Tax Administration:

IRS' Levy of Federal Payments Could Generate Millions of Dollars

GGD-00-65: Published: Apr 7, 2000. Publicly Released: May 8, 2000.

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Pursuant to a congressional request, GAO reviewed the status of the Internal Revenue Service's (IRS) continuous levy program, focusing on: (1) the number of taxpayers that could be subject to a continuous levy, the revenue that might be generated, and the cost to IRS to have the Financial Management Service (FMS) levy the federal payments of those taxpayers; (2) issues that could delay program implementation or otherwise affect revenues from the program; (3) the controls and testing that IRS and FMS have planned to prevent levying taxpayers not subject to levy and to prevent levying payments for more than the taxpayer owes; and (4) changes, if any, IRS and FMS could make to yield increased revenues from the program.

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.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To ensure that future payment records submitted to FMS by federal agencies will include valid payee TINs and names, the Commissioner of FMS should issue guidance directing federal agencies to use IRS' TIN-matching program, if IRS decides that it can validate vendor TINs and names through this program.

    Agency Affected: Department of the Treasury: Financial Management Service

    Status: Closed - Implemented

    Comments: FMS expanded on their TIN policy directive to require that federal payment vouchers submitted to Treasury include a valid TIN.

    Recommendation: To ensure that adequate controls are in place to prevent inappropriate levies, the Commissioner of Internal Revenue should assess the feasibility of permitting federal agencies to submit vendors' taxpayer identification numbers (TIN) and names to IRS as part of its TIN-matching program for purposes other than information reporting.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS determined that this would be feasible only with legislative changes needed to overcome taxpayer data disclosure issues. Although the House Ways and Means Committee did not accept the submitted legislation for the changes, IRS did assess feasibility.

    Recommendation: To ensure that adequate controls are in place to prevent inappropriate levies, the Commissioner of Internal Revenue should ensure that IRS excludes from levy and Trust Fund Recovery Penalty involving more than one responsible party until IRS has a system in place to ensure that all responsible parties' accounts receive appropriate credit for any payments levied.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Not Implemented

    Comments: IRS has determined that the number of Trust Fund Recovery Penalties cases has been minor and therefore, they will continue to be included in the program.

    Recommendation: To ensure that adequate controls are in place to prevent inappropriate levies, the Commissioner of Internal Revenue should develop a procedure to provide that refunds resulting from an inappropriate levy are made in a timely manner, similar to refunds issued in cases involving taxpayer hardship.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS has developed a new section of the IRM in 2000, that directs employees to provide manual refunds when necessary for returning levied funds.

    Recommendation: To ensure that adequate controls are in place to prevent inappropriate levies, the Commissioner of Internal Revenue should ensure that IRS contacts a sufficient number of taxpayers when testing program controls during the first phase of program implementation.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In July 2000, IRS started the continuous levy process on a pilot basis with a small number of cases, and it is gradually adding cases to ensure that it does not go into full implementation until all controls have been tested.

    Recommendation: To increase the number of tax delinquencies that could be collected through continuous levy, the Commissioner of Internal Revenue and the Commissioner of FMS should respectively direct IRS and FMS to coordinate their efforts in preparing the necessary files and making the programming changes needed to enable FMS to match more than one TIN and name from IRS' accounts receivable records to its payment records for each tax debt submitted by IRS.

    Agency Affected: Department of the Treasury: Financial Management Service

    Status: Closed - Implemented

    Comments: IRS and FMS are currently coordinating on preparing the necessary files and making the required programming changes. The work is underway with details being worked out. The estimated completion date is January 31, 2005.

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