Internal Revenue Service:

Unpaid Taxes of Federal Workers and Annuitants

GAO-01-195: Published: Jun 14, 2001. Publicly Released: Jun 14, 2001.

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Voluntary compliance with tax laws, the foundation of the U.S. tax system, could be undermined if the public perceives that federal workers and former federal workers successfully evade their tax obligations. Internal Revenue Service (IRS) records indicate that federal workers and annuitants, and IRS workers in particular, appear to be more compliant in meeting their tax responsibilities than the general population. Nonetheless, IRS records indicate that some federal workers and annuitants are not fulfilling their tax responsibilities and owe the federal government about $2.5 billion in outstanding taxes. In its attempt to improve management and collection of federal taxes owed by federal workers and annuitants, IRS faces the same issues hindering its ability to manage and collect unpaid taxes of the general population. With respect to IRS' efforts to improve compliance among federal workers and annuitants, IRS must first be able to determine how effective its program for this purpose has been and what, if any, modifications are needed to ensure that the program meets its objectives.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS agreed with this recommendation and, in 2002, the Strategy and Research Office in its Wage and Investment Division conducted an initial assessment into the effectiveness of the FERDI program in promoting compliance by federal workers and annuitants. IRS found that the delinquency rate among military annuitants was higher than that of federal employees--6.1 percentage delinquency rate for military annuitants. As a result of that finding, the IRS targeted additional FERDI action toward military annuitants. In June 2003 IRS reported the results of two studies directed at military annuitants. As a result of these studies, IRS established a FERDI Project Team which developed initiatives and strategies to educate military annuitants. The team developed articles regarding estimated tax and withholding on wages and pension income for publication in military retiree newsletters. Although IRS continues to assess the effectiveness of the FERDI initiative program, from October 2003 to October 2004 the delinquency rates among military annuitants had shown improvement. By October 2005, the FERDI Project Team is scheduled to have completed all their initiatives and short term strategies. Lessons learned from the implementation of these short term strategies will be used to develop long term strategies.

    Recommendation: To determine the degree to which IRS' program to improve compliance by federal workers and annuitants with their tax obligations is achieving its objectives and to identify any modifications needed in the program to better enable it to achieve its objectives, the Commissioner of Internal Revenue should assess the effectiveness of the Federal Employee and Retiree Delinquency Initiative program in promoting compliance by federal workers and annuitants with the nation's tax laws.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: The IRS Compliance Office, in its Wage and Investment Division, has issued letters to the heads of 75 federal agencies involved in the FERDI program, requesting their assistance in promoting tax compliance among federal workers and annuitants. Based on this action, IRS closed this recommendation. While IRS continues to encourage federal agency assistance in promoting tax compliance by its employees, it does not intend to request information on how, and to what extent, agencies communicate their respective rates of tax compliance to their employees.

    Recommendation: To determine the degree to which IRS' program to improve compliance by federal workers and annuitants with their tax obligations is achieving its objectives and to identify any modifications needed in the program to better enable it to achieve its objectives, the Commissioner of Internal Revenue should, as part of this assessment, determine the extent to which agencies communicate information on their compliance rates with their respective workforces, and whether such communication can be linked to improved tax compliance by agency employees.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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