases containing underreported income and could not be deployed into the IRS production environment.

This is the federal government we're talking about, and the IRS in particular, so wasted effort and resources on unusable systems are par for the course. What is surprising is the small payoff anticipated from this failed system.

Remember that the tax gap represents something in the neighborhood of $450 billion that the government wants to get into its sticky fingers. The Inspector General's report describes IRDMCM (pronounced, "whatthefuck?") as a missed opportunity that "could have potentially resulted in assessed taxes of $54.9 million." That's like digging at length through the sofa cushions, delightedly spotting a couple of centavos, and dropping them.

The Inspector General recommends that the IRS roll up its sleeves and try again, but the tax agency responds that "significant budget constraints could affect future work on the IRDMCM System."

Well. that's a crying shame.

Have you thanked a tax scofflaw today for keeping wealth that might be pissed away or even used against you out of the hands of the government?