Tax Administration

In an earlier report (see GAO/GGD-91-45, Apr. 16, 1991), GAO noted the need for governmentwide efforts to resolve federal agencies' tax compliance problems. Since then, the Internal Revenue Service (IRS) has developed a plan to address this problem. Because the plan is not yet fully operational, however, IRS' accounts receivable inventory still contains millions of dollars in erroneous receivables from federal agencies, requiring IRS and the agencies to spend valuable resources correcting them. The errors mainly arise from the cumbersome paper-based processes used to make tax payments and meet filing requirements. GAO believes that proposed electronic payments and filing procedures offer promise in reducing the number of erroneous receivables from the agencies that will use it. As IRS continues to implement GAO's recommendations, the tax compliance problems of federal agencies should greatly diminish.

GAO found that: (1) on June 22, 1991, the IRS accounts receivable inventory included $268.5 million in accounts receivable from federal agencies, compared to $185 million in February 1990, indicating that the tax payment and processing problems identified in a earlier review were still occurring; (2) the $268.5-million June 1991 IRS accounts receivable inventory did not truly reflect how much money federal agencies owed, but largely reflected overstatements in the IRS accounts receivable inventory caused by tax payment and processing errors; (3) receivables for 63 federal agency accounts declined from $34.5 million in August 1990 to about $2.4 million a year later; (4) Treasury checks for the payment of agency taxes continued to get lost, agencies continued to make mistakes in paying their taxes, and IRS mistakes in processing agency payments continued to result in erroneous receivables; (5) IRS, in conjunction with the Department of the Treasury's Financial Management Service (FMS) has plans under way to allow federal agencies to electronically file their quarterly employment tax returns using a specially tailored version for on-line payments; (6) IRS has taken indirect actions to enhance the clarity of IRS notices to agencies and inform them of account adjustments; (7) IRS plans to begin governmentwide training programs in October 1992; and (8) IRS is considering using the Federal Managers' Financial Integrity Act reviews as the vehicle for implementing methods for promoting greater accountability by top agency management for compliance with tax laws and regulations.