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Social Security: Trust Funds Can Be More Accurately Funded

HEHS-94-48 Published: Sep 02, 1994. Publicly Released: Sep 02, 1994.
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Highlights

Pursuant to a congressional request, GAO reviewed the effect of unreported tax-exempt income on the taxation of social security benefits, focusing on: (1) additional compliance measures that would improve the Internal Revenue Service's (IRS) ability to assess and collect social security benefit taxes; and (2) how the Department of the Treasury and IRS determine the amount of revenue owed to social security trust funds.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Treasury The Secretary of the Treasury should direct IRS to identify the amount of additional taxes that have been assessed on social security benefits through its underreporter program. Treasury should use this information to revise its methodology for transferring to the trust funds revenues derived from taxing social security benefits.
Closed – Not Implemented
Treasury has not directed IRS to identify the amounts of additional taxes that have been assessed on social security benefits through its underreporter program. Plans were being made to more precisely measure the extent of underreporting of taxable benefits on the trust funds through the Taxpayer Compliance Measurement Program (TCMP). However, TCMP was halted by budgetary constraints. Absent an accounting system that can precisely measure the amount of additional revenues arising from underreporting of taxable social security benefits, Treasury has decided that no additional transfers of revenue to the social security trust funds should be made. As a result, all plans to address this recommendation have been cancelled.
Internal Revenue Service Given the uncertainty of the tax revenue losses from underreporting of tax-exempt income and the financial industry's potential processing burden, IRS should conduct a detailed study of tax returns to better identify the benefits of having payers report tax-exempt income. In addition, IRS should obtain data on the costs of reporting and processing such information. The study could involve the IRS 1994 Taxpayer Compliance Measurement Program or a pilot study that solicits the cooperation of several payers so that the benefits and costs of reporting tax-exempt income can be estimated. If a favorable cost-benefit ratio is identified, IRS should take appropriate steps to make it possible to routinely acquire this information.
Closed – Not Implemented
IRS had planned to address this recommendation through its Taxpayer Compliance Measurement Program of 1995 tax returns. However, due to budget constraints, the Commissioner postponed TCMP indefinitely. As a result, planned corrective actions related to this recommendation were cancelled in November 1996.

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Topics

Federal agency accounting systemsIncome taxesNoncomplianceReporting requirementsSocial security benefitsTax administrationTax exempt statusTax nonpaymentTrust fundsSocial security beneficiaries