IRS's Use of Information on Taxpayers Claiming Many Allowances or Exemption From Federal Income Tax Withholding
Highlights
In September 2003, we responded to a request from Representative Elton Gallegly to provide information on the number of taxpayers who claimed more than 10 withholding allowances and taxpayers who claimed exemption from federal income tax withholding. The Internal Revenue Service (IRS) calls such claims questionable Form W-4s. However, in the course of performing our work, we became concerned about the reliability of the information that IRS maintains on these taxpayers and decided that we could not use it to answer Representative Gallegly's questions. The objectives of this letter are to summarize our findings about the reliability of the information IRS maintains on taxpayers who claimed more than 10 withholding allowances or exemption from federal tax withholding and to bring to the attention of the Commissioner, Internal Revenue, some resulting questions about the value of IRS continuing to collect the information.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | The IRS should assess the value of IRS's Questionable Form W-4 program and determine whether the program should continue in its current form. |
Closed – Implemented
In November 2003, GAO recommended that the IRS assess the value of its Questionable Form W-4 program and determine whether the program should continue in its current form. The IRS implemented GAO's recommendation by establishing a withholding compliance task force to study the value of the Questionable Form W-4 program in its current form. The study concluded that employers file less than 10 percent of the questionable Form W-4s that should be filed and that the current Questionable Form W-4 program is not operating and cannot operate effectively without significant changes in employers' questionable Form W-4 compliance behavior. The IRS further acted on GAO's recommendation by subsequently changing the form of the program by not requiring employers to submit questionable Form W-4s. Instead of using the Form W-4, the IRS said that it will enhance its withholding compliance program by making more effective use of information reported on the Form W-2 wage statements to ensure that employees have enough federal income taxes withheld from their income. The IRS' new regulations to implement the Questionable Form W-4 program changes went into effect in April 2005.
|