The inspector-general of taxation has announced an investigation into the use of garnishee notices by the Australian Taxation Office to claw back outstanding tax debts from businesses and individuals.

The investigation follows allegations aired in an ABC Four Corners program in April that the ATO has inappropriately used garnishee notices to recover debt and that some taxpayers have been financially ruined as a result of unfair and harsh action.

Inspector-general of taxation Ali Noroozi said the allegations about the ATO's inappropriate use of garnishee notices contained in the Four Corners investigation are "of serious concern".

"If not addressed, [the allegations] can affect community confidence in the administration of the tax system," he said.

"As taxation ombudsman, I have a duty to independently investigate these allegations to restore public confidence."

Garnishee notices are commonly used by the ATO to recover tax debt and can compel a third party such as a bank to transfer funds held by a taxpayer owing the debt to the tax office.

ATO 'cash grab' can have 'devastating effect' on businesses

Mr Noroozi's independent investigation comes after claims from current and former ATO officials that the tax office inappropriately used garnishee notices as a "cash grab" in the 2016-17 financial year.

Four Corners also alleged that ATO staff were performance managed based on the levels of debt they collected from taxpayers.

"The ATO has the vital task of collecting Government revenue and recovery of tax debt is an important part of that task," Mr Noroozi said.

"However, it must be done equitably, taking into account the particular circumstances of each taxpayer whilst ensuring a level playing field is maintained."

Mr Noroozi has previously expressed concern about the ATO's debt collection practices and said that it should "have regard for a taxpayer's circumstances and take appropriate action."

In a 2015 report, Mr Noroozi said complaints about the ATO's debt recovery tactics accounted for 20 per cent of all complaints he received and the use of garnishee notices was among the top three issues raised.

Sorry, this video has expired Use of clawed-back debt as performance indicator would be inappropriate: Tax Ombudsman

"Cash flow is the lifeblood of small businesses and, if inappropriately disrupted, can have an unjustified and devastating effect on them," Mr Noroozi said.

"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."

Latest probe comes on top of Government inquiry

Mr Noroozi's investigation comes after Financial Services Minister Kelly O'Dwyer launched an urgent investigation into the ATO after the joint Four Corners and Fairfax Media investigation.

At the time, Ms O'Dwyer told the ABC she was deeply concerned by the allegations raised in the investigation.

"I have requested a thorough investigation of all allegations raised and the Government will be responding once it has had the opportunity to consider that investigation in detail," she said at the time.

In response to the Four Corners allegations, the ATO said the cases highlighted did not suggest "systemic issues" within the organisation.

The ATO has responded to say that it will cooperate with the investigation.

"We note the IGT has announced an investigation into the ATO's use of garnishee notices and, as always, are committed to cooperating fully throughout the process," a spokesperson for the ATO said.

Follow Peter Ryan on Twitter @peter_f_ryan.