This is the accessible text file for GAO report number GAO-03-356 
entitled 'Tax Administration: Federal Payment Levy Program Measures, 
Performance, and Equity Can Be Improved' which was released on March 
06, 2003.

This text file was formatted by the U.S. General Accounting Office 

(GAO) to be accessible to users with visual impairments, as part of a 

longer term project to improve GAO products accessibility. Every 

attempt has been made to maintain the structural and data integrity of 

the original printed product. Accessibility features, such as text 

descriptions of tables, consecutively numbered footnotes placed at the 

end of the file, and the text of agency comment letters, are provided 

but may not exactly duplicate the presentation or format of the printed 

version. The portable document format (PDF) file is an exact electronic 

replica of the printed version. We welcome your feedback. Please E-mail 

your comments regarding the contents or accessibility features of this 

document to Webmaster@gao.gov.

Report to Congressional Requesters:

United States General Accounting Office:

GAO:

March 2003:

Tax Administration:

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

Improved:

GAO-03-356:

GAO Highlights: 

Highlights of GAO-03-356, a report to the Committee on Ways and Means 
and 

Subcommittee on Oversight, House of Representatives. 

March 2003:

Tax Administration:

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

Improved:

Why GAO Did This Study:

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.

What GAO Found: 

The Federal Payment Levy Program enables IRS to continuously levy (take 
a 

portion of) federal payments to individuals and businesses owing 
delinquent 

taxes.  GAO has found the following:

* 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 programs 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.

Figure: 

[See PDF for image]

[End of figure]

What GAO Recommends: 

To help IRS improve the operation of the levy program, GAO recommends 
that IRS 

(1) include more complete data on the range of taxpayers actions and 
tax 

collections attributable to the program in its new measurement 
approach, (2) study 

the feasibility of submitting all delinquent accounts for matching 
against federal 

payments, and (3) discontinue use of the income criterion used to 
determine which 

Social Security beneficiaries can have their payments levied.

IRS agreed to implement the first two recommendations and explore 
options in 

regard to the third.

www.gao.gov/cgi-bin/getrpt?GAO-03-356.

To view the full report, including the scope and methodology, click on 
the 

link above.For more information, contact Michael Brostek at (202) 512-
9110 or 

brostekm@gao.gov.

Contents:

Letter:

Results in Brief:

Background:

IRSs FPLP Data Understates Program Results:

Blocking Cases from Matching against Federal Payment Records Prevents 

IRS from Collecting Taxes More Efficiently:

IRSs Criterion for Determining Which Social Security Beneficiaries Can 

Afford to Have Their Payments Levied Is an Inaccurate Indicator of 

Ability to Pay:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Objectives, Scope, and Methodology:

Scope and Methodology:

Appendix II: Additional Data on Revenue Collections Attributable

to FPLP and Status of Taxpayer Accounts:

FPLP Payments by Collection Method:

Categorization of Taxpayers:

Most Recently Filed Income Tax Returns for Social Security 

Beneficiaries:

Appendix III: Comments from the Internal Revenue Service:

Appendix IV: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Tables:

Table 1: Number of Delinquent Taxpayers Receiving Federal Payments out 

of a Total 1.5 Million Blocked from FPLP:

Table 2: FPLP Payments by Collection Method as of August 2002 for 

Taxpayers Who Received a Notice of Intent to Levy during October-

December 2001:

Table 3: Categorization of Taxpayers by Delinquent Account Status as of 

August 2002:

Table 4: Distribution of Social Security Payment Recipients by Year of 

Most Recent Income Tax Return Filed:

Figure:

Figure 1: Tax Collections Attributable to FPLP as of August 2002 for 

Taxpayers Receiving a Notice of Intent to Levy during October-December 

2001:

Abbreviations:

ACS: Automated Collection System:

FMS: Financial Management Service:

FPLP: Federal Payment Levy Program:

IRS: Internal Revenue Service:

OPM: Office of Personnel Management:

TPI: Total Positive Income:

This is a work of the U.S. Government and is not subject to copyright 

protection in the United States. It may be reproduced and distributed 

in its entirety without further permission from GAO. It may contain 

copyrighted graphics, images or other materials. Permission from the 

copyright holder may be necessary should you wish to reproduce 

copyrighted materials separately from GAOs product.

Letter:

March 6, 2003:

The Honorable Bill Thomas

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:

According to the Internal Revenue Service (IRS), taxpayers currently 

owe about $249 billion in delinquent taxes to the federal 

government.[Footnote 1] At the same time, the government pays billions 

of dollars in Social Security, retirement, and other federal payments 

to thousands of these individuals each year. IRS and federal payment 

records indicate that nearly one million taxpayers owing about $26 

billion in delinquent taxes as of February 2002 were receiving federal 

payments for federal wages and retirement, Social Security benefits, 

and goods and services provided to federal agencies. To help IRS 

collect these delinquent taxes more effectively, Congress included a 

provision in the Taxpayer Relief Act of 1997 authorizing the 

establishment of the Federal Payment Levy Program (FPLP), which allows 

IRS to continuously levy[Footnote 2] up to 15 percent of certain 

federal payments made to delinquent taxpayers. According to IRS, the 

program, which began in July 2000, resulted in collecting over $60 

million in fiscal year 2002 by directly levying federal payments.

Under FPLP, IRS matches its accounts receivable records with federal 

payment records maintained by the Department of the Treasurys 

Financial Management Service (FMS), such as certain Social Security 

benefit and federal wage records. When the records match, the 

delinquent taxpayer is sent a notice of intent to levy the payment, 

which generally gives the taxpayer at least 30 days to either make 

arrangements to pay the tax debt or provide a reason as to why the 

payments should not be levied, such as financial hardship. If taxpayers 

do not respond after 30 days, IRS can instruct FMS to levy their 

federal payments. Subsequent payments are continuously levied until 

such time that the tax debt is paid or IRS releases the levy.

To determine whether FPLP was being implemented as intended and that 

the program helps IRS meet its strategic goal of treating all taxpayers 

fairly, you asked us to assess how well the program is operating. 

Specifically, our objectives were to determine (1) whether the data IRS 

uses to manage the program adequately measures program results,

(2) how IRSs decision to block some delinquent accounts from being 

matched to federal payments under FPLP impacts the agencys ability to 

collect taxes efficiently, and (3) whether the criterion IRS uses to 

include taxpayers receiving Social Security benefit payments into FPLP 

effectively targets taxpayers who can afford to pay their tax debts.

To address our objectives, we:

* reviewed documents IRS uses to measure program results and select 

cases that qualify for FPLP,

* discussed program operations with program officials,

* analyzed sample cases of delinquent taxpayers who were sent notices 

of intent to levy during the period October through December 2001, and

* analyzed IRSs accounts receivable and FMSs payment files on 

delinquent taxpayer accounts that were not included in the program.

The estimates of the sample cases we took of taxpayers receiving 

payments from the Social Security Administration have some sampling 

errors associated with them. Further, estimates about the total group 

of cases we analyzed (taxpayers receiving retirement payments from the 

Office of Personnel Management (OPM); vendor payments; and taxpayers 

receiving Social Security payments) have sampling errors as well. All 

percentage estimates about the population of taxpayers receiving Social 

Security payments or the overall population have sampling errors of 

plus or minus 5 percentage points or less, unless otherwise noted. Our 

work was done between November 2001 and December 2002 in accordance 

with generally accepted government auditing standards. (App. I 

describes our overall objectives, scope, and methodology.):

Results in Brief:

The data that IRS uses to manage FPLP does not adequately measure a 

full range of results. The agencys sole measure of results consists of 

the amount of revenues collected directly through the continuous levy 

of federal payments. However, we estimate that direct levy collections 

account for about 27 percent of the revenues that can be attributed to 

FPLP, while the remaining 73 percent of FPLP delinquent tax revenue is 

collected through nonlevy payments, as taxpayers respond to the levy 

notice by making voluntary payments. IRS is also not measuring the 

extent that FPLP helps IRS collections to function more efficiently. On 

the basis of our analysis, we estimate that about 29 percent of the 

taxpayers who received a notice of intent to levy from FPLP responded 

by taking action that enabled IRS to remove them from active accounts 

receivable, thus freeing up IRS resources to pursue other collections. 

Without full performance management information on collections and 

efficiency results, IRS can significantly understate the programs 

impact and may be hindered in its ability to make well-founded 

decisions on program management and resource allocation. Acknowledging 

that FPLP generates indirect results in addition to tax collections 

made through the continuous levy process, IRS has initiated its own 

study on how to measure indirect outcomes. This study is expected to be 

completed in calendar year 2003, at which point IRS will decide how to 

revise its measurement approach.

When FPLP began in July 2000, IRS blocked certain delinquent taxpayers 

from being identified as receiving federal payments, thereby missing an 

opportunity to use this information to collect delinquent taxes more 

efficiently. IRS officials imposed the blocks because of concerns that 

the potential volume of levies--some 1.4 million taxpayer accounts--

would disrupt ongoing collection activities and likely could not be 

handled with existing resources. We estimate that only a small fraction 

of delinquent taxpayers, about 112,000, would actually qualify for 

levy. However, these 112,000 delinquent taxpayers were collectively 

receiving about $6.7 billion in federal payments and owed about $1.5 

billion in delinquent taxes. If these taxpayer accounts had been 

matched against federal payment records, IRS would have more 

information available to determine whether FPLP, or other collection 

activities, would be more efficient for collection of delinquent taxes 

for these accounts. In January 2003, IRS unblocked and began matching 

those delinquent taxpayer accounts identified as receiving either a 

federal salary or annuity payment. IRS officials plan to unblock a 

portion of the remaining delinquent accounts sometime in 2005, although 

they have not yet established a firm time frame for doing so.

The FPLP income criterion IRS uses to decide whether taxpayers can 

afford to have their Social Security benefit payments levied is an 

inaccurate indicator of ability to pay. The criterion, implemented in 

January 2002, was intended to identify and exclude from levy the 

benefit payments of those Social Security beneficiaries who are least 

able to pay their taxes. However, our analysis of taxpayer behavior for 

two groups, Social Security benefit cases above and below the income 

threshold criterion, showed that both responded similarly to a notice 

of levy by arranging to make some kind of voluntary payment 

arrangement. In addition, both groups were almost equally likely to 

rely on Social Security as their sole source of income, suggesting both 

may experience financial hardship at the same rate. Furthermore, we 

also found that the income criterion is based on information that is 

often outdated and incomplete. Because of the inaccuracy of the income 

criterion, taxpayers with similar abilities to pay their delinquent 

taxes are likely to be treated differently under FPLP, which conflicts 

with IRSs goal of treating taxpayers fairly. Although IRS has also 

determined that the income criterion is flawed, it continues to use it 

to identify which Social Security benefit payments will and will not be 

available for levy under FPLP.

We are making several recommendations to help improve FPLP measures of 

program results, program performance, and to ensure equitable treatment 

of taxpayers subject to levy. IRS generally agreed with two of our 

recommendations and agreed to explore options in regard to the third.

Background:

In the Taxpayer Relief Act of 1997, Congress authorized IRS to collect 

delinquent tax debt by continuously levying up to 15 percent of certain 

federal payments made to delinquent taxpayers. In July 2000, IRS first 

implemented the continuous levy program, now referred to as FPLP. We 

estimated in prior reviews that once fully operational, the program 

could potentially recover hundreds of millions of dollars in delinquent 

tax debt[Footnote 3] annually. In fiscal year 2002 IRS collected more 

than $60 million in delinquent taxes through continuous levy under 

FPLP.

IRS operates the program with FMS, the agency that receives payment 

records from and makes payments on behalf of most federal agencies, 

including federal retirement payments and Social Security benefit and 

vendor payments.[Footnote 4] With respect to FPLP, FMS compares each 

taxpayers identification number (TIN) and name on agency payment 

records with the TIN and name control on accounts receivable records 

provided by IRS. When FMS identifies a delinquent taxpayer scheduled to 

receive a federal payment, it informs IRS, which then issues a notice 

of intent to levy to the taxpayer, unless the notice was previously 

sent. Once taxpayers receive the notice of impending levy, they have 

several options for action.[Footnote 5] Taxpayers who receive a notice 

from FPLP have a minimum of 30 days to respond to the notice,[Footnote 

6] during which time they may consider several alternatives available 

to them. Taxpayers may either:

* disagree with IRSs assessment and collection of tax liability, in 

which case they can appeal the action by requesting a hearing with 

IRSs Office of Appeals;

* elect to pay off the debt in full;

* negotiate with IRS to set up an alternative payment arrangement such 

as an installment agreement or an offer in compromise;[Footnote 7] or

* apply to IRS for a hardship determination, whereby taxpayers 

demonstrate to IRS that making any payments at all would result in a 

significant financial hardship. In such cases, IRS may agree to 

temporarily delay collection action until the taxpayers financial 

condition improves.

If taxpayers do not respond to IRS and avail themselves of options 

within the notification period, IRS will instruct FMS to proceed with 

the continuous levy by reducing each scheduled payment to the taxpayer 

by 15 percent--or the exact amount of tax owed if it is less than 15 

percent of the payment--until the tax debt is satisfied.

The FPLP began with levies of federal employees retirement payments 

and vendor payments issued by FMS. IRS later added additional types of 

federal payments to the program, including selected Social Security 

benefits and selected federal salaries. IRS plans to continue expanding 

the program by adding additional federal employee salaries and other 

types of federal payments.

Not all delinquent taxpayer accounts are eligible for FPLP. IRS has 

excluded certain accounts from levy; for example, cases where the 

taxpayer has entered bankruptcy, made alternative arrangements to pay, 

or demonstrated to IRS that making payments on the outstanding tax debt 

would result in a financial hardship. With some exceptions, delinquent 

taxpayer accounts are eligible for FPLP if they are either assigned to 

IRSs Automated Collection System (ACS) or to field collections or have 

been waiting for assignment to one of these areas for at least 1 

year.[Footnote 8] Cases in which collection activity has been deferred 

for at least a year because of low tax liability, as well as cases in 

which IRS has been unable to either locate or contact the taxpayer are 

also eligible for FPLP.

IRSs FPLP Data Understates Program Results:

IRS tracks FPLP program results by measuring only tax revenue collected 

through continuous levy, although most of the collections attributable 

to FPLP result from taxpayers subsequently contacting IRS and either 

submitting a payment voluntarily,[Footnote 9] or arranging to pay their 

delinquent taxes through other means such as by entering into an 

installment agreement. Our analysis of about 98,000 delinquent 

taxpayers who received a notice of intent to levy during the October 

through December 2001 period showed that as of August 2002, IRS had 

collected an estimated $107.1 million from these taxpayers. As shown in 

figure 1, levies represented an estimated $28.5 million[Footnote 10] of 

this amount, or 27 percent of the total collections, while other 

payment methods represented an estimated $78.6 million,[Footnote 11] or 

73 percent of the total FPLP-related collections.[Footnote 12] By not 

measuring the nonlevy payments attributable to FPLP, IRS significantly 

underestimates the programs success.

Figure 1: Tax Collections Attributable to FPLP as of August 2002 for 

Taxpayers Receiving a Notice of Intent to Levy during October-December 

2001:

[See PDF for image]

[End of figure]

(See app. II for more detailed information on the amount of delinquent 

taxes collected as a result of FPLP by the type of federal payment 

taxpayers received (i.e., Social Security benefits, federal retirement 

payments, and vendor payments) and by the method of collection.):

IRS realizes other benefits attributable to FPLP that it does not 

currently measure. IRS does not measure the extent that FPLP helps IRS 

function more efficiently by decreasing its accounts receivable 

inventory. Our analysis of the 98,000 FPLP cases indicated that after 

receiving a notice of intent to levy, about 29 percent of the taxpayers 

took action that enabled IRS to remove them from the active accounts 

receivable inventory or to move them to an inactive status. 

Specifically, we estimate that subsequent to receiving a levy notice, 

about 19 percent of the taxpayers resolved their liability while about 

10 percent obtained a determination of financial hardship. (For more 

information on the characterization of account status, see app. II.) By 

reclassifying some active delinquent accounts to an inactive status and 

removing others, FPLP helps IRS to more efficiently prioritize its 

accounts receivable inventory and enables IRS to focus more of its 

resources on delinquent accounts that have more collection potential.

Knowing the full impact of FPLPs effectiveness would be consistent 

with IRSs strategic planning and budgeting process, which emphasizes 

the importance of assessing the impact of current program operations to 

efficiently allocate resources. IRS acknowledges that FPLP generates 

indirect results in addition to revenues collected through the 

continuous levy process, and has initiated its own study on how to 

measure the outcomes attributable to the program, which it expects to 

complete in calendar year 2003. After completing this study, IRS will 

decide how to revise its measurement approach.

Blocking Cases from Matching against Federal Payment Records Prevents 

IRS from Collecting Taxes More Efficiently:

When IRS implemented FPLP in July 2000, it made a decision to 

temporarily block most delinquent taxpayer accounts placed in ACS and 

field collections from being matched against federal payment records. 

ACS accounts were blocked primarily because IRS believed it lacked the 

resources to issue levy notices and respond to the potential increase 

in telephone calls from taxpayers responding to the notices and still 

adequately perform other ACS activities. Specifically, agency officials 

were concerned that if the 1.4 million delinquent taxpayers with 

accounts in ACS were added to the program for matching too rapidly, it 

could disrupt ACS workload processes and likely could not be handled 

with existing resources. IRS also decided not to match over 55,000 

delinquent accounts in field collection because revenue officers 

believed that this action could interfere with their successfully 

contacting taxpayers and negotiating a settlement to resolve the 

delinquent account they had been assigned.

We found some of IRS officials concerns with respect to matching the 

nearly 1.5 million ACS and field collection accounts may be unfounded. 

We matched the nearly 1.5 million accounts to FMS payment 

records[Footnote 13] and found that only about 112,000 taxpayers were 

receiving federal payments, as shown in table 1.

Table 1: Number of Delinquent Taxpayers Receiving Federal Payments out 

of a Total 1.5 Million Blocked from FPLP:

[See PDF for image]

Source: GAO analysis of IRS and FMS data.

[End of table]

Submitting delinquent taxpayer accounts to FMS for matching against 

federal payment records does not necessarily mean IRS must levy these 

accounts. Rather, the matching process performed by FMS would provide 

IRS with useful additional information to assist in determining what 

the best collection method may be. For example, of the 108,469 

delinquent taxpayers in ACS receiving federal payments at the time of 

our analysis, IRS had not yet contacted or located more than half--

about 55,900--of these delinquent taxpayers, and could therefore have 

chosen to levy some of these accounts without disrupting ongoing 

collections. These 55,900 taxpayers owed about $460 million in 
delinquent 

taxes and received $4.1 billion in federal payments during 2002. If IRS 

had information on matching federal payments for these delinquent 

accounts, it would have had additional options available to determine 

how best to pursue collection of the delinquent tax revenue--such as 

using FPLP.

While the ACS and field collection actions may result in the eventual 

recovery of most of the delinquent taxes associated with these 

accounts, using the automated FPLP matching process could help IRS 

collect this revenue in a more timely and efficient manner. Even when 

ACS or field revenue officers have already contacted the taxpayer, 

matching--but not necessarily issuing a notice of intent to levy--the 

account could provide useful information for IRS to consider in 

collections. For example, revenue officers may not be aware that 

taxpayers in their case inventory are currently receiving federal 

payments, and they could use this information to develop a more 

complete assessment of the taxpayers financial situation. In January 

2003, IRS unblocked and made available for matching and levy those 

delinquent accounts identified as receiving federal salary or annuity 

payments--representing about 20,000 of the 112,000 blocked taxpayers we 

identified in our analysis. However, other delinquent accounts remain 

blocked from being matched to FMS payment records. Agency officials 

said that they plan to unblock a portion of the remaining delinquent 

accounts sometime in 2005, although they have not yet established a 

firm time frame for doing so.

IRSs Criterion for Determining Which Social Security Beneficiaries Can 

Afford to Have Their Payments Levied Is an Inaccurate Indicator of 

Ability to Pay:

IRS established an income threshold to exclude Social Security 

beneficiaries who cannot afford to pay their taxes from FPLP. However, 

our analysis of Social Security beneficiaries above and below this 

income threshold shows that IRSs income criterion is an inaccurate 

indicator of a taxpayers ability to pay. We found little difference 

between the two groups in terms of the frequency with which taxpayers 

either made voluntary payments in response to a levy notice or relied 

on Social Security as a sole source of income. We also found that the 

income criterion relies on information that is often outdated and 

incomplete.

IRS Decided to Exclude Selected Social Security Payments from FPLP 

without Evaluating the Effectiveness of Its Income Level Criterion:

In response to concerns raised by the National Taxpayer Advocate 

regarding potential harm that may be experienced by Social Security 

beneficiaries who are levied under FPLP, IRS implemented an income 

criterion for Social Security benefit payments intended to identify and 

screen from FPLP, those taxpayers who are least able to pay their tax 

debt. The National Taxpayer Advocate believed that taxpayers who rely 

solely on Social Security benefits as their income source are most 

vulnerable to the financial hardship that a continuous levy may cause. 

In January 2002, IRS implemented an income threshold that excluded 

Social Security benefit payments from FPLP for 55 percent of the 

delinquent taxpayers who receive these payments.[Footnote 14] This 

income level criterion, Total Positive Income (TPI),[Footnote 15] is 

derived from income information reflected on the most recent income tax 

return filed by the taxpayer. Under FPLP, the TPI criterion only 

applies to Social Security benefit payments and not to other forms of 

payments such as federal annuities or salary payments. We estimate that 

taxpayers who were receiving Social Security payments and whose TPI was 

below the income threshold owed approximately 

$522 million in delinquent taxes.[Footnote 16]

Prior to introducing Social Security benefit payments into FPLP, IRS 

implemented the TPI criterion without doing any tests to indicate 

whether the TPI criterion was necessary or better than the special 

procedures IRS had already planned-providing Social Security 

beneficiaries with a longer notification period relative to recipients 

of other federal payments. Under the normal notification process, IRS 

gives delinquent taxpayers 30 days from receipt of a notice of 

impending levy before it begins to levy the payment. Under FPLP, IRS 

planned to provide Social Security beneficiaries with a second notice 

of intent to levy and an additional 

30 days to respond. The extended notification period was adopted and is 

intended to provide Social Security beneficiaries with sufficient 

opportunity to contact IRS with any questions concerning the levy 

notice, and, if necessary, demonstrate to IRS that the levy would 

result in financial hardship. IRS officials said that due to time 

constraints IRS did not test the extent to which the planned extended 

two-notice process would have proved sufficient to ensure that Social 

Security beneficiaries were not subjected to undue financial hardship 

under FPLP. In addition, IRS did not do any studies to determine what 

TPI level would best protect financially vulnerable Social Security 

beneficiaries, or whether the criterion should apply to other federal 

payments as well.

The TPI Criterion Has Several Weaknesses:

The TPI criterion has several weaknesses that can impact Social 

Security beneficiaries both above and below the income threshold. Our 

analysis has shown that TPI is an inaccurate indicator of those 

delinquent taxpayers who are the most financially vulnerable. Under 

current program procedures, IRS does not send either one of the two 

routine levy notices to Social Security beneficiaries who are below the 

TPI threshold. However, while phasing Social Security benefit payments 

into FPLP between October and December of 2001, IRS issued the initial 

notice of intent to levy to all delinquent Social Security 

beneficiaries who owed taxes, including those whose TPI was below the 

threshold and whose benefit payments would therefore be excluded from 

the program. As a result, we were able to compare data on how taxpayers 

in both the able to pay and unable to pay group responded to the 

levy notice. We found that of the approximately 90,000 Social Security 

beneficiaries in the below TPI threshold group, an estimated 18 percent 

made voluntary payments or entered into an installment agreement of 

their own accord after receiving the one-time notice of intent to levy 

at the end of 2001. Of the approximately 97,000 Social Security 

beneficiaries whose TPI was above the threshold, an estimated 12 

percent had made voluntary payments or entered into an installment 

agreement.[Footnote 17] The 6 percent difference between the 12 and 18 

percent figures[Footnote 18] is too small to be statistically 

significant; thus, Social Security beneficiaries above and below the 

TPI threshold made voluntary payments and entered into installment 

agreements at comparable rates. While the TPI thresholds use has 

categorized certain taxpayers as those whose Social Security payments 

need to be excluded from FPLP because they are unable to pay, their 

actions in response to one levy notice demonstrates some ability to pay 

and, in fact, are similar to the actions of taxpayers above the TPI 

threshold.[Footnote 19]

Our study also showed that IRS granted financial hardship status to 

Social Security beneficiaries above and below the TPI threshold at 

similar rates. As part of the regular collections process, any 

delinquent taxpayer has the right to ask IRS for a hardship 

determination in which the taxpayer claims that he or she is unable to 

pay their taxes without incurring undue financial hardship. As part of 

the determination process, the taxpayer may be required to provide IRS 

with financial information to substantiate his or her financial 

condition, and if IRS agrees that paying taxes would constitute a 

hardship, IRS will temporarily delay collection activity until the 

taxpayers financial condition improves. An estimated 5 percent of 

Social Security beneficiaries whose TPI is below the threshold and 

8 percent of Social Security beneficiaries whose TPI is above the 

threshold responded to the notice by contacting IRS and obtaining a 

determination of financial hardship by using IRSs standard hardship 

determination process. The difference between the 5 and 8 percent 

figures[Footnote 20] is too small to be statistically significant; 

thus, Social Security beneficiaries above and below the TPI threshold 

entered in hardship status at comparable rates.

Furthermore, our analysis also determined that the TPI threshold poorly 

identifies taxpayers who solely rely on Social Security benefits--the 

group of taxpayers the National Taxpayer Advocate considered to be most 

vulnerable to financial hardship from continuous levy. We analyzed 

information returns data[Footnote 21] for tax year 2001 for a 

representative sample of Social Security beneficiaries with a TPI below 

the threshold and reviewed their current income sources. We found that 

an estimated 46 percent of these Social Security beneficiaries received 

only Social Security benefits and the remaining 54 percent received 

income in addition to Social Security benefit payments. These numbers 

were very close to the numbers we found for Social Security 

beneficiaries with a TPI above the threshold and, thus, presumably able 

to afford paying their taxes. About 40 percent of the above TPI group 

also relied on Social Security benefits as their sole source of income. 

The difference between the 40 and 46 percent figures[Footnote 22] is 

not statistically significant, indicating that a Social Security 

beneficiary under the TPI threshold is almost equally likely to rely 

solely on Social Security benefit payments as one deemed able to pay.

Our analysis also indicated that TPI is frequently outdated because it 

is based on income information reflected on the most recent income tax 

return filed by the taxpayer. However, if the taxpayer was not required 

to file a tax return in recent years,[Footnote 23] his or her TPI 

information from that last return filed may not be consistent with 

their current financial situation. For example, a person who had a 

relatively high TPI according to his or her last income tax return may 

now be receiving significantly less income, in which case TPI is not an 

accurate indicator to determine whether they should now be included or 

excluded from FPLP. We reviewed the currency of the last tax return of 

Social Security beneficiaries who owed delinquent taxes and estimate 

that only 17 percent had filed a return for tax year 2001. We found 

that in total, 53 percent of the Social Security beneficiaries had not 

filed since tax year 1996 or earlier. (See app. II for more information 

on the results of this review.):

In addition to being frequently outdated, TPI is an incomplete 

indicator of a persons full resources. While the TPI calculation does 

include income earned from assets such as interest and capital gains, 

it does not include information on a taxpayers assets, such as savings 

account balances, stocks, property ownership, or individual retirement 

account balances when determining a taxpayers ability to pay. Using 

our review of data for tax year 2001 information returns, we were able 

to estimate that over 

14 percent of Social Security beneficiaries who had a TPI below the 

threshold made mortgage interest payments, yet were excluded from FPLP. 

During the regular collections process in which IRS works directly with 

taxpayers to resolve their delinquent accounts, information on assets 

is taken into account when assessing the taxpayers overall financial 

condition.

Both the National Taxpayer Advocate and the FPLP officials we spoke 

with acknowledged that the TPI criterion is flawed. FPLP officials, in 

their own study on TPI implementation, agreed that the TPI criterion 

had several problems. Similar to our findings, they reported that TPI 

is often out of date because the majority of last tax returns filed 

were at least 1 year out of date. IRS also found that TPI does not 

include consideration of filing status and dependent information, and 

is not adjusted when changes on the return are made resulting from an 

audit or amendment. However, IRS has continued to use TPI because it 
has 

not identified suitable alternatives, and has not taken time to 
determine 

whether the extended notification period effectively meets the needs of 

the Social Security beneficiary population. Nor has it identified 

whether Social Security beneficiaries are more vulnerable to financial 

hardship than other federal payment recipient groups. IRSs continued 

use of a criterion that is inadequate in identifying those taxpayers 

who may be least able to pay, and therefore treats taxpayers with 

similar abilities to pay differently, is at odds with IRSs strategic 

goal emphasizing the importance of treating all taxpayers fairly.

Conclusions:

IRSs FPLP is still a relatively new program, and, as such, has not yet 

realized its full potential. To ensure that it does, IRS needs 

sufficient information to determine the results the program achieves so 

that well informed decisions can be made in allocating resources to 

FPLP. However, when measuring FPLPs results, IRS only considers the 

programs most immediate effect, the tax revenue collected directly by 

continuous levy, and thereby substantially understates the programs 

results. Although IRS recognizes that broader measures of FPLP results 

are needed, its study to determine how to do so will not be completed 

until calendar year 2003, at which time IRS will then decide how to 

revise its measurement approach.

FPLPs full potential also has not been tapped because IRS has not 

taken full advantage of the information that could be used to determine 

the most efficient means of collecting delinquent taxes. Rather than 

analyzing the workload implications of matching additional accounts 

under the program, IRS blocked certain delinquent accounts from the 

program on the assumption that including them would create an 

overwhelming increase in workload. In fact, only a small portion of the 

blocked delinquent accounts--about 112,000 of the nearly 1.5 million--

matched against federal payments. In January 2003, IRS removed the 

block on some delinquent accounts but it has not set a firm time frame 

for unblocking the remaining accounts. Removing the block on the 

remaining accounts does not mean IRS would necessarily have to levy the 

accounts. Rather, it can use the information gained from matching the 

accounts to federal payment records to help identify the most efficient 

means of resolving the accounts, which may include levying some portion 

of them.

Finally, use of an income based criterion to identify whether Social 

Security benefit payments should be excluded from the program has 

likely resulted in unequal treatment of similarly situated taxpayers, 

which conflicts with IRSs strategic goal of treating all taxpayers 

fairly. IRS adopted this criterion (1) without testing its 

effectiveness and (2) without determining if excluding any 

beneficiaries from FPLP was even a necessary step, given measures that 

IRS had already taken to address possible hardship cases. While FPLP 

officials concur that it has many weaknesses, IRS continues using the 

criterion to exclude selected Social Security benefit payments from 

FPLP.

Recommendations for Executive Action:

To help ensure that IRS is operating FPLP in a manner that achieves the 

programs full potential and ensures equitable treatment of taxpayers, 

we recommend that the Acting Commissioner of Internal Revenue:

* Include in IRSs 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.

* Study the feasibility of submitting all eligible delinquent accounts 

to FMS 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.

* Discontinue using the TPI 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. 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, develop and test a criterion that reliably 

identifies those Social Security beneficiaries for whom a levy would 

represent an undue hardship.

Agency Comments and Our Evaluation:

We received written comments on a draft of this report from the Acting 

Commissioner of Internal Revenue (see app. III). The Acting 

Commissioner generally agreed with our recommendations and provided 

technical comments and clarifications that we have incorporated 

throughout this report where appropriate.

To enhance IRSs ability to measure the full range of direct and 

indirect results of FPLP operation, the Acting Commissioner agreed to 

include in the agencys planned new approach to measuring program 

results, data on nonlevy collections and account resolutions. The 

Acting Commissioner said that, as IRS gets closer to implementing its 

new measurement approach, it would like to share its methodology with 

us.

However, the Acting Commissioner raised concerns with the part of our 

recommendation calling for IRS to consider account resolutions when 

measuring FPLP results. He said that contrary to our draft reports 

statement that FPLP frees up resources through account resolutions that 

can be used to pursue accounts with more collection potential, FPLP has 

generated an increased workload for IRS staff that diverts them from 

more productive uses. He concluded that it is difficult to assess the 

total costs and/or indirect benefits of the program in terms of 

resources freed up to pursue other collection activity.

We agree that doing such an assessment is challenging. However, IRS 

managers ability to accurately gauge FPLP effectiveness, as well as 

validate resource allocation decisions among various IRS collection 

activities should be based, to the extent practical, on data that 

accurately and completely reflect program results. While we recognize 

that IRS does have workload that comes from FPLP cases, and that 

workload may be lower priority in some cases than other alternative 

casework, FPLP also leads to many case closures that require little IRS 

employee time. In addition, since all cases subject to the FPLP have 

already received notices from IRS about their delinquent accounts, IRS 

had previously judged the accounts as meriting collection action even 

if they might involve increased collection staff workload.

In our draft report, we had recommended that IRS submit all delinquent 

accounts to FMS 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 the FPLP to do so. While 

reviewing the draft report, IRS officials raised concerns, which they 

did not express in our previous discussions with them, that computer 

programming costs associated with implementing this draft 

recommendation might make the recommendation infeasible for certain 

types of taxpayer accounts. In light of those concerns, we agreed to 

modify our recommendation to instead recommend that IRS study the 

feasibility of submitting all delinquent accounts for matching. In his 

letter, the Acting Commissioner agrees with this revised recommendation 

and indicates that efforts to do so are underway.

In reference to our recommendation that IRS discontinue use of the TPI 

criterion, the Acting Commissioner stated IRSs commitment to ensuring 

all taxpayers are treated fairly and that IRS is concerned with the 

issues we raised regarding the TPI criterion. The Acting Commissioner 

did not agree to discontinue the use of the TPI immediately, but said 

that IRS would take the next 120 days to work with the National 

Taxpayer Advocate and program administrators to assess deficiencies in 

the current process and to develop a suitable solution. This action 

generally is responsive to our recommendation. However, if developing 

and implementing a suitable solution extends beyond the 120-day 

milestone set by the Acting Commissioner, we believe IRS should, as we 

recommended, discontinue use of the TPI criterion and rely on the two-

notice procedure already in place while IRS continues to work on a 

solution it believes would be more suitable. As our report notes, IRS 

has been aware of some limitations with TPI for some time and has yet 

to identify a suitable solution.

We will send copies to the Ranking Minority Member, House Committee on 

Ways and Means; Ranking Minority Member, Subcommittee on Oversight, 

House Committee on Ways and Means; and the Chairman and Ranking 

Minority Member, Senate Committee on Finance. We will also send copies 

to the Acting Commissioner of Internal Revenue and other interested 

parties. Copies of this report will also be made available to others 

upon request. The report will also be available on GAOs Web site at 

http://www.gao.gov.

If you have any questions concerning this report, please contact me at 

(202) 512-9110 or Ralph Block at (415) 904-2150. Key contributors to 

this work are listed in appendix IV.

Michael Brostek

Director, Tax Issues:

Signed by Michael Brostek: 

[End of section]

Appendix I: Objectives, Scope, and Methodology:

Our objectives were to determine (1) whether the data the Internal 

Revenue Service (IRS) uses to manage the Federal Payment Levy Program 

(FPLP) adequately measures program results, (2) how IRSs decision to 

block some delinquent accounts from being matched to federal payments 

under FPLP impacts the agencys ability to collect taxes efficiently, 

and (3) whether the criterion IRS uses to include taxpayers receiving 

Social Security Administration benefit payments in FPLP effectively 

targets taxpayers who can afford to pay their tax debts.

Scope and Methodology:

We obtained and reviewed the data used by IRS to track program results 

in an effort to determine whether IRSs data on FPLP operations 

adequately measures program results, including direct levy collections 

and other nonlevy collections such as those made through voluntary 

payments, installment agreements, and offers in compromise that occur 

in response to FPLP collection notices. We also selected and analyzed 

three groups of delinquent taxpayers that received a notice of intent 

to levy between October and December 2001. These groups were (1) all 

taxpayers receiving federal retirement payments from the Office of 

Personnel Management (OPM), (2) all taxpayers receiving vendor payments 

from federal agencies whose payments are processed by the Financial 

Management Service (FMS), and (3) a random sample of taxpayers 

receiving Social Security benefit payments.

We analyzed a total of 1,540 taxpayers that were comprised of 

(1) 699 delinquent taxpayers receiving OPM payments, (2) 484 delinquent 

vendors receiving federal payments, and (3) a random sample of 

357 delinquent taxpayers who were receiving Social Security payments. 

Since OPM and vendor payments have been eligible for FPLP matching 

since program inception, we analyzed only the new matches that occurred 

during the selected time period for these populations. However, because 

IRS first started matching all Social Security payments during the 

October-December 2001 time period, we randomly selected a sample of 

357 taxpayers whose total positive income (TPI) was above the income 

threshold and who were receiving Social Security benefit payments. We 

weighted our observations on those 357 sampled cases in order to 

project to the total population of 97,133 taxpayers in this 

category.[Footnote 24] Using electronic taxpayer information files 

provided by IRS, we analyzed subsequent transactional activity that 

occurred on the taxpayer accounts reviewed between the initial match in 

the fourth quarter of 2001 and as of August 26, 2002. We also analyzed 

the level and type of account activity that occurred prior to inclusion 

in FPLP, including the elapsed time since the last significant action 

initiated by either IRS or the taxpayer, to determine whether the 

account activity that occurred after IRS issued a notice of intent to 

levy could be attributed to the continuous levy program. We attributed 

voluntary tax payments to inclusion in FPLP in only those cases where 

the delinquent account was not in any other collection status, that is, 

field collection or in the Automated Collection System (ACS) inventory. 

We discussed the range of impacts that may result after a taxpayer 

receives a notice of intent to levy under FPLP with program officials, 

which they agreed go beyond a continuous levy payment.

We interviewed IRS officials in FPLP, ACS, and field collection areas 

to determine whether some of the taxpayer accounts that are currently 

blocked could be subject to FPLP, including determining the reason for 

blocking these accounts as well as the likelihood of unblocking them in 

the future. To estimate the number of blocked delinquent accounts that 

would match federal payment records if IRS were to introduce accounts 

that are blocked from being included in the program, we obtained and 

matched IRSs accounts receivable records as of February 2002 with 

agency payment records obtained from FMS.[Footnote 25]

To determine whether the TPI criterion IRS uses to levy Social Security 

payments is effectively targeting taxpayers who can afford to pay their 

tax debts, we performed additional analysis on the random sample of 

357 delinquent taxpayers receiving Social Security payments included in 

the first of our study objectives. In addition, we analyzed a random 

sample of 405 delinquent taxpayers who received Social Security 

payments and who were under the TPI threshold. We weighted our 

observations on the 405 cases to project to the population of 90,307 

taxpayers in this category. We reviewed income data from IRSs taxpayer 

information files and information returns database to determine (1) 

each taxpayers reliance on Social Security benefits as a sole source 

of income, (2) whether taxpayers below and above the TPI threshold 

differed in their reaction to receiving a notice of intent to levy 

under FPLP, and (3) whether the TPI criterion accurately reflected each 

taxpayers current income level. We also met with the National Taxpayer 

Advocate as well as IRS program officials to discuss why the TPI 

criterion is used to screen Social Security payments that are to be 

included in FPLP. We also met with officials from the Social Security 

Administration to get their views on phasing benefit payments into 

FPLP.

We did our work at IRS and FMS headquarters in Washington, D.C.; the 

Social Security Administration headquarters in Baltimore, Maryland; the 

IRS area offices in Oakland, California and Sacramento, California; and 

the IRS Return Processing Center in Fresno, California.

[End of section]

Appendix II: Additional Data on Revenue Collections Attributable to 
FPLP 

and Status of Taxpayer Accounts:

This appendix provides additional details on the results of our 

analysis, specifically (1) the estimated $107.1 million in delinquent 

tax collections that can be attributed to the FPLP, (2) the 

categorization of taxpayer action after entering the FPLP, and (3) the 

distribution of Social Security payment recipients by year of the most 

recent income tax return filed.

FPLP Payments by Collection Method:

Our analysis included a group of taxpayers in FPLP receiving Social 

Security benefit payments, federal government retirement payments from 

OPM, and vendor payments. For detailed information on the distribution 

of delinquent tax dollars collected by various methods, including 

continuous levy under FPLP, see table 2.

Table 2: FPLP Payments by Collection Method as of August 2002 for 

Taxpayers Who Received a Notice of Intent to Levy during October-

December 2001:

Dollars in millions: 

SSA:

FPLP nonlevy payments; Dollars collected: $73.4; 

95 percent confidence: interval of dollars: collected[A]: 54.6 to 

123.4; Percentage of dollars: collected[B]: 73.

Installment agreement payments; Dollars collected: 

2.8; 95 percent confidence: interval of dollars: collected[A]: 2.4 to 

3.5; Percentage of dollars: collected[B]: 3.

Litigation, claim, and offer in

 compromise payments; Dollars collected: 1.9; 95 percent confidence: 

interval of dollars: collected[A]: 1.1 to 1.9; Percentage of dollars: 

collected[B]: 2.

Voluntary payments; Dollars collected: 68.7; 95 

percent confidence: interval of dollars: collected[A]: 52.7 to 119.0; 

Percentage of dollars: collected[B]: 69.

FPLP levy payments; Dollars collected: 26.9; 95 

percent confidence: interval of dollars: collected[A]: 23.8 to 30.1; 

Percentage of dollars: collected[B]: 27.

Total; Dollars collected: $100.3; 95 percent 

confidence: interval of dollars: collected[A]: [Empty]; Percentage of 

dollars: collected[B]: 100.

OPM; 

FPLP nonlevy payments; Dollars collected: 0.3; 95 

percent confidence: interval of dollars: collected[A]: [Empty]; 

Percentage of dollars: collected[B]: 49.

Installment agreement payments; Dollars collected: 

0.02; 95 percent confidence: interval of dollars: collected[A]: 

[Empty]; Percentage of dollars: collected[B]: 4.

Litigation, claim, and offer in

 compromise payments; Dollars collected: 0.0007; 95 percent confidence: 

interval of dollars: collected[A]: [Empty]; Percentage of dollars: 

collected[B]: 0.

Voluntary payments; Dollars collected: 0.3; 95 

percent confidence: interval of dollars: collected[A]: [Empty]; 

Percentage of dollars: collected[B]: 45.

FPLP levy payments; Dollars collected: 0.3; 95 

percent confidence: interval of dollars: collected[A]: [Empty]; 

Percentage of dollars: collected[B]: 51.

Total; Dollars collected: $0.6; 95 percent 

confidence: interval of dollars: collected[A]: [Empty]; Percentage of 

dollars: collected[B]: 100.

Vendor; 

FPLP nonlevy payments; Dollars collected: 4.9; 95 

percent confidence: interval of dollars: collected[A]: [Empty]; 

Percentage of dollars: collected[B]: 79.

Installment agreement payments; Dollars collected: 

0.9; 95 percent confidence: interval of dollars: collected[A]: [Empty]; 

Percentage of dollars: collected[B]: 14.

Litigation, claim, and offer in

 compromise payments; Dollars collected: 0.2; 95 percent confidence: 

interval of dollars: collected[A]: [Empty]; Percentage of dollars: 

collected[B]: 4.

Voluntary payments; Dollars collected: 3.8; 95 

percent confidence: interval of dollars: collected[A]: [Empty]; 

Percentage of dollars: collected[B]: 62.

FPLP levy payments; Dollars collected: 1.3; 95 

percent confidence: interval of dollars: collected[A]: [Empty]; 

Percentage of dollars: collected[B]: 21.

Total; Dollars collected: $6.2; 95 percent 

confidence: interval of dollars: collected[A]: [Empty]; Percentage of 

dollars: collected[B]: 100.

Overall;

FPLP nonlevy payments; Dollars collected: 78.6; 95 

percent confidence: interval of dollars: collected[A]: 59.8 to 128.6; 

Percentage of dollars: collected[B]: 73.

Installment agreement payments; Dollars collected: 

3.7; 95 percent confidence: interval of dollars: collected[A]: 3.3 to 

4.4; Percentage of dollars: collected[B]: 3.

Litigation, claim, and offer in

 compromise payments; Dollars collected: 2.1; 95 percent confidence: 

interval of dollars: collected[A]: 1.3 to 2.1; Percentage of dollars: 

collected[B]: 2.

Voluntary payments; Dollars collected: 72.8; 95 

percent confidence: interval of dollars: collected[A]: 56.8 to 123.1; 

Percentage of dollars: collected[B]: 68.

FPLP levy payments; Dollars collected: 28.5; 95 

percent confidence: interval of dollars: collected[A]: 25.4 to 31.7; 

Percentage of dollars: collected[B]: 27.

Total; Dollars collected: $107.1; 95 percent 

confidence: interval of dollars: collected[A]: [Empty]; Percentage of 

dollars: collected[B]: 100.

Source: GAO analysis of IRS data.

[A] Data on Social Security cases sampled has been projected to 

represent the total population of 97,133 taxpayers receiving Social 

Security payments and whose TPI was above the criterion threshold.

[B] Percentages may not add due to rounding.

[End of table]

Categorization of Taxpayers:

To assess the full range of FPLP results, we reviewed the status of 

accounts for a group of taxpayers after they had been in the program 

for an extended period of time.[Footnote 26] Based on our examination 

of the available IRS transactions data for each delinquent account, we 

assigned these sampled taxpayers to categories representative of the 

most recent activity that had occurred on their account as of August 

2002. In general, we found that the taxpayer status fell into one of 

eight categories: (1) the account had been resolved through payment 

and/or abatement of the tax liability; (2) the account was still being 

actively matched and/or levied under FPLP; (3) the taxpayer had made at 

least one voluntary payment on the delinquent debt; (4) the taxpayer 

had made installment agreement payments on the debt or had initiated 

the installment agreement process; (5) the taxpayer had either 

initiated litigation, a claim for a refund, or the offer in compromise 

process; (6) the delinquent account had been transferred to either the 

ACS or the field for manual collection; (7) the delinquent account was 

removed from FPLP for various reasons, for example, the taxpayer was 

deceased or for other unknown reasons; and (8) IRS made a determination 

that the taxpayer had a financial hardship and was currently unable to 

make any payments on the debt. Table 3 provides more detailed 

information on the categorization of taxpayer activity we observed for 

the accounts reviewed.

Table 3: Categorization of Taxpayers by Delinquent Account Status as of 

August 2002:

Resolved account; Taxpayers: SSA: 17,685; Taxpayers: OPM: 257; 

Taxpayers: Vendor: 295; Taxpayers: Overall: 18,237; [Empty]; Percentage 

of taxpayers: SSA: 18; Percentage of taxpayers: OPM: 37; Percentage of 

taxpayers: Vendor: 61; Percentage of taxpayers: Overall: 19.

Account currently in FPLP; Taxpayers: SSA: 42,445; Taxpayers: OPM: 212; 

Taxpayers: Vendor: 91; Taxpayers: Overall: 42,748; [Empty]; Percentage 

of taxpayers: SSA: 44; Percentage of taxpayers: OPM: 30; Percentage of 

taxpayers: Vendor: 19; Percentage of taxpayers: Overall: 43.

Voluntary payment made; Taxpayers: SSA: 2,993; Taxpayers: OPM: 49; 

Taxpayers: Vendor: 15; Taxpayers: Overall: 3,057; [Empty]; Percentage 

of taxpayers: SSA: 3; Percentage of taxpayers: OPM: 7; Percentage of 

taxpayers: Vendor: 3; Percentage of taxpayers: Overall: 3.

Installment agreement; Taxpayers: SSA: 5,442; Taxpayers: OPM: 59; 

Taxpayers: Vendor: 20; Taxpayers: Overall: 5,521; [Empty]; Percentage 

of taxpayers: SSA: 6; Percentage of taxpayers: OPM: 8; Percentage of 

taxpayers: Vendor: 4; Percentage of taxpayers: Overall: 6.

Litigation, claim, and offer in compromise; Taxpayers: SSA: 2,993; 

Taxpayers: OPM: 30; Taxpayers: Vendor: 16; Taxpayers: Overall: 3,039; 

[Empty]; Percentage of taxpayers: SSA: 3; Percentage of taxpayers: OPM: 

4; Percentage of taxpayers: Vendor: 3; Percentage of taxpayers: 

Overall: 3.

Transferred to manual collection process; Taxpayers: SSA: 6,802; 

Taxpayers: OPM: 29; Taxpayers: Vendor: 29; Taxpayers: Overall: 6,860; 

[Empty]; Percentage of taxpayers: SSA: 7; Percentage of taxpayers: OPM: 

4; Percentage of taxpayers: Vendor: 6; Percentage of taxpayers: 

Overall: 7.

Out of FPLP; Taxpayers: SSA: 9,251; Taxpayers: OPM: 38; Taxpayers: 

Vendor: 18; Taxpayers: Overall: 9,307; [Empty]; Percentage of 

taxpayers: SSA: 10; Percentage of taxpayers: OPM: 5; Percentage of 

taxpayers: Vendor: 4; Percentage of taxpayers: Overall: 9.

Determined unable to pay; Taxpayers: SSA: 9,523; Taxpayers: OPM: 25; 

Taxpayers: Vendor: 0; Taxpayers: Overall: 9,548; [Empty]; Percentage of 

taxpayers: SSA: 10; Percentage of taxpayers: OPM: 4; Percentage of 

taxpayers: Vendor: 0; Percentage of taxpayers: Overall: 10.

Total; Taxpayers: SSA: 97,133; Taxpayers: OPM: 699; Taxpayers: Vendor: 

484; Taxpayers: Overall: 98,316; [Empty]; Percentage of taxpayers: SSA: 

100; Percentage of taxpayers: OPM: 100; Percentage of taxpayers: 

Vendor: 100; Percentage of taxpayers: Overall: 100.

Source: GAO analysis of IRS data.

Note: Data on the sampled Social Security cases has been projected to 

represent the total population of 97,133 taxpayers receiving Social 

Security payments and whose TPI was above the criterion threshold. 

Totals may not add due to rounding. The 95 percent confidence interval 

on the overall percentage estimates ranges from plus or minus 1.5 to 5 

percentage points.

[End of table]

Most Recently Filed Income Tax Returns for Social Security 

Beneficiaries:

We analyzed the yearly distribution of the most recent income tax 

return filed for Social Security payment recipients who owed delinquent 

taxes. Table 4 shows that only 17 percent of these taxpayers had filed 

for tax year 2001, and that 53 percent had not filed since 1996 or 

earlier.

Table 4: Distribution of Social Security Payment Recipients by Year of 

Most Recent Income Tax Return Filed:

Tax year of last return filed: 2001; Number of taxpayers: 31,865; 

Percentage of taxpayers

who filed: 17; Cumulative percentage of taxpayers: 100.

Tax year of last return filed: 2000; Number of taxpayers: 11,246; 

Percentage of taxpayers

who filed: 6; Cumulative percentage of taxpayers: 83.

Tax year of last return filed: 1999; Number of taxpayers: 13,121; 

Percentage of taxpayers

who filed: 7; Cumulative percentage of taxpayers: 77.

Tax year of last return filed: 1998; Number of taxpayers: 14,995; 

Percentage of taxpayers

who filed: 8; Cumulative percentage of taxpayers: 70.

Tax year of last return filed: 1997; Number of taxpayers: 16,870; 

Percentage of taxpayers

who filed: 9; Cumulative percentage of taxpayers: 62.

Tax year of last return filed: 1996 and earlier; Number of taxpayers: 

99,343; Percentage of taxpayers

who filed: 53; Cumulative percentage of taxpayers: 53.

Tax year of last return filed: Total; Number of taxpayers: 187,440; 

Percentage of taxpayers

who filed: 100; Cumulative percentage of taxpayers: [Empty].

Source: GAO analysis of IRS data.

Note: Data on the combined Social Security samples of taxpayers above 

and below the TPI criterion have been projected to represent the total 

population of 187,440 taxpayers receiving Social Security payments. The 

95 percent confidence interval on the percentage estimates ranges from 

plus or minus 1.6 to 3.4 percentage points.

[End of table]

[End of section]

Appendix III: Comments from the Internal Revenue Service:

DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 

20224:

COMMISSIONER:

February 27, 2003:

Mr. Michael Brostek Director, Tax Issues U.S. General Accounting Office 

441 G Street, N.W. Washington, D.C. 20548:

Dear Mr. Brostek:

This is in response to your letter and draft report entitled Federal 

Payment Levy Program Measures, Performance, and Equity Can Be 

Improved. The Federal Payment Levy Program (FPLP) has proven to be a 

valuable, cost-effective method of securing tax revenues from federal 

payment sources. As we expand FPLP to additional federal employee 

salaries and other types of federal payments, we will continue our 

efforts to fully capture the programs business results, and improve 

performance in a manner that ensures fair and equitable treatment for 

all taxpayers.

Your report suggests that FPLP frees up resources, enabling us to 

pursue accounts with more collection potential. We agree that FPLP 

automated processes enable us to close accounts. However, we have 

experienced a workload increase due to taxpayer inquiries made as a 

result of FPLP and the actions necessary to close these cases. Many of 

these taxpayer contacts are on cases resulting in less productive use 

of our resources. With the plans for continued expansion of FPLP, it is 

difficult to assess the total costs and/or indirect benefits of the 

program in terms of resources freed up to pursue other collection 

activity.

Our response to the Recommendations for Executive Action follows:

Recommendation:

Include in IRSs planned new approach to measuring FPLP results data on 

the full range of taxpayers actions and tax collections attributable 

to FPLP, including non-levy collections and account resolutions.

Response:

We agree with the reports finding that FPLP measures only the direct 

revenue collected as a result of the levy and that we should also 

measure indirect revenue through non-levy payments. The program staff 

will work with our Information Technology Services (ITS) to determine 

programming requirements needed to include:

indirect revenue as a measurement of FPLP. We anticipate developing 

these requirements and including them in a Request for Information 

Services in early May. Based on the requirements, ITS will provide an 

estimated implementation date. We would like to share our proposed 

methodology with you as we develop it. We will also explore the 

feasibility of tracking other account resolutions, such as Determined 

Unable to Pay, as a result of FPLP.

Recommendation:

Study the feasibility of submitting all eligible delinquent accounts to 

FMS 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.

Response:

We are currently conducting a one-time test match with FMS on Automated 

Collection System (ACS) cases that are eligible for FPLP. We will study 

the results of that test to determine the cost-effectiveness of 

implementing matching as an ongoing process. In addition, we have 

expanded our universe of accounts subject to FPLP. As you noted in your 

report, we will include delinquent accounts of taxpayers who received 

either a federal salary or annuity payment in Fiscal Year (FY) 2003, 

and we have also requested programming changes for FY 2005 to include 

additional cases currently in ACS.

Recommendation:

Discontinue using the Total Positive Income (TPI) 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. 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, develop and test a criterion that 

reliably identifies those Social Security beneficiaries for whom a levy 

would represent an undue hardship.

Response:

We are committed to ensuring all taxpayers are treated fairly. We are 

concerned with the issues you outlined in your report regarding the TPI 

criterion we use for Social Security beneficiaries. We implemented this 

process in response to concerns the National Taxpayer Advocate (NTA) 

raised about the potential adverse effect of levies on this particular 

group of taxpayers. We believe it is critical that we take the next 120 

days to work with the NTA and program administrators to assess the 

deficiencies in the current process and to develop a suitable solution.

If you have any questions, please contact me or have a member of your 

staff contact Pamela G. Watson, Director, Filing and Payment Compliance 

at (404) 338-8686.

Sincerely,

Bob Wenzel

Acting Commissioner:

Signed by Bob Wenzel

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Michael Brostek (202) 512-9110

Ralph T. Block (415) 904-2150:

Acknowledgments:

In addition to those named above, Tom N. Bloom, Allen T. Chan, Jeanine 

Lavender, Ellen Rominger, Amy Rosewarne, Samuel Scrutchins, Wendy 

Turenne, James J. Ungvarsky, Elwood D. White, and Thomas Venezia made 

key contributions to this report.

FOOTNOTES

[1] This represents total unpaid assessments as of September 30, 2002. 

Federal accounting standards identify unpaid assessments as (1) taxes 

due from taxpayers for which IRS can support the existence of a 

receivable through taxpayer agreement or a favorable court ruling 

(federal taxes receivable); (2) assessments IRS has made of additional 

taxes owed in which neither the taxpayer nor the court has affirmed 

that the amounts are owed; and 

(3) write-offs, for which IRS expects no collection due to factors such 

as the taxpayers death, bankruptcy, or insolvency. 

[2] Levy 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 it is first made until the tax debt is fully paid or IRS releases 

the levy.

[3] U.S. General Accounting Office, Tax Administration: IRS Levy of 

Federal Payments Could Generate Millions of Dollars, GAO/GGD-00-65 

(Washington, D.C.: April 2000) and Tax Administration: Millions of 

Dollars Could Be Collected If IRS Levied More Federal Payments, 

GAO-01-711 (Washington, D.C.: July 2001).

[4] The Office of Personnel Management issues federal retirement 

payments. Social Security benefit payments outlined in Title II, 

Federal Old-Age, Survivors, and Disability Insurance Benefits, of the 

Social Security Act, are subject to continuous levy under FPLP. Social 

Security benefit payments such as lump-sum death benefits, benefits 

paid to children, and special benefits for persons aged 72 and over by 

1971 are not included in FPLP. In addition, Supplemental Security 

Income payments under Title XVI and payments with partial withholding 

to repay a debt owed to Social Security will not be levied through 

FPLP. Vendor payments are issued to businesses or individuals that 

provide goods or services to the federal government.

[5] Taxpayers notified of an impending FPLP levy have typically already 

received several previous balance due notices as part of IRSs standard 

notification process.

[6] Taxpayers who have been matched on a scheduled benefit payment from 

the Social Security Administration receive a second notice, with an 

additional 30 days to respond, if they take no action after receiving 

the first notice of intent to levy.

[7] Installment agreements allow the full payment of the debt in 

smaller, more manageable amounts. An offer in compromise approved by 

IRS allows taxpayers to settle their unpaid debt for less than the full 

amount of the balance due.

[8] The ACS is a telephone collection system that uses a computerized 

inventory system containing information on balance due accounts and 

investigations of delinquent tax returns. Delinquent accounts assigned 

to the field collection inventory system are assigned to a revenue 

officer in the field who pursues the account.

[9] We refer to payments made by taxpayers after receiving a levy 

notice as voluntary payments because the taxpayers subsequently 

remitted payments to IRS without further action on IRSs part. 

[10] The 95 percent confidence interval ranges from $25.4 million to 

$31.7 million.

[11] The 95 percent confidence interval ranges from $59.8 million to $ 

128.6 million.

[12] We attributed payments made on delinquent accounts to FPLP if 

taxpayers had taken no significant actions to resolve their delinquency 

prior to entering the program and receiving a notice of intent to levy. 

Our analysis showed that prior to their inclusion into FPLP, an average 

of 16 months had elapsed since the vendors had initiated any action on 

their delinquent accounts; an average of 21 months had elapsed since 

taxpayers receiving federal retirement payments had initiated any 

action on their accounts; and an average of 

57 months had elapsed since Social Security payment recipients had 

initiated any significant action on their delinquent accounts. The 95 

percent confidence interval on the Social Security estimate ranges from 

54.1 to 60.7 months.

[13] We analyzed IRSs accounts receivable files data as of February 

2002, which showed that IRS blocked the delinquent accounts of nearly 

1.5 million individuals and businesses owing about $14.2 billion in tax 

debt from FPLP. We matched the blocked delinquent taxpayers against 

federal payments for Social Security benefits, federal retirement, and 

federal salary that were made in February 2002, and for vendor payments 

that were made during the second quarter of fiscal year 2002. 

[14] IRS data as of July 2002.

[15] TPI is calculated by summing the positive values from the 

following income fields from a taxpayers most recently filed 

individual income tax return: wages; interest; dividends; distributions 

from partnerships, small business corporations, estates, or trusts; 

Schedule C net profits; Schedule F net profits; and other income such 

as Schedule D profits and capital gains distributions. Losses reported 

for any of these values are treated as a zero. The TPI threshold is 

sensitive information, and therefore, available for official use only.

[16] Data as of August 2002. The 95 percent confidence interval ranges 

from $383 million to $660 million.

[17] As of August 2002.

[18] The 95 percent confidence intervals for the 18 percent and 12 

percent overlap. The interval for the 18 percent figure ranges from 14 

percent to 22 percent, while the interval for the 12 percent figure 

ranges from 9 percent to 16 percent.

[19] Although the taxpayers actions demonstrate some ability to pay, 

we recognize that some portion of those who voluntarily settled their 

delinquent accounts after receiving a levy notice may have done so 

despite being in a financial hardship position. A case-by-case review 

of the taxpayers circumstances would be needed to determine to what 

extent, if at all, taxpayers above and below the TPI who made voluntary 

payments were nevertheless in a hardship situation.

[20] The 95 percent confidence intervals for the 5 percent and 8 

percent overlap. The interval for the 5 percent figure ranges from 3 

percent to 8 percent, while the interval for the

8 percent figure ranges from 5 percent to 11 percent. 

[21] An information return is a tax document businesses are required to 

file to report certain business transactions to IRS. For example, these 

transactions include (but are not limited to) wages paid to employees; 

interest and dividend payments; pension distributions; and mortgage 

interest paid.

[22] The 95 percent confidence intervals for the 40 percent and 46 

percent overlap. The interval for the 40 percent figure ranges from 35 

percent to 45 percent while the interval for the 46 percent figure 

ranges from 41 percent to 51 percent.

[23] The determination of whether an individual is required to file an 

income tax return is based on their filing status, age, and the amount 

of annual gross income. For example, in 2002, couples that filed 

jointly and were over 65 years of age with a gross income of less than 

$15,650 would not be required to file an income tax return. 

[24] Because we followed a probability procedure based on random 

selection for the samples we selected, each of these samples is only 

one of a large number of samples that we might have drawn. Since each 

sample could have provided different estimates, we express our 

confidence in the precision of our particular samples results as a 95 

percent confidence interval. This is the interval that would contain 

the actual population value for 95 percent of the samples we could have 

drawn. As a result, we are 95 percent confident that each of the 

confidence intervals in this report will include the true values in the 

study population.

[25] The payment records obtained cover various periods of time. Vendor 

payments are for the second quarter of fiscal year 2002, salary 

payments represent one biweekly pay period in February 2002, and all 

other payments are for the month of February 2002.

[26] Roughly 8 to 11 months.

GAOs Mission:

The General Accounting Office, the investigative arm of Congress, 

exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability 

of the federal government for the American people. GAO examines the use 

of public funds; evaluates federal programs and policies; and provides 

analyses, recommendations, and other assistance to help Congress make 

informed oversight, policy, and funding decisions. GAOs commitment to 

good government is reflected in its core values of accountability, 

integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony:

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through the Internet. GAOs Web site ( www.gao.gov ) contains 

abstracts and full-text files of current reports and testimony and an 

expanding archive of older products. The Web site features a search 

engine to help you locate documents using key words and phrases. You 

can print these documents in their entirety, including charts and other 

graphics.

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as Todays Reports, on its 

Web site daily. The list contains links to the full-text document 

files. To have GAO e-mail this list to you every afternoon, go to 

www.gao.gov and select Subscribe to daily E-mail alert for newly 

released products under the GAO Reports heading.

Order by Mail or Phone:

The first copy of each printed report is free. Additional copies are $2 

each. A check or money order should be made out to the Superintendent 

of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. 

Orders should be sent to:

U.S. General Accounting Office

441 G Street NW,

Room LM Washington,

D.C. 20548:

To order by Phone: 	

	Voice: (202) 512-6000:

	TDD: (202) 512-2537:

	Fax: (202) 512-6061:

To Report Fraud, Waste, and Abuse in Federal Programs:

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470:

Public Affairs:

Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.

General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.

20548: