Tax Policy

Refund Offset Program Benefits Appear to Exceed Costs Gao ID: GGD-91-64 May 14, 1991

Pursuant to a congressional request, GAO: (1) evaluated the effects of the Internal Revenue Service's (IRS) Refund Offset Program on the filing behavior of guaranteed student loan defaulters; and (2) compared the program's estimated benefits resulting from increased debt collections with the program's estimated costs.

GAO found that: (1) offsetting refunds for the nonpayment of student loan debts increased the likelihood of taxpayers not filing a tax return in the year after the offset; (2) student loan defaulters whose entire 1985 tax refund was offset failed to file a 1986 tax return 2.1 times more than student loan defaulters who were not offset and who received a refund; (3) offset had no statistically significantly effect on the subsequent filing of balance-due returns; (4) other variables, such as income filing history, did affect balance-due return rates; (5) although offsetting federal tax refunds for nontax debts increased nonfiling the next year, the offset had virtually no effect over 2 years; (6) although the program could reduce tax revenues, IRS has not measured the program's net gain or loss; (7) the amount offset through the program in 1986 for a sample of student loan defaulters was $4.6 million; (8) IRS lost $1.1 million in tax revenue from defaulters offset in 1985 who did not file a 1986 tax return; and (9) the debt recovered from the offset was at least four times greater than the potential revenue loss.


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