Expediting Tax Deposits Can Increase the Government's Interest Earnings

GGD-84-14: Published: Nov 21, 1983. Publicly Released: Nov 21, 1983.

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GAO reviewed Department of the Treasury and Internal Revenue Service (IRS) cash management procedures to determine whether tax receipts could be deposited more quickly, expediting availability of funds to the Treasury.

Under the Federal Tax Deposit (FTD) system, certain taxpayers are required to deposit tax remittances directly into Treasury accounts at authorized depositaries, using preprinted cards to make FTD payments. If taxpayers do not have the cards or need to change the information contained on them, the Internal Revenue Service (IRS) accepts the payments rather than requiring direct deposit. This results in the funds' being unavailable to the Treasury while IRS processes the payments and reduces interest earnings. While IRS has reduced the forgone interest associated with the processing of undeposited payments, Treasury officials are concerned that taxpayers are sending payments to IRS because withdrawal of the funds from taxpayer bank accounts is delayed by IRS processing time. GAO also found that IRS district offices are responsible for processing and depositing taxes received by revenue officers and agents, including IRS field offices. The delays caused by transfer of payments from field offices to district offices lead to more forgone interest. Another factor affecting deposit time is check sorting. Banks sort checks by the location of the bank paying the check before presenting each check for payment. Installing check-sorting equipment at IRS locations could expedite deposit times. IRS currently decides whether to install check-sorting equipment at each location on a case-by-case basis.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should require that evaluations of whether to install check-sorting equipment at IRS service centers also consider: (1) the potential interest earnings associated with extending the service centers' deposit times; (2) the costs and benefits derived from increased use of Federal Reserve banks as depositaries; and (3) the cost offsets to be gained through decreased check-processing costs for Federal Reserve depositaries.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue, in conjunction with the Commissioner of the Bureau of Government Financial Operations, should reduce the deposit time for field office tax receipts. Allowing field offices to deposit receipts in local banks or mailing tax receipts to designated bank lockboxes are two alternatives which could be considered in implementing this recommendation.

    Agency Affected: Department of the Treasury: Bureau of Government Financial Operations

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue, in conjunction with the Commissioner of the Bureau of Government Financial Operations, should reduce the deposit time for field office tax receipts. Allowing field offices to deposit receipts in local banks or mailing tax receipts to designated bank lockboxes are two alternatives which could be considered in implementing this recommendation.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should require taxpayers to send all payments accompanied by FTD cards, including those payments with corrected cards, directly to financial depositaries.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should develop a system that will enable IRS to make more informed decisions on whether to impose penalties on individuals who are not sending FTD payments to authorized depositaries.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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