Tax Policy and Administration:

Minimizing Inappropriate Levies in IRS's Federal Payment Levy Program

GAO-03-318R: Published: Jan 3, 2003. Publicly Released: Jan 3, 2003.

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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.

An annual shutdown of master file operations for system maintenance causes inappropriate levies and subsequent refunds. According to IRS officials, the failures to post taxpayer payments to the master file during January 2002 were due to "dead cycle time"--a 3-to-4 week period at the beginning of each calendar year when IRS shuts down master file operations to upgrade software and perform other maintenance. During this period, the master file does not accept new postings, but FMS continues to levy federal payments based on its records for the balance owed by the taxpayers. IRS levy program official told us that they will make programming change in 2003 to help avoid inappropriate levies due to the down time for the master file.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendation for Executive Action

    Recommendation: 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.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: 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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