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Highlights

Each year, thousands of taxpayers who owe delinquent federal taxes receive billions of dollars in federal payments. To help the Internal Revenue Service (IRS) collect these delinquent taxes more effectively, the Congress passed the Taxpayer Relief Act of 1997, the provisions of which authorized the establishment of the Federal Payment Levy Program (FPLP), which allows IRS to continuously levy up to 15 percent of the payments made to delinquent taxpayers. The Department of the Treasury's Financial Management Service (FMS), which receives payment records from and makes payments on behalf of most federal agencies, collects the continuous levy from the federal payment after IRS has authorized the levy. Subsequent payments are continuously levied until such time that the tax debt is paid or IRS releases the levy. In a prior report, we noted that inappropriate levies--which subsequently must be refunded--could undermine support for the continuous levy authority, by generating negative public reaction to the program and frustrating taxpayers whose payments are inappropriately levied. Since October of 2001, the inclusion of Social Security recipients and others in the levy program has extended levy use substantially. This expansion heightens the importance of minimizing inappropriate levies. This report identifies one cause for inappropriate levies for which corrective measures can be taken before IRS completes the installation of the replacement for its master file.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service The Acting Commissioner of Internal Revenue should direct Federal Payment Levy Program (FPLP) staff to avoid over collections during scheduled dead cycle time for IRS's master file. Planned actions, such as suspending IRS's update several weeks prior to the dead cycle period so as to not supersede FMS' record of balance due and allow FMS to rely on its own record of the taxpayer's balance to determine the levy amount to be deducted, would achieve this objective.
Closed - Implemented
Action taken by IRS effectively implemented a recommendation GAO proposed. GAO recommended that the Acting Commissioner of Internal Revenue direct FPLP staff to avoid over-collections during scheduled dead cycle time for IRS's master file. Planned actions, such as suspending IRS's update several weeks prior to the dead cycle period so as to not supersede FMS record of balance due and allow FMS to rely on its own record of the taxpayer's balance to determine the levy amount to be deducted, would achieve this objective. IRS agreed with GAO's finding and instituted programming changes so that FPLP will rely on FMS' balance record of a taxpayer's account when levying payments starting in December 2003. This change allows FMS to credit a taxpayer's balance more accurately when levying a payment and avoid over-collections especially during the yearly dead cycles when FMS relied on IRS's legacy systems of delayed updated balances.

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