Tax Administration: IRS' Levy of Federal Payments Could Generate Millions
of Dollars (Letter Report, 04/07/2000, GAO/GGD-00-65).
Pursuant to a congressional request, GAO reviewed the status of the
Internal Revenue Service's (IRS) continuous levy program, focusing on:
(1) the number of taxpayers that could be subject to a continuous levy,
the revenue that might be generated, and the cost to IRS to have the
Financial Management Service (FMS) levy the federal payments of those
taxpayers; (2) issues that could delay program implementation or
otherwise affect revenues from the program; (3) the controls and testing
that IRS and FMS have planned to prevent levying taxpayers not subject
to levy and to prevent levying payments for more than the taxpayer owes;
and (4) changes, if any, IRS and FMS could make to yield increased
revenues from the program.
GAO noted that: (1) analysis of IRS' accounts receivable data as of
February 1999 and FMS payment records showed that over 264,000 taxpayers
with delinquent tax liabilities of $2.8 billion received federal
payments totalling $2.1 billion that could have been subject to a
continuous levy if the levy program had been in place at that time; (2)
GAO estimates that IRS could have generated nearly $500 million in
annual revenues from these levies at a cost of about $35 million
annually; (3) only federal retirement and vendor payments, which would
account for about 27 percent of the nearly $500 million in revenue that
could be generated annually, are expected to be available for continuous
levy in July 2000; (4) GAO was not able to determine when Social
Security benefits and federal salaries will be available for levy
because a specific date for including these types of payments in the
program has yet to be set; (5) also, before participating in the levy
program, the Social Security Administration (SSA) wants to know the
names of all Social Security beneficiaries who are to receive an intent
to levy notice from IRS, which is to be sent before any payments are
actually levied; (6) according to IRS, unless SSA can explain how such
information will be used for a tax administration purpose, the Internal
Revenue Code prohibits disclosing such information to SSA before
payments are levied; (7) according to IRS and FMS officials, both
agencies plan to adopt specific controls for the continuous levy program
to prevent inappropriate levies; (8) however, IRS has not planned any
new procedures to ensure that taxpayers receive timely refunds in any
instances in which these controls fail; (9) only 155 federal payments
are likely to be levied during the first phase of program
implementation, which may not result in enough taxpayer contacts to
determine if controls are adequate to prevent inappropriate levies; (10)
several changes to the continuous levy program could yield millions of
dollars in additional tax revenue; and (11) also, GAO estimated that
$77.7 million annually in additional revenue could be generated if: (a)
federal payments made to both spouses determined by IRS to be liable for
joint tax delinquencies; and (b) payments received by an individual
under a Social Security number for tax delinquencies incurred by the
same individual under an employer identification number, or vice versa,
could be continuously levied through this program.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-00-65
TITLE: Tax Administration: IRS' Levy of Federal Payments Could
Generate Millions of Dollars
DATE: 04/07/2000
SUBJECT: Tax administration
Taxpayers
Federal taxes
Delinquent taxes
Social security number
Social security benefits
Debt collection
Computer matching
Internal controls
IDENTIFIER: Treasury Offset Program
IRS Continuous Levy Program
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GAO/GGD-00-65
United States General Accounting Office
GAO
Report to Congressional Requesters
April 2000
GAO/GGD-00-65
TAX ADMINISTRATION
IRS' Levy of Federal Payments Could Generate
Millions of Dollars
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Contents
Page 201GAO/GGD-00-65 IRS' Levy of Federal Payments
Letter 1
Appendix I 24
Objectives, Scope, and
Methodology
Objectives 24
Scope and Methodology 24
Appendix II 29
Delinquent Taxes and
Federal Payments to Be
Included in the
Continuous Levy Program
Delinquent Taxes to Be Included in the 29
Continuous Levy Program
Delinquent Taxes to Be Excluded From 30
the Continuous Levy Program
Eligible Federal Payments to Be 31
Included in the Continuous Levy
Program
Eligible Federal Payments to Be 31
Excluded From the Continuous Levy
Program
Appendix III 33
Sampling and Data
Analysis Methodology
Determining the Number of Taxpayers 33
Subject to Continuous Levy and
Potential Revenue Generated
Determining the Number of Responsible 34
Parties Associated With Trust Fund
Recovery Penalties
Vendor Payment Records Submitted With 35
Invalid TINs or Names
Determining the Number of Spouses 36
Receiving Payments Under Own TIN Who
Are Jointly Liable for Delinquent
Taxes
Determining the Number of Jointly 37
Liable Taxpayers Receiving Social
Security Benefits Under Spouse's
Entitlement
Using the EIN/SSN Cross-Reference File 37
in Matching Accounts Receivable
Records to Payment Records
Sampling Errors for Key Estimates Used 37
in the Report
Appendix IV 39
Additional Revenues That
Could Be Generated
Through the Continuous
Levy Program
Appendix V 41
Comments From the
Internal Revenue Service
Appendix VI 45
Comments From the
Financial Management
Service
Appendix VII 48
Comments From the Social
Security Administration
Appendix VIII 50
GAO Contacts and Staff
Acknowledgments
Tables Table 1: Potential Annual Payments 6
Levied and Potential Annual Revenues
Realized
Table III.1: Invalid TIN or Name 35
Sample
Table III.2: Spouses' TIN sample 36
Table IV.1: Additional Revenue 39
Potential From Levying Jointly Liable
Spouses Receiving Federal Payments
Table IV.2: Additional Revenue 40
Potential by Levying Taxpayers Who
Receive Payment Under an SSN While
Delinquent Under an EIN or Vice Versa
Abbreviations
ACS Automated Collection System
CNC currently-not-collectible
EIN employer identification number
FMS Financial Management Service
IRS Internal Revenue Service
OPM Office of Personnel Management
SSA Social Security Administration
SSN Social Security Number
TIN taxpayer identification number
B-282360
Page 9 GAO/GGD-00-65 IRS' Levy of Federal Payments
B-282360
April 7, 2000
The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives
The Honorable Amo Houghton
Chairman, Subcommittee on Oversight
Committee on Ways and Means
House of Representatives
Many taxpayers who are delinquent in paying their
federal taxes are receiving billions of dollars in
federal payments annually, from sources such as
Social Security benefits or as payment for goods
and services they provide to federal agencies. To
help the Internal Revenue Service (IRS) collect
these delinquent tax debts, provisions in the
Taxpayer Relief Act of 1997 gave IRS authority to
continuously levy1 up to 15 percent of certain
federal payments made to delinquent taxpayers.2
Payments subject to IRS' continuous levy program
are to include Social Security benefits, federal
salary and retirement payments, and federal agency
vendor payments. IRS plans to begin the program in
July 2000.
The Department of the Treasury's Financial
Management Service (FMS) is to play a key role in
the continuous levy program. FMS receives payment
records from and makes payments on behalf of most
federal agencies. For the levy program, FMS is to
compare the payee's taxpayer identification number
(TIN) and name on agency payment records with the
TIN and name control3 on accounts receivable
records4 provided by IRS. When an exact match
occurs, FMS is to levy the federal payment. For
example, if an exact match involves a federal
retiree, FMS is to levy up to 15 percent of the
retiree's monthly retirement payment--following
notification to the retiree--and continue to levy
subsequent monthly retirement payments until the
delinquency is paid in full or until IRS releases
the levy.
This report responds to your request that we
review the status of the continuous levy program
and identify any issues that might affect program
operations. Specifically, the objectives for this
report are to (1) determine the number of
taxpayers that could be subject to a continuous
levy, the revenue that might be generated, and the
cost to IRS to have FMS levy the federal payments
of those taxpayers; (2) identify issues that could
delay program implementation or otherwise affect
revenues from the program; (3) examine the
controls and testing that IRS and FMS have planned
to prevent levying taxpayers not subject to levy
and to prevent levying payments for more than the
taxpayer owes; and (4) identify changes, if any,
IRS and FMS could make to yield increased revenues
from the program.
Results in Brief
Analysis of IRS' accounts receivable data as of
February 1999 and FMS payment records5 showed that
over 264,000 taxpayers with delinquent tax
liabilities of $2.8 billion received federal
payments totaling $2.1 billion that could have
been subject to a continuous levy if the levy
program had been in place at that time. We
estimate that IRS could have generated nearly $500
million in annual revenues from these levies at a
cost of about $35 million annually. However, both
the annual revenue and the actual cost could be
lower because some of the taxpayers receiving a
notice of intent to levy might make other
arrangements to resolve their tax debts.
While the continuous levy program has the
potential to generate significant revenues, the
program will not reach its full potential when it
is initially implemented. Only federal retirement
and vendor payments, which would account for about
27 percent of the nearly $500 million in revenue
that could be generated annually, are expected to
be available for continuous levy in July 2000. We
were not able to determine when Social Security
benefits and federal salaries will be available
for levy because a specific date for including
these types of payments in the program has yet to
be set. Also, before participating in the levy
program, the Social Security Administration (SSA)
wants to know the names of all Social Security
beneficiaries who are to receive an intent to levy
notice from IRS, which is to be sent before any
payments are actually levied. According to IRS,
unless SSA can explain how such information will
be used for a tax administration purpose, the
Internal Revenue Code prohibits disclosing such
information to SSA before payments are levied. As
of March 2000, IRS and SSA were working to resolve
this issue.
According to IRS and FMS officials, both agencies
plan to adopt specific controls for the continuous
levy program that are intended to prevent
inappropriate levies. However, IRS has not
planned any new procedures to ensure that
taxpayers receive timely refunds in any instances
in which these controls fail. We found one
situation in which planned controls may not be
adequate to prevent inappropriate levies. In
general, how well the planned controls will work
when the program is implemented is not clear
because IRS does not intend to contact taxpayers
when it tests these controls prior to program
implementation. Futhermore, we found that only
155 federal payments are likely to be levied
during the first phase of program implementation,
which may not result in enough taxpayer contacts
to determine if controls are adequate to prevent
inappropriate levies.
Several changes to the continuous levy program
could yield millions of dollars in additional tax
revenue. For example, we estimated that as much as
$74 million annually in additional revenue could
be generated if taxpayers were required to provide
the same name to the federal agencies with which
they contract as they use on their federal tax
returns. Also, we estimated that $77.7 million6
annually in additional revenue could be generated
if (1) federal payments made to both spouses
determined by IRS to be liable for joint tax
delinquencies and (2) payments received by an
individual under a Social Security number (SSN)
for tax delinquencies incurred by the same
individual under an employer identification number
(EIN), or vice versa, could be continuously levied
through this program.
Background
In the Taxpayer Relief Act of 1997, Congress
authorized IRS to continuously levy up to 15
percent of certain federal payments made to
delinquent taxpayers. These provisions were
intended to enhance IRS' ability to collect
delinquent tax debt. Until passage of this
legislation, IRS lacked an automated process
through which to identify delinquent taxpayers
receiving federal payments and to levy those
payments.
While IRS can currently levy a delinquent
taxpayer's federal payments, IRS must determine
the type of federal payments a delinquent
taxpayer is receiving, notify the taxpayer that
IRS intends to levy these payments, and for each
type of payment, prepare a levy document and serve
it to the federal agency making those payments.
The federal agency served with the levy must
calculate the amount of the payment to be turned
over to IRS based on information unique to each
taxpayer.
FMS processes most federal payments7 and has in
place the Treasury Offset Program, which uses a
centralized database of delinquent federal non-tax
debts that have been referred for offset by
federal agencies. FMS currently compares federal
retirement and vendor payment records received
from federal agencies with the database of
delinquent nontax federal debts; and when a match
occurs, FMS offsets the payment, thereby reducing
or eliminating the existing debt. FMS plans to
add Social Security and federal salary payments to
the Treasury Offset Program in the future.
FMS and IRS plan to enhance the Treasury Offset
Program to enable IRS to electronically serve tax
levies through FMS. IRS will be responsible for
issuing a combined notice of a right to a hearing
and notice of intent to levy to taxpayers;8
performing follow-up actions, such as adjusting
taxpayer's accounts to reflect the amount of levy
payments; and reimbursing FMS a predetermined fee
for each payment levied. FMS will be responsible
for levying 15 percent of the certified payment
amount or the amount of the outstanding tax debt,
whichever is lower; preparing and mailing a
statement with each payment, informing the payee
that the payment was levied, the amount that was
levied, and the residual amount of the payment;
and turning over the amount levied to IRS.
Federal payments to be included in the continuous
levy program are Social Security benefits, federal
salary, federal retirement, Railroad Retirement
Board benefits, and federal vendor payments. As of
July 2000, only vendor and federal retirement
payments are to be included in the Treasury Offset
Program and therefore available for continuous
levy. Social Security benefits, federal salaries,
and Railroad Retirement Board benefits will not be
subject to continuous levy until such time as they
are included in the Treasury Offset Program.
Federal payments to be excluded from the
continuous levy program include judgments for
support of minor children and Supplemental
Security Income. Certain Social Security benefit
payments may also be excluded, but this had not
been decided at the time of our review.
IRS plans to phase in the types of tax
delinquencies to be submitted to FMS when the
program is implemented in July 2000. The first
type of tax delinquency IRS plans to submit for
levy are delinquent accounts that have been in a
queue for at least 1 year awaiting assignment for
enforced collection. (See appendix II for the
order in which various types of tax delinquencies
are to be phased in when the program is
implemented.)
Scope and Methodology
To meet our objectives, we (1) obtained and
matched IRS' accounts receivable records with
agency payment records obtained from FMS; (2)
interviewed IRS and FMS officials responsible for
implementing the continuous levy program, as well
as SSA and various payment agency officials; (3)
reviewed the joint program requirements developed
by IRS and FMS; and (4) sampled FMS payment
records and IRS' accounts receivable records.
(Appendix I describes our overall objectives,
scope, and methodology and appendix III describes
our detailed sampling and data analysis
methodology.)
All sample results used in this report have been
weighted to reflect the entire population and are
subject to sampling error. Unless otherwise
indicated, all estimates are surrounded by a 95-
percent confidence interval of plus or minus 10
percent. Our work was done between March 1999 and
January 2000 in accordance with generally accepted
government auditing standards.
We requested and obtained comments on a draft
of this report from the Commissioner of Internal
Revenue, the Commissioner of the Financial
Management Service, and the Commissioner of Social
Security. We have summarized their comments at the
end of this report and have reprinted them in
appendixes V, VI, and VII.
Millions of Dollars in Tax Revenue Could Be
Collected Through Continuous Levy
Our analysis of IRS' accounts receivable data as
of February 1999 showed that a total of 4.4
million individual and business taxpayers owed
about $59 billion in delinquent taxes and met IRS'
criteria to be included in the continuous levy
program. We found 298,710 payment records that
exactly matched both the TIN and name control on
IRS' accounts receivable records. These payments
went to 264,137 taxpayers that owed $2.8 billion
in delinquent taxes. We estimated that IRS could
generate as much as $478 million annually from
levying these payments, as shown in table 1.
However, this amount could be lower because some
taxpayers might make other arrangements to resolve
their tax debts.
Table 1: Potential Annual Payments Levied and
Potential Annual Revenues Realized
Payment type Taxpayers Potential Potential Percent of
affected annual annual total potential
payments revenueb annual revenue
levieda
Social Security 232,485 2,916,744 $311.8 65.2
Business vendor 3,647 91,604 98.2 20.5
Individual 3,970 33,428 6.2 1.3
vendor
Federal 12,892 158,724 24.0 5.0
retirement
Federal salary 8,855 230,230 32.8 6.9
Railroad 2,288 27,696 5.0 1.0
Retirement
Total 264,137 3,458,426 $478.0 100.0
Note: Percentage may not add to 100 because of
rounding.
aVendor payments are for the first quarter of
calendar year 1999, salary payments represent one
biweekly pay period in March 1999, and all other
payments are for the month of March 1999. To
annualize the 298,710 payments, we multiplied
vendor payments by 4, salary payments by 26, and
all other payments by 12.
bThe annual revenue may vary each year, depending
on how taxpayers react to having their federal
payments continuously levied and the extent to
which tax delinquent accounts are added to or
subtracted from the continuous levy program.
Source: GAO analysis of IRS and FMS data.
As table 1 shows, about 65 percent of the
potential revenue generated by this program would
come from levying Social Security benefit
payments. Levying business and individual vendor
payments would account for about 22 percent,9
while federal salary and retirement benefit
payments would account for about 13 percent of the
annual revenues.
On the basis of FMS' proposed fee of $10.06
to be charged for each payment levied, the annual
cost to IRS could be as much as $34.8 million
annually. This cost could be lower if taxpayers
receiving a notice of intent to levy make other
arrangements with IRS to pay their taxes, thus
negating the need to levy their federal payments.
For example, in an effort to avoid a pending levy,
some taxpayers may contact IRS to arrange to pay
their delinquent tax in full or through an
installment agreement or an offer in compromise.10
Others may consider the 15 percent levy preferable
to an installment agreement. Still others may
contact IRS to challenge the basis for the tax
assessment that resulted in the pending levy. IRS
officials indicated that if taxpayers react to a
pending levy by arranging other means of payment,
such as an installment agreement, such action on
the part of taxpayers could be as beneficial as
the levy itself.
Reaching Full Program Potential Will Be Delayed
As indicated previously, Social Security
benefits and federal salaries will not be
available for offset in the Treasury Offset
Program by July 2000 and therefore, will not be
available for continuous levy at that time. The
availability of Social Security benefits for
continuous levy could be further delayed due to a
disagreement between SSA and IRS concerning a tax
disclosure issue. In addition, the specific
details concerning how the amount of federal
salary payments available for levy is to be
calculated has yet to determined.
SSA Wants Access to Information on Beneficiaries
Subject to a Tax Levy
SSA has not yet agreed on how to participate
in the continuous levy program because of a
disagreement with IRS on SSA's access to the names
of Social Security beneficiaries who receive an
intent to levy notice from IRS indicating that IRS
intends to levy their Social Security payments.
IRS plans to send all delinquent taxpayers
whose federal payments may be levied a required
combined notice of a right to a hearing and notice
of intent to levy, which states that their federal
payment is to be levied. IRS must then allow the
taxpayers 30 days to respond before instructing
FMS to levy their payments. According to IRS
officials, because of the sensitivity of levying
Social Security benefits, IRS plans to send Social
Security beneficiaries an additional notice of
intent to levy before instructing FMS to levy
their payments. This additional notice will allow
Social Security beneficiaries an additional 30
days to respond, specifically state that their
Social Security benefits are to be levied, and
inform them that they should contact IRS with any
questions concerning the notice. IRS plans to
inform SSA of the levy when it actually occurs,
rather than when a Social Security beneficiary is
sent an intent to levy notice.
SSA insists that IRS provide it with names of
all Social Security beneficiaries who receive an
intent to levy notice so that SSA customer service
representatives can effectively respond to
inquiries received from beneficiaries concerning
these notices. SSA wants IRS to follow the
procedures to be used in the Treasury Offset
Program, whereby a copy of warning letters to
Social Security beneficiaries, as well as letters
indicating that an offset has been made for nontax
debts, are to be provided to SSA. SSA believes
that some beneficiaries will contact SSA upon
receiving a notice of intent to levy because they
are accustomed to dealing with SSA staff on
matters affecting their Social Security payments.
Without knowledge that a tax levy notice had been
sent, SSA staff would not have a basis to direct
the beneficiaries to IRS to resolve their
questions.
IRS contends that unless SSA can explain how
providing the names of Social Security
beneficiaries who receive an intent to levy notice
to SSA will be used for a tax administration
purpose, the tax disclosure provisions of the
Internal Revenue Code prohibit disclosing such
information until after a levy has been served.
According to IRS officials, even if IRS were to
provide this information, SSA staff would have no
knowledge concerning the specifics of the SSA
beneficiary's tax debt and could only refer the
beneficiary to IRS. As of March 2000, senior IRS
and SSA officials were working to resolve this
issue.
When Salary Payments Are to Be Available for Levy
Is Uncertain
Federal salary payments will not be included
in the continuous levy program until such time as
they are included in the Treasury Offset Program.
As of March 2000, FMS did not have a specific date
for including salary payments in the program.
Also, specific details on how the amount of salary
payments available for levy is to be calculated
had not been determined. Federal employees have
deductions taken out of their gross salary for
purposes such as savings accounts, health
insurance, retirement, and federal income tax.
For the Treasury Offset Program, FMS plans to have
federal agencies offset employees' net disposable
income, which FMS defines as gross salary minus
taxes, retirement, and court-ordered child
support. For tax levies, IRS is considering having
the agencies apply the 15-percent levy to
employees' net disposable income, which IRS
defines as gross salary minus taxes, health
insurance premiums, and court-ordered child
support. After IRS makes a final determination on
how the calculation is to be made, FMS said it
will provide direction on how to calculate the
levy to the agencies.
Another issue to be determined involving
salary payments is whether federal agencies will
expect to be reimbursed for their involvement in
the continuous levy program. IRS does not plan to
reimburse the agencies for calculating the amount
of salary to be continuously levied. Whether the
agencies will agree to this remains to be
determined.
IRS' Plans to Test Program Controls Are Limited
In developing the continuous levy program, IRS
plans to include controls to prevent levying
taxpayers who are not subject to levy and to
protect against levying payments for more than
taxpayers owe. How well these controls will work
is unclear because IRS does not plan to contact
taxpayers during testing prior to initial program
implementation in July 2000. Without taxpayer
contact during testing, IRS cannot be totally
certain that adequate controls will be in place
when the program is initially implemented to
prevent inappropriate levies. In addition, we
found a situation in which planned controls may
not be adequate to prevent inappropriate levies.
According to IRS officials, contacting taxpayers
during testing is not necessary because IRS plans
to phase in various groups of delinquent taxpayers
when the program is first implemented in July
2000. They believe this will allow them to
identify and correct any problems before adding
additional groups of delinquent taxpayers to the
program. We found that only 155 federal payments
made to the first group of delinquent taxpayers to
be phased in are likely to be levied. This may not
result in enough taxpayer contacts for IRS to
adequately assess either its overall program
controls or how taxpayers will react in general
upon receiving intent to levy notices. However,
in commenting on a draft of this report, IRS
indicated that it now plans to phase in subsequent
groups of taxpayers slowly, thereby providing
additional taxpayer contacts from which to assess
its controls prior to full program implementation.
IRS Has Planned Controls to Prevent Inappropriate
Levies
IRS plans to include controls in the continuous
levy program that, coupled with existing controls,
it believes will prevent an inappropriate levy
from occurring. For example, before instructing
FMS to levy a federal payment, IRS plans to ensure
that the taxpayer is sent the required combined
notice of a right to a hearing and intent to levy.
Before sending this notice to the taxpayer, IRS
plans to systemically review the taxpayer's
account to ensure that it does not meet any levy
exclusion criteria. IRS also has specific controls
planned to prevent a levy from resulting in more
taxes being collected than a taxpayer owes. For
example, IRS plans to provide FMS with a weekly
file updating the balance due for each account
subject to a continuous levy. In the meantime, FMS
is to have the capability to update the balance
due for each account after each payment is levied,
thus enabling FMS to identify when an account
balance is reduced to zero. In addition, selected
staff in each IRS district office and service
center are to be authorized to directly access
FMS' levy database to rescind a levy if necessary.
The latter control could be particularly important
if a taxpayer whose federal payments are subject
to a continuous levy decides to fully pay the tax
debt or enter into an installment agreement.
According to IRS officials, if an inappropriate
levy occurs, IRS plans to follow its current
procedures for making a refund. When IRS is made
aware of an erroneous levy or one that results in
an overpayment, the levy is to be deactivated; and
the taxpayer is to receive a refund, usually
within 2 to 3 weeks. However, if the inappropriate
levy results in a hardship to the taxpayer, IRS is
to generate a manual refund to be sent to the
taxpayer in 2 to 3 days.
Testing of Controls Will Not Include Taxpayer
Contact
According to IRS officials, IRS plans to conduct 3
months of detailed system testing in conjunction
with FMS before program implementation. However,
the officials stated that the testing will not
include any contacts with taxpayers, such as
sending intent to levy notices to gauge taxpayer's
reaction. Rather, beginning in April 2000, IRS
plans to send taxpayer delinquent accounts that
meet its levy criteria to FMS; and FMS is to use
them to establish a potential levy database. Then,
each week, IRS is to provide information to FMS to
update accounts already in the database, add new
accounts to the database, and identify accounts
for simulated levy. FMS is to match the delinquent
accounts IRS has identified for levy to federal
payment records and is to provide IRS with a list
of those that matched so that IRS can determine
whether these accounts continue to meet its levy
criteria.
This testing should enable IRS and FMS to identify
how well their respective systems can process
simulated program information. However, the
taxpayer also plays a role in the system of
controls, and failure to include taxpayer contacts
during testing could result in IRS being unable to
determine with any certainty whether adequate
controls are in place to ensure that inappropriate
levies are not made.
Planned Controls May Not Prevent All Inappropriate
Levies
Planned controls may not prevent inappropriate
levies in certain situations. For example, IRS
plans to levy federal payments to satisfy tax
delinquencies resulting from Trust Fund Recovery
Penalties.11 While this penalty can be assessed
against more than one responsible party for the
same tax delinquency, the total amount of
delinquent payroll taxes is to be collected only
once. Therefore, if one or more responsible
parties pay some or all of the delinquency, the
tax liability for all related parties should be
reduced or eliminated from IRS' records.
Consequently, if a payment is not credited to all
related parties, IRS could continue to levy
payments to responsible parties for tax
delinquencies that have already been paid.
We identified an estimated 2,217 instances12 in
which more than one responsible party was assessed
a Trust Fund Recovery Penalty for the same tax
delinquency. IRS officials told us they are
working on a system that will eventually allow
them to automate the posting of payments to the
accounts of all responsible parties, but they
added that the system would not be fully
operational for 2 to 3 years. Until then, it is
unlikely that planned controls would enable IRS to
ensure that the accounts of each responsible party
had been credited with a levy payment for a Trust
Fund Recovery Penalty.
Taxpayers Will Not Be Contacted Until the Program
is Implemented
As indicated earlier, IRS will not contact
taxpayers concerning the possibility of having
their federal payments continuously levied during
testing before program implementation. IRS first
plans to contact taxpayers about a possible levy
when it sends them intent to levy notices when the
program is implemented in July 2000. At that time,
IRS intends to phase in the program by first
levying the federal payments of taxpayers whose
delinquent accounts have been in a queue for at
least 1 year awaiting assignment for enforced
collection. IRS officials stated that with this
phase-in approach, IRS should be able to make any
needed changes to the program and its controls
before it phases in an additional group of
delinquent taxpayers subject to levy.
We found that IRS is likely to levy only 155
payments made to taxpayers with delinquent
accounts in the queue for at least 1 year, since
only vendor and federal retirement payments are to
be available for levy in July 2000. Sending
intent to levy notices for only 155 payments may
not result in enough taxpayer contacts to
adequately test all controls. However, in
commenting on a draft of this report, IRS
indicated that it now plans to phase in subsequent
groups of taxpayers slowly, thereby providing
additional taxpayer contacts from which to assess
its controls prior to full program implementation.
Changes to the Program Could Increase the Amount
of Revenues Generated
We estimate that as much as $74 million in
annual revenues could be generated if taxpayers
were required to use the same TIN and name on
their federal payment records as they use on their
tax returns. IRS has a TIN verification program
for use by agencies for information return
reporting that, if expanded, could be used by
agencies to verify whether the agencies' TIN/name
combination provided by vendors matched the TIN
and name on taxpayer records maintained by IRS.
The levy program could also generate an estimated
$77.7 million annually if IRS could continuously
levy federal payments made to both spouses if they
have been determined by IRS to be jointly liable
for tax delinquencies, and payments received by
individuals under an SSN for tax delinquencies
incurred under their EIN or vice versa. To include
these payments in the levy program would require
FMS to make changes to its computer systems that
is used for matching federal payment records to
IRS' accounts receivable records.
Additional Revenue Could Be Generated If More
Payment Records Were Suitable for Matching
We estimated that about 33 percent13 of 2.9
million vendor payment records totaling $19.9
billion14 submitted to FMS were unsuitable for
matching against IRS' accounts receivable records.15
About 6 percent of the payment records contained
TINs that were invalid because they differed from
TINs on IRS' accounts receivable records. For
example, some TINs in the payment records included
all zeros and others included letters rather than
the required nine digits. In addition, about 27
percent of the payment records contained names
that differed from the names on IRS' accounts
receivable records.
TINs on Vendor Payment Records Are Often Invalid
The Debt Collection Improvement Act of 1996
requires federal agencies to include valid TINs on
payment records submitted to FMS for payment.
However, FMS does not verify TINs included on the
payment records. Rather, FMS will process federal
payments provided that designated payment agency
officials have certified that the payments are
valid.
To encourage federal agencies to include
accurate TINs in payment records, FMS issued a
policy statement in 1998 requiring agencies to
submit a report to FMS documenting (1) the current
status of agency compliance with the TIN
requirement, (2) barriers to collecting and
providing TINs, and (3) strategies and time frames
for resolving such barriers. As of December 31,
1999, FMS had received 34 such reports from
federal agencies. One barrier identified by some
of these agencies was the lack of a systemic
method to validate TINs provided to them by
vendors. FMS plans to review the reports to
determine, among other things, the effectiveness
and credibility of proposed strategies to achieve
TIN compliance and to formulate guidance to assist
agencies in collecting and providing valid TINs on
federal payment records.
Names on Payment Records Often Differ From Names
on IRS' Records
While the Debt Collection Improvement Act of
1996 requires federal agencies to submit a valid
payee TIN on each payment record, there is no
requirement that the name submitted by the
agencies reflect the same name used on the payee's
most recent tax return. We identified 32,584
federal payments in which the TINs in federal
payment records matched the TINs in IRS' records,
but the names differed. We estimate that resolving
inconsistencies between the name payees use to
receive federal payments and the name payees use
on their federal tax returns could generate an
additional $74 million in revenue annually.
We identified several reasons why the payment
record matched IRS on TIN but not name. One
example of name mismatch occurred because
payments, particularly Social Security benefits,
were issued to a representative payee, such as a
nursing home. This created a mismatch because the
space allotted for the payee name on the Social
Security payment record is 22 characters, which in
most cases, is not sufficient to include both the
name of the benefit recipient and the
representative payee. In other examples, name
mismatches occurred because payees' last names on
payment records were spelled differently than on
IRS' accounts receivable records or payees used
their maiden names while IRS records reflected
their married name or vice versa.
IRS Has a Program to Verify the TINs and Names on
Federal Agency Records
Since 1997, IRS has had a TIN-matching
program that federal agencies can use to verify
the accuracy of TIN and name combinations
furnished by payees that are used in issuing
information returns. This program was intended to
reduce the number of notices of incorrect TIN and
name combinations issued for backup withholding16
by allowing agencies the opportunity to contact
the payee for correction before issuing an
information return. The program does not apply to
payments under $5,000 made to corporations for
goods sold to federal executive agencies, since by
regulation such payments generally are not subject
to information reporting.
Monthly, federal agencies may submit a batch
of TIN and name combinations to IRS for
verification. IRS matches each record submitted
against its records and reports the results back
to the agency. Overall, IRS found that 11 percent
of the records submitted by federal agencies in
1999 did not match IRS records. 17
Millions of Dollars in Additional Federal Payments
Could Be Subject to Levy
As indicated earlier, we estimate that as much as
$478 million in delinquent taxes could be
collected annually through the continuous levy
program, although this amount could be lower
because some taxpayers might make other
arrangements to resolve their tax debts. In
addition, we estimated that $77.7 million could be
collected annually if the program included levying
payments made to both spouses if they have been
determined by IRS to be jointly liable for tax
delinquencies, and payments received by
individuals under an SSN for tax delinquencies
incurred under their EIN or vice versa. (Appendix
IV presents details on the types of payments that
could provide this additional revenue.)
Payments Made to Jointly Liable Spouses Will Not
Be Levied When the Program Is Initially
Implemented
IRS data showed that nearly one-third of 3.3
million individual taxpayers meeting IRS' criteria
for inclusion in the continuous levy program were
married and had filed joint tax returns with their
spouses. Our match of the spouses' TINs against
payment records identified 53,605 cases where
associated spouses were receiving about $461
million in federal payments annually. IRS could
generate an estimated $42.8 million in additional
revenue annually by levying those payments.18 We
also estimate that an additional $4.7 million19 in
annual revenue could eventually be generated by
levying Social Security benefits received by one
spouse under the other spouse's entitlement when
both spouses are jointly liable.
IRS does not plan to submit spouses' TINs to
FMS for matching against federal payments when the
continuous levy program is implemented in July
2000. IRS officials told us that the decision to
exclude payments to jointly liable spouses was
made because FMS had indicated that the Treasury
Offset Program, as currently designed, is unable
to match more than one TIN against federal payment
records per each debt submitted by creditor
agencies. According to both IRS and FMS officials,
enabling the program to match more than one TIN
per each debt would require program modifications
that are not currently planned and that will not
be in place by July 2000.
Not All Payment Received Under an Individual's SSN
and EIN Will Be Levied
IRS has a file that cross-references SSNs and EINs
assigned to the same individual, 20 but it does not
plan to provide both TINs to FMS for matching
against federal payment records. IRS officials
said they decided not to send both TINs to FMS
because FMS does not currently have the capability
to match more than one TIN per federal debt to its
payment records. As a result, taxpayers who
receive payments under an EIN but are delinquent
for individual taxes under their SSN or vice
versa, will not be levied.
IRS data showed that 432,737 of the 4.4 million
delinquent individual and business taxpayers had
both an SSN and EIN assigned to them. The SSN is
used to report individual tax liabilities, such as
income taxes; and the EIN is used to report
business tax liabilities, such as employment
taxes. We found that 17,913 of these taxpayers
received federal payments, which could total an
estimated $217 million annually. Of these
taxpayers, 17,460 received an estimated $195
million in federal payments annually under their
SSN, but they were delinquent for business taxes
recorded under their EIN. Likewise, 453 taxpayers
received an estimated $22 million in federal
payments under their EIN but were delinquent for
individual income taxes recorded under their SSN.
Identifying and levying such payments could
generate an estimated $30.2 million annually.
Conclusions
As designed, as much as $478 million in delinquent
taxes could be collected under the continuous levy
program annually, although this amount could be
lower if taxpayers make other arrangements to
resolve their tax debts after they receive a
notice of levy. However, the majority of the
revenue will not be forthcoming until IRS and SSA
resolve the issue of disclosing to SSA the names
of Social Security beneficiaries who are to
receive an intent to levy notice. Inability to
resolve this issue, thereby preventing IRS from
continuously levying Social Security benefits,
could reduce the annual revenues from the program
by about $300 million.
IRS plans to phase in various groups of delinquent
taxpayers when the continuous levy program is
implemented. The likely number of levies to be
made in the first phase of program implementation
is only 155, which may be insufficient to provide
IRS and FMS an opportunity to assess overall
program controls to ensure inappropriate levies
are not made. Thoroughly assessing these controls
during the initial phase of program implementation
should reduce the likelihood of inappropriate
levies occurring when additional types of federal
payments, such as Social Security benefits and
federal salary payments, become available for
levy. If any inappropriate levies or overpayments
due to levy occur, timely refunds, such as in 2 to
3 days as is done for hardship cases, could
minimize negative public reaction to the program
and the frustration of taxpayers whose payments
are inappropriately levied.
Millions of dollars more in delinquent taxes could
be collected if (1) federal payee TINs and names
were consistent with the TINs and names used on
their federal tax returns, (2) federal agencies
could validate vendor TINs and names through IRS'
TIN-matching program, and (3) program changes were
made to FMS' computer program to enable FMS to
match more than one TIN and name per tax
delinquency to its payment records when
appropriate.
Recommendations to the Commissioner of Internal
Revenue and Commissioner of Financial Management
Service
To ensure that adequate controls are in place to
prevent inappropriate levies, we recommend that
the Commissioner of Internal Revenue
� ensure that IRS contacts a sufficient number
of taxpayers when testing program controls during
the first phase of program implementation;
� develop a procedure to provide that refunds
resulting from an inappropriate levy are made in a
timely manner, similar to refunds issued in cases
involving taxpayer hardship;
� ensure that IRS excludes from levy any Trust
Fund Recovery Penalty involving more than one
responsible party until IRS has a system in place
to ensure that all responsible parties' accounts
receive appropriate credit for any payments
levied; and
� assess the feasibility of permitting federal
agencies to submit vendors' TINs and names to IRS
as part of its TIN-matching program for purposes
other than information reporting.
To ensure that future payment records submitted to
FMS by federal agencies will include valid payee
TINs and names, we recommend that the Commissioner
of Financial Management Service issue guidance
directing federal agencies to use IRS' TIN-
matching program, if IRS decides that it can
validate vendor TINs and names through this
program.
To increase the number of tax delinquencies that
could be collected through continuous levy, we
recommend that the Commissioner of Internal
Revenue and the Commissioner of Financial
Management Service respectively direct IRS and FMS
to coordinate their efforts in preparing the
necessary files and making the programming changes
needed to enable FMS to match more than one TIN
and name from IRS' accounts receivable records to
its payment records for each tax debt submitted by
IRS.
Agency Comments and Our Evaluation
In written comments on our draft report, the
Commissioner of Internal Revenue (see appendix V)
and the Commissioner of the Financial Management
Service (see appendix VI) agreed with most of our
recommendations and provided technical comments
that we have incorporated throughout this report
when appropriate.
The Commissioner of Internal Revenue agreed with
four of five recommendations applicable to IRS.
The Commissioner agreed to ensure that IRS
contacts a sufficient number of taxpayers when
testing program controls during program
implementation. The Commissioner stated that IRS
now plans to implement the program as a pilot. As
part of this pilot, IRS will gradually add various
debt types to the program. With successful
piloting of each debt type, IRS plans to add
another type until all appropriate debts are
included in the program and the program is moved
into full implementation. The Commissioner stated
that by phasing cases slowly into the system, IRS
will be able to contact sufficient numbers of
taxpayers to ensure that adequate controls are in
place before it fully implements the program, and
we concur with this approach.
The Commissioner agreed with our recommendation to
develop a procedure to provide that refunds
resulting from an inappropriate levy are made in a
timely manner, similar to cases involving taxpayer
hardship, by directing employees to issue manual
refunds whenever IRS determines that the Service
is not entitled to funds secured from an
inappropriate levy. We agree that this change
should meet the intent of our recommendation.
The Commissioner agreed to assess the feasibility
of permitting federal agencies to submit vendors'
TINs and names to IRS as part of its TIN-matching
program for purposes other than information
reporting. Because of disclosure issues related
to this recommendation, which may bar IRS from
providing feedback to federal agencies, IRS is
currently developing a proposal for a legislative
change.
As a future program enhancement, the Commissioner
agreed to coordinate with FMS in preparing the
necessary files and making the programming changes
needed to enable FMS to match more than one TIN
and name from IRS' accounts receivables to FMS'
payment records for each tax debt submitted by
IRS.
The Commissioner of Internal Revenue did not agree
to implement the recommendation to exclude from
levy any Trust Fund Recovery Penalty cases
involving more than one responsible party until
IRS has a system in place to ensure that all
responsible parties' accounts receive appropriate
credit for any payments levied. The Commissioner
stated that IRS is currently developing a system
to cross-reference payments on both the Business
Master File and the Individual Master File for
Trust Fund Recovery Penalty cases. However,
because this system will not be in place at the
time the continuous levy program is implemented in
July 2000, IRS plans to monitor the impact of
including these cases during the phased in
implementation before making a determination
whether to exclude such cases from levy. Until
the system is in place, we still believe IRS
should exclude Trust Fund Recovery Penalty cases
from levy because IRS has no systemic means to
ensure that the accounts of each responsible party
are credited if a federal payment is levied for a
Trust Fund Recovery Penalty.
The Commissioner in his letter also pointed out
that the program probably will not generate the
full $478 million annually in revenue that we
estimated could result when the program reaches
its full potential. The Commissioner stated that,
considering past experience, many taxpayers take
action to resolve their account before a levy is
issued. We agree that the program may not
generate the estimated $478 million annually
directly from tax levies because taxpayers who
receive a notice of intent to levy may act to
resolve their account by paying the amount owed in
full, entering into an installment agreement, or
filing an offer in compromise. Neither we nor IRS
know how much revenue may be generated indirectly
as a result of taxpayers reacting to the receipt
of intent to levy notices. IRS officials told us
that they plan to eventually develop an estimate
of the revenue that is being generated indirectly
from the continuous levy program.
The Commissioner of the Financial Management
Service agreed to issue guidance directing federal
agencies to use IRS' TIN-matching program,
provided that IRS determines that it can use the
program to validate vendor TINs and names
submitted by agencies for purposes other than
document matching. The Commissioner also agreed
to coordinate with IRS in preparing the necessary
files and making the programming changes needed to
enable FMS to match more than one TIN and name for
each tax debt submitted by IRS to FMS' payment
records. However, he said FMS' efforts in the
near future will be directed at other enhancements
and suggested 2003 as the target completion date
for this TIN matching enhancement.
The Commissioner's letter also discussed a
recommendation, in our draft report, that FMS
issue guidance to federal agencies to require
vendors doing business with the federal government
to use the same business name for federal payments
for services rendered that they use on their
federal tax return. The Commissioner stated that
FMS does not have the legal authority to impose
this requirement on federal agencies and vendors,
and that this requirement would have to be
included in the Federal Acquisition Regulations,21
which are administered by the General Services
Administration (GSA). We agree with the
Commissioner that GSA would be the appropriate
agency to impose such a requirement and, as a
result, we have dropped this recommendation from
our report.
We also received written comments from the
Commissioner of Social Security (see appendix VII)
concerning how we characterized their planned
participation in the tax levy program. We made
changes to the report to reflect the
Commissioner's concerns when appropriate.
As agreed with your office, unless you
announce the contents of this report earlier, we
plan no further distribution of this report until
30 days from the date of this letter. At that
time, we will send copies of this report to
Representative Charles B. Rangel, Ranking Minority
Member, House Committee on Ways and Means;
Representative William J. Coyne, Ranking Minority
Member, Subcommittee on Oversight, House Committee
on Ways and Means; and Senator William V. Roth,
Jr., Chairman, and Senator Daniel P. Moynihan,
Ranking Minority Member, Senate Committee on
Finance. We are also sending copies to the
Honorable Lawrence H. Summers, Secretary of the
Treasury; the Honorable Charles O. Rossotti,
Commissioner of Internal Revenue; the Honorable
Richard L. Gregg, Commissioner of Financial
Management Service; the Honorable Kenneth S.
Apfel, Commissioner of Social Security; the
Honorable Jacob J. Lew, Director, Office of
Management and Budget; and other interested
parties. Copies of this report will be made
available to others upon request.
If you have any questions regarding this
report, please contact me at (202) 512-9110 or
Ralph Block at (415) 904-2150. Key contributors to
this report are acknowledged in appendix VIII.
Cornelia M. Ashby
Associate Director, Tax Policy
and Administration Issues
_______________________________
1Levy is the legal process by which IRS orders a
third party to turn over property in its
possession that belongs to the delinquent taxpayer
named in a notice of levy. A continuous levy
remains in effect from the date such levy is first
made until the tax debt is fully paid or IRS
releases the levy.
2 Specifically, the 1997 legislation allows
continuous levy of "specified payments," including
nonmeans tested federal payments, as well as
certain previously exempt payments.
3A TIN is a unique nine-digit identifier assigned
to each individual and business that files tax
returns. For individuals, the Social Security
number (SSN) assigned by the Social Security
Administration (SSA) serves as the TIN. For
businesses, the employer identification number
(EIN) assigned by IRS serves as the TIN. The name
control is the first four characters of an
individual's last name or the first four
characters of a business name.
4 Appendix II lists the types of delinquent taxes
from IRS' accounts receivable file and the types
of federal payments to be included in the
continuous levy program.
5 The payment records cover various periods of
time. Vendor payments are for the first quarter of
calendar year 1999, salary payments represent one
biweekly pay period in March 1999, and all other
payments are for the month of March 1999.
6The 95-percent confidence interval for the $77.7
million ranges from $73.5 million to $81.9
million.
7Federal payments not processed by FMS include
payments made by agencies having their own
disbursement authority, such as the Department of
Defense and the Postal Service.
8A notice of a right to a hearing, which is
required for any levy served after January 18,
1999, informs taxpayers of their right to a
hearing before their property can be levied. A
notice of intent to levy informs taxpayers that
their property will be levied unless they pay the
amount of tax owed. Taxpayers have 30 days to
respond to either notice before their property can
be levied.
9The revenue generated by levying business and
individual vendor payments may be less because IRS
will be unable to levy one-time vendor payments
due to the time IRS must allow a taxpayer to
respond to a notice of levy.
10 An offer in compromise is a taxpayer proposal to
settle a tax debt for less than the amount owed.
11IRS can assess a Trust Fund Recovery Penalty
against an individual, such as a corporate
officer, whom it determines was willful and
responsible for not forwarding to the government
federal payroll taxes withheld from employees'
salaries.
12The 95-percent confidence interval for the 2,217
estimate ranges from 2,005 to 2,430.
13The 95-percent confidence interval for the 32.8
percent estimate ranges from 24.3 percent to 41.3
percent.
14The 95-percent confidence interval for the $19.9
billion estimate ranges from $13.7 billion to
$26.2 billion.
15Although we found invalid TINs or names in the
other types of payment records, such as salary
payments, the occurrence of such errors was
insignificant in relation to the number of payment
records submitted and the payment amount. For
example, we found 4,845 invalid TINs or names in
2.1 million salary payment records.
16 Under backup withholding, a payer is to withhold
31 percent of payments to an individual who fails
to provide the payer with a valid TIN.
17IRS cannot supply explicit TIN or name
information to the agencies, because to do so
would violate tax disclosure laws.
18About 72 percent of the 53,605 spouses were
jointly liable for the tax debt.
19The 95-percent confidence interval for the $4.7
million estimate ranges from $3.8 million to $5.6
million.
20We did not test the reliability of the data from
the EIN/SSN Cross-Reference File, but IRS uses the
file as part of it Underreporter Program to
identify taxpayers who underreport their income.
21 The Federal Acquisition Regulations are
implementing regulations for the Federal Property
and Administrative Services Act of 1949, which
govern standard federal contracts and provide
uniform policies and procedures for acquisition by
all executive agencies.
Appendix I
Objectives, Scope, and Methodology
Page 27GAO/GGD-00-65 IRS' Levy of Federal Payments
Objectives
Our objectives in this report are to (1) determine
the number of taxpayers that could be subject to a
continuous levy, the revenue that might be
generated, and the cost to the Internal Revenue
Service (IRS) to have the Financial Management
Service (FMS) levy federal payments of those
taxpayers; (2) identify issues that could delay
program implementation or otherwise affect
revenues from the program; (3) examine the
controls and testing that IRS and FMS have planned
to prevent levying taxpayers not subject to levy
and to prevent levying payments for more than the
taxpayer owes; and (4) identify changes, if any,
IRS and FMS could make to yield increased revenues
from the program.
Scope and Methodology
To estimate the number of taxpayers that could be
subject to continuous levy and the potential
revenues that could be generated, we obtained and
matched IRS' accounts receivable records as of
February 1999 that met IRS' continuous levy
program criteria with agency payment records
obtained from FMS.1 All estimates of revenues
throughout this report have been annualized. To
estimate the cost to IRS for having FMS levy
federal payments, we discussed the fee to be
charged with both agencies. We then used this fee
in conjunction with our estimate for the number of
annual payments to be levied to calculate the
estimated annual cost.
To identify issues that may delay program
implementation, we interviewed IRS and FMS
officials responsible for the program. In
addition, we interviewed officials at the Social
Security Administration (SSA) and the Office of
Personnel Management (OPM) to discuss issues that
could delay implementation and to discuss how such
issues could be resolved.
To examine the controls and testing that IRS and
FMS have planned to prevent levying taxpayers not
subject to levy and to protect against levying
payments for more than the taxpayer owes, we
interviewed IRS and FMS officials responsible for
developing the controls and discussed with them
the testing planned to ensure that the controls
worked as intended. We also reviewed the joint
program requirements developed by IRS and FMS and
analyzed IRS' Request for Information Services,
which describe internal controls and the automated
exchange of information between IRS and FMS,
including the posting of payments received by IRS
through this levy program to taxpayer accounts.
To identify changes, if any, that IRS and FMS
could make to increase revenues from the program,
we developed a methodology to identify payment
records that may contain invalid taxpayer
identification numbers (TIN) or names and that, if
corrected, could generate additional revenues. In
reviewing the validity of TINs and names that were
submitted to FMS on payment records, we selected
and analyzed a random sample of payment records.
We also interviewed IRS and FMS officials
responsible for designing the continuous levy
program, as well as payment agency officials in
six agencies to discuss the suitability of
agencies' payment records for matching to IRS'
accounts receivable records. The six agencies were
the Departments of Housing and Urban Development,
State, Transportation, and Veteran Affairs, as
well as the Small Business Administration, and the
Bureau of Prisons. We selected these agencies
primarily because their payment records appeared
to have a significant number of either TINs or
names that were unsuitable for matching against
IRS' accounts receivable records. In addition, we
reviewed (1) provisions of the Debt Collection
Improvement Act of 1996 that require federal
agencies to submit valid TINs for payees, (2) FMS'
policy that requires agencies to submit a TIN
Implementation Report to FMS documenting agency
compliance with the TIN requirement provisions of
the Debt Collection Improvement Act, and (3)
copies of 34 TIN Implementation Reports submitted
by payment agencies.
To identify additional revenues that could be
generated through program enhancements, we
selected and analyzed a series of random samples
using the accounts receivable and payment records.
In addition, we used IRS' EIN/SSN Cross-Reference
File to identify taxpayers, delinquent under an
SSN for individual taxes, who received federal
payments under their EIN or vice versa. All sample
results used in this report have been weighted and
are subject to sampling error. Unless otherwise
indicated, all estimates are surrounded by a 95-
percent confidence interval of plus or minus 10
percent.
We did our work at IRS and FMS headquarters in
Washington, D.C.; IRS Return Processing Centers in
Kansas City, MO, and Fresno, CA; and FMS Regional
Finance Centers in Kansas City and Philadelphia.
In addition, we did work at the Departments of
Housing and Urban Development, State, and
Transportation, the Bureau of Prisons, and OPM
headquarters in Washington, D.C.; SSA headquarters
in Baltimore; Department of Veteran Affairs in
Austin, TX; and Small Business Administration in
Denver. The fieldwork was done between March 1999
and January 2000 in accordance with generally
accepted government auditing standards.
_______________________________
1 The payment records cover various periods of
time. Vendor payments are for the first quarter
of calendar year 1999, salary payments represent
one biweekly pay period in March 1999, and all
other payments are for the month of March 1999.
This was the latest data available from IRS and
FMS, respectively.
Appendix II
Delinquent Taxes and Federal Payments to Be
Included in the Continuous Levy Program
Page 30GAO/GGD-00-65 IRS' Levy of Federal Payments
This appendix sets forth the specific types of
delinquent tax accounts that the Internal Revenue
Service (IRS) plans to send to the Financial
Management Service (FMS) to be matched with
federal payment records, as well as those to be
excluded from the tax debtor database. Also listed
are the federal payments that IRS plans to include
in the continuous levy program, as well as federal
payments to be excluded. IRS has decided that some
eligible federal payments authorized by the
Taxpayer Relief Act of 1997 will not be subject to
continuous levy.
Delinquent Taxes to Be Included in the Continuous
Levy Program
IRS plans to select delinquent tax accounts to be
sent to FMS for matching against federal payment
records on the basis of the following criteria:
1. The tax account must have a valid Social
Security Number (SSN) or employer identification
number (EIN).
2. The delinquent tax balance, including
accruals, must be greater than a specified amount.
3. The type of delinquent tax, such as
individual income tax, must be processible through
the Electronic Federal Tax Payment System, a
system for processing any federal payments
electronically.
4. The tax account must be in one of the
following collection statuses, which are to be
phased in when the program is first implemented in
the following order:
� A tax delinquent account that has been in a
queue for at least 1 year awaiting assignment to
either revenue officers in the field or the
Automated Collection System (ACS) for enforced
collection;
� A tax delinquent account assigned to ACS with
either an invalid address or invalid phone number;
� A tax delinquent account in a currently-not-
collectible (CNC) status for one of the following
reasons: (1) IRS is unable to locate the taxpayer,
(2) IRS is unable to contact the taxpayer, (3) the
taxpayer is residing outside the United States,
(4) the taxpayer is a defunct corporation, (5) the
taxpayer is an in-business corporation, or (6) the
Resource and Workload Management System1 score for
the tax delinquent account is low and the account
had been worked in either the field or IRS' ACS
immediately preceding the CNC status;
� A tax delinquent account that has been
deferred based on low-dollar value for at least 1
year; or
� A tax delinquent account being worked in the
field.
Delinquent Taxes to Be Excluded From the
Continuous Levy Program
Before sending a delinquent tax account to FMS,
IRS plans to systemically verify that the
taxpayer's account does not contain one of the
following conditions, which would exclude any type
of tax delinquency for any tax period within the
taxpayer's account from continuous levy:
� A military deferment freeze,
� A criminal investigation hold,
� An offer in compromise that is pending or
approved,
� Currently not collectible because of
hardship,
� Currently not collectible because taxpayer is
deceased,
� An installment agreement that is pending or
approved,
� A Taxpayer Assistance Order is in place,
� A collateral agreement is in place,
� An open disaster case,
� A bankruptcy freeze,
� IRS has instituted litigation,
� A duplicate return freeze, or
� A taxpayer claim is pending.
Before sending a delinquent tax account to FMS,
IRS also plans to systemically verify that a
taxpayer's account does not contain one of the
following conditions, which would exclude only a
specific type of tax delinquency for a specific
period2 from continuous levy:
� The collection statute expiration date is
within 3 months of expiring,
� The delinquent tax accounts include a code
blocking an FMS levy, or
� Either an injured or innocent spouse is
involved.
Eligible Federal Payments to Be Included in the
Continuous Levy Program
IRS plans to include the following federal
payments in the continuous levy program:
� Vendor payments,
� Federal retirement,
� Federal salary,
� Social Security retirement, and
� Railroad Retirement Board benefits.
Eligible Federal Payments to Be Excluded From the
Continuous Levy Program
Owing to the potential negative impact that a tax
levy could have on recipients of certain federal
benefits, IRS plans to exclude some federal
payments from the levy program. The following
payments are to be excluded:
� Supplemental Security Income,
� SSA special benefits for persons reaching age
72 by 1971,
� Black Lung benefits,
� Department of Labor Longshore and Workers'
Compensation Act payments,
� Department of Agriculture Food and Nutrition
Services benefits,
� Federal Emergency Management Agency payments
for disaster relief and emergency assistance, and
� Judgments for support of minor children.
IRS may exclude other types of Social Security
payments, but this decision had not been made at
the time of our review.
_______________________________
1The Resource and Workload Management System is a
Collection Division case scoring and ordering
system intended to have a meaningful impact on
Collection case processing. The system prioritizes
cases so as to maximize yield and minimize cost.
2For example, individual income tax for calendar
year 1998 or employment withholding tax for the
first quarter of 1998.
Appendix III
Sampling and Data Analysis Methodology
Page 38GAO/GGD-00-65 IRS' Levy of Federal Payments
This appendix describes how we determined the
number of taxpayers that could be subject to
continuous levy and the potential revenues that
could be generated. In addition, it describes how
we selected and analyzed sample data for four
random samples taken to enable us to better
respond to our job objectives. The samples pertain
to (1) the number of responsible parties
associated with Trust Fund Recovery Penalties, (2)
vendor payment records submitted to the Financial
Management Service (FMS) with taxpayer
identification numbers (TINs) that were unsuitable
for matching or names that differed from the names
on IRS' accounts receivable records, (3) the tax
liability of spouses receiving federal payments,
and (4) the tax liability of spouses who are
receiving Social Security benefits under the
primary spouse's entitlement. Finally, this
appendix describes the methodology we used to
determine the amount of additional revenue the
Internal Revenue Service (IRS) could generate by
using its Employer Identification Number
(EIN)/Social Security number (SSN) Cross-Reference
File to identify and levy payments made to
taxpayers under an SSN for tax delinquencies
incurred under their EIN or vice versa.
Determining the Number of Taxpayers Subject to
Continuous Levy and Potential Revenue Generated
To determine the number of taxpayers that could be
subject to continuous levy and the potential
revenues that could be generated, we obtained
accounts receivable information from IRS, and
federal payment records from FMS, and we matched
the two sets of records using IRS' levy criteria.
We obtained an extract of accounts receivable
information from IRS' Individual and Business
Master Files, as of February 1999. The accounts
receivable records included all delinquent tax
accounts that met IRS' criteria for inclusion in
the tax debtor database sent to FMS for potential
levy. (In appendix II, we describe the criteria
used by IRS in selecting such tax delinquencies.)
In all, we obtained accounts receivable
information on 8.7 million delinquent tax
accounts, representing 4.4 million taxpayers1
owing over $58 billion in delinquent taxes.
Individuals accounted for 5.6 million tax
delinquent accounts, representing 3.3 million
taxpayers owing $31 billion in delinquent taxes.
Businesses accounted for 3.1 million tax
delinquent accounts, representing 1.1 million
taxpayers that owed $27.8 billion in delinquent
taxes.
From FMS, we obtained an extract of payment
records for selected periods. We obtained Social
Security benefit payments, federal retirement
payments and Railroad Retirement Board payments
for the month of March 1999; federal agency vendor
payments for the first 3 months of calendar year
1999; and federal salary payments for one biweekly
pay period in March 1999. All revenue estimates
presented throughout the report have been
annualized.
In total, we obtained the entire population of
51.8 million payment records from FMS,
representing $83.3 billion in payments for the
selected periods. Social Security benefit payments
accounted for 84.4 percent of the payments and
35.6 percent of the payment amount. Vendor
payments accounted for only 5.6 percent of the
number of payments, but 57.4 percent of the
amount.
Following IRS' criteria for levying federal
payments, we matched IRS' accounts receivable
records against FMS' payment records. We compared
the TIN and payee name on FMS' payment records to
the TIN and name control on IRS' accounts
receivable records as well as additional name
controls from IRS' National Account Profile (NAP).2
FMS is to levy a payment when the TIN and IRS name
control of the delinquent debtor match the TIN and
name of the FMS payee. Following this procedure,
we identified from the entire population 264,137
taxpayers with delinquent tax liabilities of $2.8
billion that could be subject to a continuous
levy. The estimated annual revenues that could be
generated from levying payments to these
individuals could be $478 million. However, this
does not take into account that some of these
taxpayers, upon receipt of the notification of
intent to levy, will contact IRS to make other
arrangements to pay or present evidence that would
prevent IRS from levying their federal payments.
Determining the Number of Responsible Parties
Associated With Trust Fund Recovery Penalties
Our computer analysis of IRS and FMS records
showed that 3,925 delinquent tax accounts matching
on both TIN and name represented Trust Fund
Recovery Penalties under which the taxpayers owed
about $201 million in delinquent taxes. Of those
tax delinquencies, 3,755 (96 percent) were tied to
taxpayers receiving Social Security benefit
payments, and the remaining 170 were associated
with taxpayers receiving federal salary, federal
retirement, Railroad Retirement Board, and vendor
payments. When a business does not pay its
quarterly employment taxes, IRS can assess a Trust
Fund Recovery Penalty against any officer or
employee of the business determined by IRS to be
responsible for not paying the employment taxes.
Therefore, it is possible to have more than one
responsible party for a particular tax liability.
To determine the number of responsible parties
associated with these Trust Fund Recovery Penalty
delinquencies, we reviewed 353 accounts from the
3,925. We selected all 170 Trust Fund Recovery
Penalty tax delinquent accounts associated with
federal salary, federal retirement, Railroad
Retirement Board, and vendor payments. In
addition, we selected a random sample of 183 tax
delinquent accounts from the 3,755 Trust Fund
Recovery Penalty delinquencies associated with
taxpayers receiving Social Security benefit
payments. For each of these tax delinquencies, we
reviewed IRS transcripts of the accounts to
determine how many responsible parties were
assessed the Trust Fund Recovery Penalty.
In reviewing the transcripts, we learned that some
of the 3,925 delinquencies we had identified were
not Trust Fund Recovery Penalties but were other
types of miscellaneous penalties for such things
as filing a frivolous return or understatement of
taxpayers' liability by return preparers. As a
result, 61 of the 353 sampled delinquencies were
not included in the analysis. In our analysis, the
sample tax delinquencies have been weighted to
represent the estimated total population of 3,025
Trust Fund Recovery Penalties3 for which IRS'
accounts receivable records and agency payment
records matched on both TIN and name control.
Vendor Payment Records Submitted With Invalid TINs
or Names
Of the 2.9 million vendor payments submitted to
FMS for the first quarter of calendar year 1999,
we knew from a cursory review of the data that
some of the TINs or names were not suitable for
matching against IRS' accounts receivable records.
For example, some TINs contained all zeros or
included alpha characters, and some names differed
from the names on IRS' accounts receivable
records. To determine the extent to which payment
records submitted to FMS had invalid TINs or
names, we selected a stratified random sample of
400 payments from the population of 2.9 million
business and individual vendor payments. The
sample was proportionately allocated across 5
strata, shown in table III.1, defined by the
payment amounts to ensure selection of all ranges
of payment amounts.
Table III.1: Invalid TIN or Name Sample
_______________________________
1 Taxpayers could have multiple delinquent tax
accounts. For example, a taxpayer could be
delinquent in 3 different tax years each of which
would represent a separate delinquent account.
2The NAP is an IRS-maintained database of specific
entity information for a taxpayer. This
information is consolidated under a TIN and
includes information such as name controls, filing
status, and current address. By using the NAP, we
were able to identify additional payments for
potential levy as will FMS.
3The 95-percent confidence interval ranges from
2,794 to 3,256 tax delinquencies.
Appendix IV
Additional Revenues That Could Be Generated
Through the Continuous Levy Program
Page 40GAO/GGD-00-65 IRS' Levy of Federal Payments
This appendix describes the estimated $77.7
million in additional revenue that could be
generated through the continuous levy program.
However, to generate this additional revenue, the
Financial Management Service (FMS) would have to
have the capability to match a second taxpayer
identification number (TIN) from an Internal
Revenue Service (IRS) accounts receivable record
against its federal payment records. According to
IRS and FMS officials, this will not be possible
when the program is implemented in July 2000
because, as currently configured, FMS' Treasury
Offset Program is only able to match one TIN per
each debt against its payment records. In order to
match a second TIN, the program would have to be
modified.
Certain types of payments that could result in
additional revenue, but will not be included in
the continuous levy program when it is first
implemented, are various federal payments to
spouses under their own TIN who are jointly liable
for delinquent taxes. As shown in table IV.1, an
estimated $42.8 million in additional revenue
might be generated annually by levying such
spousal payments.
Table IV.1: Additional Revenue Potential From
Levying Jointly Liable Spouses Receiving Federal
Payments
Payment type Jointly Estimated
liable annual
spouses revenue that
receiving could
paymentsa be generated
(millions)
Social Security 34,744 $34.2
Individual vendor 620 1.0
Federal salary 1,365 4.7
Federal retirement 1,489 2.3
Railroad Retirement 372 0.6
Total 38,591b $42.8c
aThe number of jointly liable spouses by payment
type may not add to the estimated total because of
rounding.
bThe 95-percent confidence interval ranges from
36,327 to 40,855.
cThe 95-percent confidence interval ranges from
$38.7 million to $46.9 million.
Source: GAO analysis of IRS and FMS data.
Another type of payment that will not be included
initially when the program is implemented is
Social Security benefits paid to jointly liable
spouses when the benefits are being paid under the
primary spouse's entitlement. We identified 12,484
spouses that were receiving Social Security
benefits under the primary spouse's entitlement.
Of that number, we estimated that 7,5421 were
jointly liable for the delinquent taxes, and
levying federal payments made to such spouses
could generate an estimated $4.7 million2 in
additional annual revenue.
Other payments that will not be included when the
program is first implemented include payments
received by a taxpayer under a Social Security
Number (SSN) who owes taxes under an employer
identification number (EIN) or vice versa. As
shown in table IV.2, an estimated $30.2 million in
additional revenue could be generated if IRS were
able to utilize its SSN/EIN cross-reference file
to identify taxpayers assigned both an SSN and an
EIN and to submit both TINs to FMS to be matched
against federal payment records.
Table IV.2: Additional Revenue Potential by
Levying Taxpayers Who Receive Payment Under an SSN
While Delinquent Under an EIN or Vice Versa
Payments received Number of Annual
taxpayers levy
revenues
(millions)
Under SSN (but delinquent 17,640 $28.3
under EIN)
Under EIN (but delinquent 453 1.9
under SSN)
Total 17,913 $30.2
Source: GAO analysis of IRS and FMS data.
_______________________________
1The 95-percent confidence interval ranges from
6,315 to 8,769.
2The 95-percent confidence interval ranges from
$3.8 million to $5.6 million.
Appendix V
Comments From the Internal Revenue Service
Page 44GAO/GGD-00-65 IRS' Levy of Federal Payments
Appendix VI
Comments From the Financial Management Service
Page 47GAO/GGD-00-65 IRS' Levy of Federal Payments
Appendix VII
Comments From the Social Security Administration
Page 49GAO/GGD-00-65 IRS' Levy of Federal Payments
Appendix VIII
GAO Contacts and Staff Acknowledgments
Page 50GAO/GGD-00-65 IRS' Levy of Federal Payments
GAO Contacts
Cornelia M. Ashby (202) 512-9110
Ralph T. Block (415) 904-2000
Acknowledgments
In addition to those named above, Wendy Ahmed, Tom
N. Bloom, Julie A. Cahalan, Robert C. McKay, Terry
G. Tillotson, James J. Ungvarsky, and Elwood D.
White made key contributions to this report.
*** End of Document ***