Tax Administration:

Federal Contractor Tax Delinquencies and Status of the 1992 Tax Return Filing Season

T-GGD-92-23: Published: Mar 17, 1992. Publicly Released: Mar 17, 1992.

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GAO discussed: (1) federal contractors' tax delinquencies; and (2) the Internal Revenue Service's (IRS) ability to provide taxpayers with timely, accurate service during the 1991 tax season. GAO noted that: (1) 22 percent of the 26,000 federal contractors reviewed were delinquent in paying their taxes and owed a total of $773 million dollars; (2) IRS only attempted to use contract payments to collect delinquent taxes in 16 percent of the cases in which it could have; (3) IRS prefers to use administrative offsets over levies to collect tax delinquencies, because offsets remain in effect until the delinquency is paid off, whereas a levy has to be reissued if the delinquency is not satisfied; (4) IRS cannot take full advantage of federal contract payments to collect delinquent taxes because IRS cannot provide the Department of Defense (DOD) with contract numbers required to identify specific contracts, IRS lacks procedures to ensure that all contract actions are properly reported, and few agencies provide IRS with contractor taxpayer identification numbers; (5) it is unclear whether IRS may administratively offset contract payments; (6) under current law, tax compliance cannot be made a prerequisite for contract awards; (7) the accuracy of IRS telephone assistance has improved, but taxpayers continue to experience problems reaching assistors; (8) IRS is experiencing difficulties distributing tax materials to the public; and (9) recent changes to earned income tax credit have caused problems in processing tax returns.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: There has been no congressional action on this recommendation. However, now that IRS is requiring the use of levy to attach contractual payments, the taxpayer is afforded procedural protections. A levy is taken under the authority of IRC section 6331 and administrative and legal procedures must be followed before levy action. This is a closed recommendation.

    Matter: Congress may wish to consider specifying the procedural protections to be afforded taxpayers when IRS uses the offset mechanism.

  2. Status: Closed - Not Implemented

    Comments: There has been no congressional action on this recommendation. However, IRS, in an effort to alleviate problems caused by confusion over offset and levy, revised collection procedures, in May 1992, to require the use of a notice of levy to attach payments due a taxpayer from a federal contract. This is a closed recommendation.

    Matter: To ensure IRS access to the more efficient collection tool, Congress should clarify the law by expressly authorizing IRS to use administrative offsets.

  3. Status: Closed - Not Implemented

    Comments: Congress has taken no action on this recommendation. However, IRS prepared an action plan to do tax checks on competitive range vendors prior to awarding IRS contracts. IRS initiated a test using vendor indebtedness information as part of the responsibility determination required by the Federal Acquisition Regulation. This test, involving about 185 vendors, was limited to contract actions performed by the IRS National Office procurement function. As a result of the test, Procurement has drafted some recommendations to strengthen its financial analysis procedures, and Collection has just completed its analysis of the data. Based on its analysis, Collection is pushing for something similar to the FTD alert to notify the field, regardless of collection status, that a contract has been awarded and the field can monitor the tax status of the vendor.

    Matter: In considering this issue, Congress should balance the goal of ensuring that federal contractors comply with tax laws against other national goals. Before acting to change both procurement and tax laws, Congress would need to understand the public policy implications.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS revised its collection procedures in May 1992 to require the use of levy instead of administrative offset. IRS also established a separate database of federal contract levy sources for use by field staff. Contract termination is updated quarterly, and field employees will have direct read-only access to the information. IRS has also changed its procedures to require field staff to check the database prior to writing off an account CNC. This is a closed recommendation.

    Recommendation: IRS should complete the project it has underway to provide guidance to its own staff on how to use federal contract information.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS developed Publication 1704, which it distributed to all federal procurement officials in July 1993, explaining the purpose of Internal Revenue Code section 6050M and the importance of timely and accurate reporting. The publication includes a stuffer informing agency staff to contact IRS with any questions they may have about 6050M. IRS also developed a video containing information similar to that in the publication. In addition, IRS holds sessions twice annually at George Mason University for procurement officials to discuss 6050M requirements. IRS also presented briefings to the 13 largest agencies but is now relying primarily on the publication, the video, and the George Mason University sessions to educate the agencies. As a result of IRS efforts to educate agency staff and the IRS study of DOD contracts, the number of contract actions reported with TIN has increased from about 475,000 to 711,500. IRS is working with OMB and DOD to further improve the program.

    Recommendation: IRS should work with the other federal agencies, including DOD, to ensure that all required information is shared.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS developed publication 1707 for federal agencies and held a number of agency briefings to improve the accuracy of reporting. In addition, OMB sent a letter to senior federal procurement executives. IRS also identified and corrected some systemic problems. As a result, there has been a 50-percent increase in reporting. To speed up the availability of contract data to Collection personnel, a separate database of federal contracts was established in March 1994. IRS is working with OMB and the Department of Defense to further improve the reporting. This is a closed recommendation.

    Recommendation: IRS should establish a mechanism to ensure that federal agencies and the Federal Procurement Data Center report all required information on federal contract actions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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