Federal Tax Deposit System

The current paper-based federal tax deposit system, which collects about 80 percent of the Internal Revenue Service's (IRS) tax receipts, is extremely error prone. Resolving these mistakes is both expensive and time-consuming. In addition, the system costs the Treasury Department about $145 million annually because of a 1-day delay in funds available to Treasury. In trying to improve the system, Treasury has concentrated on automating the existing process rather than on resolving problems that arise from matching information on the tax returns to payment data on federal tax deposit coupons. Although Treasury's plan would achieve an important goal--accelerating the government's cash collections--it would do little to overcome systemic problems that burden taxpayers and reduce IRS productivity. Treasury has, however, recently changed its mind on automation efforts and plans to address how the accounting and payment data should be collected.

GAO found that: (1) the FTD system has created undue taxpayer burden and reduced IRS productivity because accounting and payment data are reported separately and duplicate records and record inconsistencies have to be reconciled; (2) the FTD system's 1-day delay in fund availability costs Treasury $145 million annually; (3) taxpayers, financial institutions, and IRS have made errors in preparing and processing tax returns associated with FTD payments; (4) although IRS generally recorded FTD payment information properly, considerable resources are needed to reconcile records and make corrections; (5) payment and accounting data recording errors have resulted in erroneous penalty assessments and unreliable accounting data; (6) although IRS and FMS have implemented four systems to improve the FTD system, their efforts have focused largely on automating the existing system rather than addressing the problems of separate reporting and record reconciliation; and (7) Treasury has changed its views on FTD automation improvement efforts and planned to address how accounting and payment data should be captured.

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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