Tax Administration

Delayed Tax Deposits Continue to Cause Lost Interest for the Government Gao ID: GGD-93-64 March 22, 1993

The Internal Revenue Service (IRS) must identify the best revenue-enhancing way to process the heavy volume of tax payments sent to its service centers around the April 15 filing deadline. The government is now losing substantial interest earnings because of the extended time it takes to process those payments. IRS is considering having taxpayers send their payments directly to lock boxes, removing the service centers from the process entirely. Yet even if various issues surrounding this new cash management strategy are resolved, the strategy will not be implemented before 1996. In the interim, IRS needs to weigh various options to hasten deposits and boost interest earnings. Adding the equipment and people needed to remove the processing bottlenecks might not prove cost-effective because these additional resources would only be needed for a few days during the filing season. A preferable alternative, in GAO's view, would be to streamline IRS procedures so that available resources can be targeted to identifying and processing the largest payments. IRS' National Office needs to lead the service centers in resolving this problem.

GAO found that: (1) in 1992, two IRS service centers averaged 6.2 days to deposit $5.2 billion in tax payments received from individual tax returns; (2) the government could have earned additional interest income totalling $2.4 million if IRS had deposited the $5.2 billion in tax payments within 24 hours of receipt; (3) IRS failed to assess various options for reducing the time it takes to deposit large tax payments; (4) the Department of the Treasury developed a long-term cash management strategy designed to increase deposit timeliness by using lock boxes and separate return and payment addresses, but implementation depends on taxpayer acceptance of new payment procedures, the cost of printing and distributing vouchers, and the ability of banks to handle the surge in payment volume; (5) IRS needs to examine whether individual service centers' deposit timeliness initiatives merit implementation by other centers and find additional opportunities to speed up deposits; and (6) the government could have realized additional interest income totalling $1.2 million if the two centers had deposited payments with extension requests.

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