The Inspector-General of Taxation will investigate the Australian Taxation Office's controversial use of garnishee notices to recover debts from taxpayers.
The investigation was sparked by claims made by ATO whistleblowers who said the ATO used unethical tactics to claim money back from small businesses and individuals so they could meet revenue targets during the 2016/17 financial year.
One whistleblower alleged some ATO staff were ordered to use garnishee notices that allow the ATO to seize money from taxpapers' bank accounts without taking their personal circumstances into account.
"The allegations about the ATO's inappropriate use of garnishee notices is of serious concern and, if not addressed, can affect community confidence in the administration of the tax system," said Inspector-General of Taxation Ali Noroozi.
"As the taxation ombudsman, I have a duty to independently investigate these allegations to restore public confidence."
The whistleblowers' claims were aired by ABC TV's Four Corners program and Fairfax last month.
One whistleblower alleged that the ATO set targets and assessed staff performance based on how much debt they recouped from taxpayers.
Mr Noroozi said any debts collected by the ATO should be done equitably and take into account each taxpayer's personal circumstances.
"My investigation will examine the accuracy of the allegations made along with themes emerging from complaints to my office with the aim of finding improvements where necessary and restoring confidence in the system," he said.
Debt-related complaints made to the IGT make up more than a fifth of all complaints it receives, with garnishee notices among the top three issues raised.