IRS Can Improve Its Programs To Collect Taxes Withheld by Employers

In fiscal year (FY) 1976, employment trust fund taxes (income tax withheld and social security tax) accounted for $191 billion of federal gross receipts; these trust fund taxes accounted for 63 percent of federal gross receipts over the past 3 years. Collection of these tax funds is the foremost delinquency problem facing the Internal Revenue Service (IRS). During FY 1976, IRS initiated collection action against employers for nonpayment of $2.4 billion in trust fund taxes.

If a business with a tax liability over a certain dollar amount fails to make a deposit by a specified date, a tax deposit alert is generated by a computer, and a revenue officer gets in touch with the taxpayer. However, IRS revenue officers are not always given enough information to determine the extent of action needed to bring taxpayers into compliance. In 18 percent of alerts reviewed, additional information on prior delinquencies could have made revenue officers more effective in their investigations. The review showed that, despite the issuance of alerts, 43 percent of the involved taxpayers subsequently became delinquent. Confusion exists over who is responsible for computing failure-to-deposit penalties. Over 20 percent of delinquent taxpayers reviewed claimed at least one fictitious deposit which delayed collection action. Employers filing tax returns each month are required to pay employment taxes monthly instead of more frequently as required under the Federal Tax Deposit System.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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