Tax Administration:

Changes Are Needed to Improve Federal Agency Tax Compliance

GGD-91-45: Published: Apr 16, 1991. Publicly Released: Apr 16, 1991.

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GAO reviewed the Internal Revenue Service's (IRS) accounts receivable from federal agencies for employment taxes to determine the: (1) extent and causes of delinquent tax payments; (2) options for improving the processing of federal agency employment tax payments; and (3) options for improving federal agencies' compliance with tax laws and regulations.

GAO found that: (1) IRS records inaccurately reported that 63 federal agency accounts owed $178 million in accounts receivable that had already been paid; (2) most agencies actually paid their taxes on time, and most errors were the result of the outdated and poorly designed tax payment process for intragovernmental fund transfers; (3) two-thirds of the agency accounts reviewed had at least one quarterly employment tax return that was filed late, complicating IRS reconciliation of return information with tax payments; (4) federal managers placed insufficient priority on filing federal tax returns and responding to IRS notices and inquiries; and (5) IRS needs to send notices to agencies when tax data do not reconcile and when agencies do not file returns, inform agencies of adjustments to their accounts, and provide assistance to agencies through training programs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS and FMS implemented FEDTAX on July 1, 1992. FEDTAX allows agencies to pay their taxes and file their quarterly employment tax returns electronically. 55 payroll offices including a DOD finance center and 2 overseas payroll offices are participants. FEDTAX will become a part of the government's Electronic Federal Tax Payment System (EFTPS). EFTPS will require that most tax payments be electronically deposited. EFTPS is scheduled to be fully implemented in early 1995.

    Recommendation: The Department of the Treasury, in close coordination with IRS and the Financial Management Service (FMS), should undertake a governmentwide program to improve federal agency tax processing. Such a program should include streamlining agency tax payment processing through electronic interagency funds transfer and requiring that the funds transfer information be provided to IRS.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: IRS will be able to communicate to agencies via computer screens to inform them when a tax delinquency exists. Agencies in turn can communicate electronically to IRS with a response. IRS plans to discontinue sending agencies the balance due notice it currently sends them.

    Recommendation: The Department of the Treasury, in close coordination with IRS and FMS, should undertake a governmentwide program to improve federal agency tax processing. Such a program should include enhancing the clarity of IRS communications with agencies in such ways as developing notices tailored to the unique tax situation of federal agencies and informing agencies of adjustments to their accounts.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: Training of agency staff is continuous as part of the process of bringing agencies online with the new FEDTAX system.

    Recommendation: The Department of the Treasury, in close coordination with IRS and FMS, should undertake a governmentwide program to improve federal agency tax processing. Such a program should include providing for an IRS training program for agencies' staff involved in making tax payments and filing tax returns.

    Agency Affected: Department of the Treasury

  4. Status: Closed - Implemented

    Comments: On September 16, 1993, the Acting Assistant Secretary (Management) requested that OMB include a specific compliance statement for federal employment tax laws and regulations in the FY 1994 FMFIA report requirements. Specifically, each agency must certify that timely deposits and filing of quarterly employment tax returns are being reviewed as a part of the FMFIA review process and that any identified noncompliance that meets the current materiality standards will be reported as a deficiency in the report to the President and Congress.

    Recommendation: The Department of the Treasury should develop methods to promote greater accountability by top agency management for compliance with tax laws and regulations by working with the agencies and the Office of Management and Budget. Treasury should consider, among other methods, enhancing agency tax compliance by: (1) ensuring that agencies' Federal Managers' Financial Integrity Act reviews adequately cover tax compliance and include management followup; and (2) developing a process for top managers to certify their agencies' tax compliance.

    Agency Affected: Department of the Treasury

 

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