Federal Tax Deposit System:

IRS Can Improve the Federal Tax Deposit System

AFMD-93-40: Published: Apr 28, 1993. Publicly Released: Apr 28, 1993.

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GAO reviewed the Internal Revenue Service's (IRS): (1) accounting and payment data collection procedures for the federal tax deposit (FTD) system; and (2) efforts, with the Financial Management Service (FMS), to modernize the FTD collection process.

GAO found that: (1) the FTD system has created undue taxpayer burden and reduced IRS productivity because accounting and payment data are reported separately and duplicate records and record inconsistencies have to be reconciled; (2) the FTD system's 1-day delay in fund availability costs Treasury $145 million annually; (3) taxpayers, financial institutions, and IRS have made errors in preparing and processing tax returns associated with FTD payments; (4) although IRS generally recorded FTD payment information properly, considerable resources are needed to reconcile records and make corrections; (5) payment and accounting data recording errors have resulted in erroneous penalty assessments and unreliable accounting data; (6) although IRS and FMS have implemented four systems to improve the FTD system, their efforts have focused largely on automating the existing system rather than addressing the problems of separate reporting and record reconciliation; and (7) Treasury has changed its views on FTD automation improvement efforts and planned to address how accounting and payment data should be captured.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS and FMS jointly researched, piloted, and implemented the Electronic Federal Tax Payment System (EFTPS) which automates the FTD system. EFTPS became operational October 28, 1996, and received its first payment on November 7, 1996. Effective July 1, 1997, all taxpayers who pay at least $50,000 in payroll taxes are required to use EFTPS. As of August 25, 1997, EFTPS collected about $250 billion in receipts for fiscal year 1997. EFTPS automates the payment process and captures payment data, but it does not include accounting data. As a result, the action is not fully responsive. GAO made another recommendation in another report (AIMD-94-22, December 21, 1993), which enhanced and replaced this recommendation.

    Recommendation: To further reduce taxpayer burden and improve IRS productivity, the Secretary of the Treasury should direct the Commissioner of Internal Revenue and the Commissioner, FMS, to monitor the revised FTD automation efforts and ensure that the work on the automated FTD system for the private sector maintains the proper focus on how to capture the necessary accounting data with the payment data.

    Agency Affected: Department of the Treasury


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