Tax Administration:

Federal Payment Levy Program Measures, Performance, and Equity Can Be Improved

GAO-03-356: Published: Mar 6, 2003. Publicly Released: Mar 6, 2003.

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According to the Internal Revenue Service (IRS), taxpayers currently owe about $249 billion in delinquent taxes. At the same time, the government pays billions of dollars in Social Security, retirement, and other federal payments to thousands of these individuals. To help IRS administer tax laws fairly and collect delinquent taxes effectively, Congress included a provision authorizing the Federal Payment Levy Program, which allows IRS to continuously levy up to 15 percent of certain federal payments made to delinquent taxpayers. Because of congressional interest about whether the Federal Payment Levy Program is being implemented as intended, GAO was asked to assess how well the program is operating.

The Federal Payment Levy Program enables IRS to continuously levy (take a portion of) federal payments to individuals and businesses owing delinquent taxes. IRS measures only about 27 percent of the revenues that can be attributed to the continuous levy program. IRS does not measure revenues that are received through voluntary payments as taxpayers respond to the notice of intent to levy or certain other results. Understating the program's impact may hinder IRS in making well-founded decisions on program management and resource allocation. IRS plans to revise its measure of program results but has not yet decided how to do so. IRS blocks many eligible delinquent accounts from being included in the Federal Payment Levy Program, thereby missing an opportunity to gather information on which debtors are receiving federal payments, that could be used to collect these delinquent taxes more efficiently. IRS recently unblocked some accounts and plans to unblock more, but has not established a time frame to complete these changes. IRS uses an inaccurate income criterion of ability to pay when determining whether taxpayers receiving Social Security benefits can afford to have their benefits levied under the Federal Payment Levy Program. As a result, fair treatment of taxpayers is compromised because taxpayers with a similar ability to pay their delinquent taxes likely are treated differently. IRS recognizes that the criterion is flawed but continues to use it.

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

    Recommendations for Executive Action

    Recommendation: To help ensure that IRS is operating the Federal Payment Levy Program (FPLP) in a manner that achieves the program's full potential and ensures equitable treatment of taxpayers, the Acting Commissioner of Internal Revenue should include in IRS's planned new approach to measuring FPLP results data on the full range of taxpayers' actions and tax collections attributable to FPLP, including nonlevy collections and account resolutions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In April 2005, the Internal Revenue Service (IRS) implemented a programming change in its computer systems, enabling it to measure the indirect revenue received through nonlevy payments that are attributable to the Federal Payment Levy Program (FPLP). This programming change has enabled IRS to measure nonlevy account resolutions, including installment agreements, offers-in-compromise, and Collection Due Process appeal requests that are associated with the FPLP.

    Recommendation: To help ensure that IRS is operating FPLP in a manner that achieves the program's full potential and ensures equitable treatment of taxpayers, the Acting Commissioner of Internal Revenue should study the feasibility of submitting all eligible delinquent accounts to the Financial Management Service on an ongoing basis for matching against federal payment records under FPLP, and use information from any matches to assist IRS in determining the most efficient method of collecting delinquent taxes, including whether to use FPLP.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In May 2003, the Internal Revenue Service (IRS) conducted a study to determine if submitting additional delinquent taxpayer accounts for matching against federal payment records via the Federal Payment Levy Program (FPLP) was the most efficient way to pursue collecting these funds. IRS conducted a one-time test match of blocked accounts on the Automated Collection System (ACS) and reported that, for the vast majority of accounts that matched with a federal payment source, the payment sources matched were already reported to IRS through other information reporting methods. Thus IRS determined that information was already available to collection personnel for use in determining a suitable collection method for these accounts blocked from FPLP.

    Recommendation: To help ensure that IRS is operating FPLP in a manner that achieves the program's full potential and ensures equitable treatment of taxpayers, the Acting Commissioner of Internal Revenue should discontinue using the Total Positive Income criterion as an indicator of Social Security beneficiaries' ability to pay delinquent taxes and rely on the extended two-notice process to identify beneficiaries for whom a levy would be a hardship. The Acting Commissioner should determine whether sending a second notice that explains the financial hardship exception to all Social Security beneficiaries subject to levy is sufficient to identify hardship situations. If not, the Acting Commissioner should develop and test a criterion that reliably identifies those Social Security beneficiaries for whom a levy would represent an undue hardship.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: To ensure all taxpayers are treated fairly, the Internal Revenue Service (IRS) agreed to phase out usage of the Total Positive Income (TPI) as a criterion for screening taxpayers matched via the Federal Payment Levy Program (FPLP). In July 2005, IRS implemented the first step in the phase out, by reducing the level of the TPI threshold; in January 2006, the criterion was eliminated entirely. IRS also combined the TPI phase out with revising the notice sent to Social Security benefit payment recipients, including additional guidance for taxpayers in need of assistance to resolve a potential levy.

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