Tax Policy:

Refund Offset Program Benefits Appear to Exceed Costs

GGD-91-64: Published: May 14, 1991. Publicly Released: May 14, 1991.

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Pursuant to a congressional request, GAO: (1) evaluated the effects of the Internal Revenue Service's (IRS) Refund Offset Program on the filing behavior of guaranteed student loan defaulters; and (2) compared the program's estimated benefits resulting from increased debt collections with the program's estimated costs.

GAO found that: (1) offsetting refunds for the nonpayment of student loan debts increased the likelihood of taxpayers not filing a tax return in the year after the offset; (2) student loan defaulters whose entire 1985 tax refund was offset failed to file a 1986 tax return 2.1 times more than student loan defaulters who were not offset and who received a refund; (3) offset had no statistically significantly effect on the subsequent filing of balance-due returns; (4) other variables, such as income filing history, did affect balance-due return rates; (5) although offsetting federal tax refunds for nontax debts increased nonfiling the next year, the offset had virtually no effect over 2 years; (6) although the program could reduce tax revenues, IRS has not measured the program's net gain or loss; (7) the amount offset through the program in 1986 for a sample of student loan defaulters was $4.6 million; (8) IRS lost $1.1 million in tax revenue from defaulters offset in 1985 who did not file a 1986 tax return; and (9) the debt recovered from the offset was at least four times greater than the potential revenue loss.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS changed its approach and methodology as part of its recently issued study. As part of that study, nontax characteristics were included in the analysis and benefits and costs were calculated and compared.

    Recommendation: The Commissioner of Internal Revenue should direct that IRS carry out its plans for future studies and specifically ensure that those studies: (1) control for as many meaningful tax and nontax characteristics as possible; (2) include an estimate of the potential revenue loss due to any noncompliant filing behavior; and (3) include a comparison of this loss with the program's benefits.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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