The Internal Revenue Service earns about $198 million a year in fees from installment agreements and $40 million in fees from tax return transcripts, but the reason for some of the user fees is vague, according to a new report.
The report, from the Government Accountability Office, noted that user fees are a growing part of the IRS’s budget. While they currently fund less than 2 percent of the IRS’s budget, fee collections are expected to reach $309 million in fiscal year 2012 and recently involved nearly 20 million transactions with taxpayers.
The IRS charges user fees for various activities, including helping taxpayers comply with their tax liabilities, clarifying the application of the Tax Code to particular circumstances, and ensuring the quality of paid preparers of tax returns, among others.
However, last fiscal year, two fees accounted for more than 80 percent of the total. The largest by far was the user fee for installment agreements. The agreements allow taxpayers who cannot pay their full tax liability the option to pay it off with smaller monthly payments over a period of up to 60 months. The installment agreement service is offered to most taxpayers for $105, with lower rates available for low-income taxpayers and those who opt for a direct debit agreement. This service generated $198 million, or 68 percent of the IRS’s total retained user fee collections.
The second most lucrative user fee was for income verification express services, also known as IVES, in which the IRS provides two-business-day processing and electronic delivery of tax return transcripts for users, such as mortgage lenders and other financial market entities, in order to confirm the income of a borrower during the processing of a loan application. The IRS charged a fee of $2.25 for each IVES transcript request, generating $40 million, or 14 percent of total retained fee collections.
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