Tax Administration:

IRS Can Improve the Process for Collecting 100-Percent Penalties

GGD-89-94: Published: Aug 21, 1989. Publicly Released: Aug 21, 1989.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) collection of 100-percent penalties, assessed as 100 percent of the amount of withheld taxes which businesses failed to pay.

GAO found that IRS: (1) sent 100-percent penalty cases directly to revenue agents for collection, bypassing its Automated Collection System (ACS), which provided more efficient case management and more timely and effective collection of other delinquent taxes and penalties; (2) in March 1989, successfully tested ACS for processing 100-percent penalty cases in two districts, finding that the improved computerized recordkeeping, telephone technology, and management control made for more efficient use of resources and revenue agents; (3) spent an average of $247 to close, via revenue agents, 100-percent penalty cases, while it spent only $57 on cases processed through ACS; (4) did not maintain financial information investigating agents obtained from businesses for collection agents' subsequent use for levying purposes; (5) did not enter such information into ACS; (6) in about 9 percent of 793 cases, collected an incorrect amount of money to satisfy the delinquencies, due to inadequate accounting and internal controls; (7) lacked adequate documentation to determine whether it had under- or over-collected some of the penalties; and (8) was in the initial stage of developing procedures to monitor accounts receivable for 100-percent penalty cases.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS developed and implemented procedures to ensure that financial data obtained during penalty investigations is input to the ACS database.

    Recommendation: To help ensure that IRS uses its collection resources as efficiently as possible, the Commissioner of Internal Revenue should develop a procedure to ensure that financial statements obtained during the investigations are available on the ACS computerized database to facilitate processing of 100-percent penalties through ACS.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS identified system procedures revisions required and revised IRM accordingly.

    Recommendation: To help ensure that IRS uses its collection resources as efficiently as possible, the Commissioner of Internal Revenue should establish appropriate controls to ensure that levy sources obtained during the 100-percent penalty investigations are documented in the IRS computerized levy source file so that they are readily available during the collection phase.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Not Implemented

    Comments: IRS issued a memo reminding collection managers of existing procedures, but does not intend to revise IRM.

    Recommendation: To help ensure that IRS uses collection resources as efficiently as possible, the Commissioner of Internal Revenue should revise the Internal Revenue Manual (IRM) to conform to the stated practice of obtaining financial information when responsible parties are identified during initial investigations and it is appropriate to do so.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: IRS completed nationwide implementation of procedures for processing 100 percent panalties through ACS on December 31, 1989.

    Recommendation: To ensure that IRS uses collection resources more efficiently, the Commissioner of Internal Revenue should establish a milestone for completing, as quickly as possible, service-wide implementation of procedures for processing 100-percent penalty cases through ACS.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: IRS is reporting 100 percent penalties separately. However, this may not result in the most accurate representation of accounts receivable because some penalties are collectible. Further work in this area will be done under the IRS financial audit.

    Recommendation: To improve accounting and internal controls, the Commissioner of Internal Revenue should establish milestones for: (1) completing the development of procedures to systematically provide collection employees with the information needed to accurately determine the status of delinquencies; and (2) developing a way to more accurately report the accounts receivable balance as it relates to 100-percent penalties.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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