Tax Administration:

IRS's Efforts to Improve Compliance With Employment Tax Requirements Should Be Evaluated

GAO-02-92: Published: Jan 15, 2002. Publicly Released: Feb 19, 2002.

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Employers are required to withhold amounts from their employees' salary to cover individual federal income tax, Social Security, and Medicare taxes; match the amounts for Social Security and Medicare taxes; and deposit these amounts with the U.S. Treasury. In fiscal year 2000, the Internal Revenue Service (IRS) collected $1.3 trillion in this manner. Most employers withhold and deposit these taxes as required; however, the amount of unpaid employment taxes, penalty, and interest has grown significantly. IRS data show that in 1997, 1998, 1999, and 2000, delinquent employers owed about $3.2, $3.5, $4.4, and $5 billion, respectively, in unpaid employment taxes, penalties, and interest. The time IRS takes to notify employers of delinquent payment of employment taxes varies. On average, IRS takes about five weeks to initially notify employers regarding employment tax delinquencies after the Form 941 return is received. When employers fail to file Form 941 returns, IRS normally takes from 14 to 28 weeks to notify them of this delinquency. Aside from its usual efforts to educate and inform taxpayers of their responsibilities, IRS has four programs to prevent or reduce employers' tax delinquencies. Two of these programs were designed to achieve early contact with employers, and two were designed to identify employers with existing, multiple employment tax delinquencies and help them to return to compliance. To evaluate the effectiveness of these programs and to support informed judgments about whether to adopt new ones, IRS planned to compare compliance rates of test and control groups and to use customer surveys and focus groups. IRS' efforts to evaluate these programs are being adversely affected by, among other things, delays in obtaining reliable data. IRS officials did not identify any specific programs to improve employment tax intervention under IRS' ongoing effort to modernize its organizational structure, management processes, and information technology systems. However, certain aspects of its modernization effort have some future potential to improve intervention.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS has taken several steps to implement the recommendation. A soft letter research project was completed in January 2003 which showed that payment compliance did not increase using the letter. IRS's non-filer group evaluated the results of the soft letter research project. This lead the FTD Alert Project to develop new criteria for creating alerts which IRS stated has had positive results. IRS implemented the new selection criteria for the FTD alert program in March 2004.

    Recommendation: The IRS Commissioner should require the Small Business and Self-Employed Division Commissioner to develop and execute a plan for evaluating the effectiveness of the employment tax early intervention programs. The plan should address the resources needed to evaluate the interventions, ensure the clear and timely assignment of responsibility for the evaluations, and include milestones for completing the efforts.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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