Tax Administration

Many taxpayers who are delinquent in paying their federal taxes are receiving billions of dollars in federal payments each year, from Social Security to payments for goods and services provided to government agencies. To help the Internal Revenue Service (IRS) collect these delinquent tax debts, in 1997 Congress gave IRS the authority to continuously levy up to 15 percent of some federal payments made to delinquent taxpayers. GAO's analysis of records from the Internal Revenue Service (IRS) and Treasury's Financial Management Service (FMS) found that more than 264,000 taxpayers with delinquent tax liabilities of $2.8 billion received federal payments totaling $2.1 billion that could have been subject to a continuous levy if the levy program had been in place at that time. GAO estimates that IRS could have generated nearly $500 million in annual revenues from these levies at a cost of about $35 million each year. Although the continuous levy program has the potential to raise significant revenues, the program will not reach its full potential when it is initially implemented. According to officials at IRS and the Financial Management Service, both agencies plan to adopt controls for the program that are intended to prevent inappropriate levies. However, IRS has not planned any new procedures to ensure that taxpayers receive timely refunds in any instances in which these controls fails. Several changes to the continuous refund levy could yield millions of dollars in additional tax revenue.

GAO noted that: (1) analysis of IRS' accounts receivable data as of February 1999 and FMS payment records showed that over 264,000 taxpayers with delinquent tax liabilities of $2.8 billion received federal payments totalling $2.1 billion that could have been subject to a continuous levy if the levy program had been in place at that time; (2) GAO estimates that IRS could have generated nearly $500 million in annual revenues from these levies at a cost of about $35 million annually; (3) only federal retirement and vendor payments, which would account for about 27 percent of the nearly $500 million in revenue that could be generated annually, are expected to be available for continuous levy in July 2000; (4) GAO was not able to determine when Social Security benefits and federal salaries will be available for levy because a specific date for including these types of payments in the program has yet to be set; (5) also, before participating in the levy program, the Social Security Administration (SSA) wants to know the names of all Social Security beneficiaries who are to receive an intent to levy notice from IRS, which is to be sent before any payments are actually levied; (6) according to IRS, unless SSA can explain how such information will be used for a tax administration purpose, the Internal Revenue Code prohibits disclosing such information to SSA before payments are levied; (7) according to IRS and FMS officials, both agencies plan to adopt specific controls for the continuous levy program to prevent inappropriate levies; (8) however, IRS has not planned any new procedures to ensure that taxpayers receive timely refunds in any instances in which these controls fail; (9) only 155 federal payments are likely to be levied during the first phase of program implementation, which may not result in enough taxpayer contacts to determine if controls are adequate to prevent inappropriate levies; (10) several changes to the continuous levy program could yield millions of dollars in additional tax revenue; and (11) GAO estimated that $77.7 million annually in additional revenue could be generated if: (a) federal payments made to both spouses determined by IRS to be liable for joint tax delinquencies; and (b) payments received by an individual under a Social Security number for tax delinquencies incurred by the same individual under an employer identification number, or vice versa, could be continuously levied through this program.

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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