TAX

ADMINISTRATION

IRS’ Levy of Federal

Payments Could

Generate Millions of

Dollars

United States General Accounting Office

GAO Report to Congressional Requesters

April 2000

GAO/GGD-00-65

United States General Accounting Office

Washington, D.C. 20548

Page 1 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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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

 

1

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 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.

3

A 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.
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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.

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

 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.

Results in Brief
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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.

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

 

6

The 95-percent confidence interval for the $77.7 million ranges from $73.5 million to $81.9 million.

Background
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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.

 

7

Federal 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.

8

A 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.
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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.)

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.

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.

Scope and

Methodology

Millions of Dollars in

Tax Revenue Could Be

Collected Through

Continuous Levy
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However, this amount could be lower because some taxpayers might make

other arrangements to resolve their tax debts.

Payment type

Taxpayers

affected

Potential annual

payments levieda

Potential annual

revenueb

Percent of total potential

annual revenue

Social Security 232,485 2,916,744 $311.8 65.2

Business vendor 3,647 91,604 98.2 20.5

Individual vendor 3,970 33,428 6.2 1.3

Federal retirement 12,892 158,724 24.0 5.0

Federal salary 8,855 230,230 32.8 6.9

Railroad Retirement 2,288 27,696 5.0 1.0

Total 264,137 3,458,426 $478.0 100.0

Note: Percentage may not add to 100 because of rounding.

a

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. To

annualize the 298,710 payments, we multiplied vendor payments by 4, salary payments by 26, and all

other payments by 12.

b

The 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

 

9

The 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.

Table 1: Potential Annual Payments Levied and Potential Annual Revenues Realized
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means of payment, such as an installment agreement, such action on the

part of taxpayers could be as beneficial as the levy itself.

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 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.

Reaching Full Program

Potential Will Be

Delayed

SSA Wants Access to

Information on

Beneficiaries Subject to a

Tax Levy
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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.

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.

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.

When Salary Payments Are

to Be Available for Levy Is

Uncertain

IRS’ Plans to Test

Program Controls Are

Limited
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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 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.

IRS Has Planned Controls

to Prevent Inappropriate

Levies
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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 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

 

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.

Testing of Controls Will Not

Include Taxpayer Contact

Planned Controls May Not

Prevent All Inappropriate

Levies
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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.

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.

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.

Taxpayers Will Not Be

Contacted Until the

Program is Implemented

Changes to the

Program Could

Increase the Amount

of Revenues Generated
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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.

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.

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

 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.

Additional Revenue Could

Be Generated If More

Payment Records Were

Suitable for Matching

TINs on Vendor Payment

Records Are Often Invalid

Names on Payment Records

Often Differ From Names on

IRS’ Records
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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.

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

 

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.

IRS Has a Program to Verify the

TINs and Names on Federal

Agency Records
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Page 14 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.)

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.

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

 

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.

Millions of Dollars in

Additional Federal

Payments Could Be Subject

to Levy

Payments Made to Jointly Liable

Spouses Will Not Be Levied

When the Program Is Initially

Implemented

Not All Payment Received Under

an Individual’s SSN and EIN Will

Be Levied
B-282360

Page 15 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.

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.

Conclusions
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Page 16 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.

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.

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.

Recommendations to

the Commissioner of

Internal Revenue and

Commissioner of

Financial Management

Service

Agency Comments and

Our Evaluation
B-282360

Page 17 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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 TINmatching 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
B-282360

Page 18 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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
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Page 19 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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

 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.
Page 20 GAO/GGD-00-65 IRS’ Levy of Federal Payments

Contents

1 Letter

24

Objectives 24

Scope and Methodology 24

Appendix I

Objectives, Scope, and

Methodology

26

Delinquent Taxes to Be Included in the Continuous Levy

Program

26

Delinquent Taxes to Be Excluded From the Continuous

Levy Program

27

Eligible Federal Payments to Be Included in the

Continuous Levy Program

27

Eligible Federal Payments to Be Excluded From the

Continuous Levy Program

28

Appendix II

Delinquent Taxes and

Federal Payments to

Be Included in the

Continuous Levy

Program

29

Determining the Number of Taxpayers Subject to

Continuous Levy and Potential Revenue Generated

29

Determining the Number of Responsible Parties

Associated With Trust Fund Recovery Penalties

30

Vendor Payment Records Submitted With Invalid TINs or

Names

31

Determining the Number of Spouses Receiving Payments

Under Own TIN Who Are Jointly Liable for Delinquent

Taxes

32

Determining the Number of Jointly Liable Taxpayers

Receiving Social Security Benefits Under Spouse’s

Entitlement

33

Using the EIN/SSN Cross-Reference File in Matching

Accounts Receivable Records to Payment Records

33

Sampling Errors for Key Estimates Used in the Report 33

Appendix III

Sampling and Data

Analysis Methodology
Contents

Page 21 GAO/GGD-00-65 IRS’ Levy of Federal Payments

Appendix IV

Additional Revenues

That Could Be

Generated Through the

Continuous Levy

Program

35

Appendix V 37

Comments From the

Internal Revenue

Service

Appendix VI 41

Comments From the

Financial Management

Service

Appendix VII 44

Comments From the

Social Security

Administration

Appendix VIII 46

GAO Contacts and

Staff

Acknowledgments

Table 1: Potential Annual Payments Levied and Potential

Annual Revenues Realized

6

Table III.1: Invalid TIN or Name Sample 31

Table III.2: Spouses’ TIN sample 32

Tables

Table IV.1: Additional Revenue Potential From Levying

Jointly Liable Spouses Receiving Federal Payments

35
Contents

Page 22 GAO/GGD-00-65 IRS’ Levy of Federal Payments

Table IV.2: Additional Revenue Potential by Levying

Taxpayers Who Receive Payment Under an SSN While

Delinquent Under an EIN or Vice Versa

36
Contents

Page 23 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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
Appendix I

Objectives, Scope, and Methodology

Page 24 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.

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.

 

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.

Objectives

Scope and

Methodology
Appendix I

Objectives, Scope, and Methodology

Page 25 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.
Appendix II

Delinquent Taxes and Federal Payments to Be

Included in the Continuous Levy Program

Page 26 GAO/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.

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;

 1

The 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.

Delinquent Taxes to Be

Included in the

Continuous Levy

Program
Appendix II

Delinquent Taxes and Federal Payments to Be Included in the Continuous Levy Program

Page 27 GAO/GGD-00-65 IRS’ Levy of Federal Payments

• 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.

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.

IRS plans to include the following federal payments in the continuous levy

program:

• Vendor payments,

• Federal retirement,

• Federal salary,

• Social Security retirement, and

 

2

For example, individual income tax for calendar year 1998 or employment withholding tax for the first

quarter of 1998.

Delinquent Taxes to Be

Excluded From the

Continuous Levy

Program

Eligible Federal

Payments to Be

Included in the

Continuous Levy

Program
Appendix II

Delinquent Taxes and Federal Payments to Be Included in the Continuous Levy Program

Page 28 GAO/GGD-00-65 IRS’ Levy of Federal Payments

• Railroad Retirement Board benefits.

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.

Eligible Federal

Payments to Be

Excluded From the

Continuous Levy

Program
Appendix III

Sampling and Data Analysis Methodology

Page 29 GAO/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.

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

 

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.

Determining the

Number of Taxpayers

Subject to Continuous

Levy and Potential

Revenue Generated
Appendix III

Sampling and Data Analysis Methodology

Page 30 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.

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.

 

2

The 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.

Determining the

Number of

Responsible Parties

Associated With Trust

Fund Recovery

Penalties
Appendix III

Sampling and Data Analysis Methodology

Page 31 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.

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.

Stratum Population Sample Weight

Less than $19,999.99 2,695,504 220 12,252.290

$19,999.99 to less than $199,999.99 171,673 45 3,814.96

$199,999.99 to less than $1,999,999.99 23,460 44 533.18

$1,999,999.99 to less than $9,999,999.99 2,214 27 82

$9,999,999.99 and greater 432 64 6.750

Total 2,893,283 400

 

 

3

The 95-percent confidence interval ranges from 2,794 to 3,256 tax delinquencies.

Vendor Payment

Records Submitted

With Invalid TINs or

Names

Table III.1: Invalid TIN or Name Sample
Appendix III

Sampling and Data Analysis Methodology

Page 32 GAO/GGD-00-65 IRS’ Levy of Federal Payments

Source: GAO analysis of IRS and FMS data.

For each of the TINs associated with the 400 payments in our sample, we

obtained transcripts of accounts from IRS and reviewed them to determine

the validity of TINs and names on payment records. In our analysis, the

sample payments were subsequently weighted to account statistically for

the entire population of 2.9 million payment records with invalid TINs or

names.

For each of the 3.3 million individual taxpayers in IRS’ accounts receivable

database, IRS provided the TIN for the spouse if available. In total, IRS

provided TINs for 1,027,872 spouses. IRS does not plan to submit spouse’s

TINs to FMS for matching against federal payments when the continuous

levy program is implemented because the Treasury Offset Program is not

currently able to match more than one TIN against federal payment

records per each debt.

To determine the amount of potential revenue IRS could generate from

levying such payments, we compared the TIN and name on the entire FMS

population of 51.8 million payments to the TIN and name control on IRS’

accounts receivable records. As a result, we identified 53,605 tax returns

where associated spouses were receiving one or more federal payments.

However, levy would be inappropriate if the spouses were not jointly liable

for the delinquent taxes in question. To determine if the spouses were

jointly liable for the delinquent taxes in question, we selected a stratified

random sample of 432 tax returns for review. The population was divided

into five strata based on the source of the payment received, as shown in

table III.2.

Population

Payment type Size Proportion

Sample

size Weight

Social Security 46,166 86 371 124.44

Federal retirement 2,096 4 17 123.29

Railroad Retirement 607 1 5 121.40

Federal salary 3,576 7 29 123.31

Individual vendor 1,160 2 10 116.00

Total 53,605 100 432*

Source: GAO analysis of IRS and FMS data.

For the 432 tax returns, we reviewed IRS’ transcripts of accounts to

determine if the spouses receiving federal payments were liable for the

delinquent taxes. The sample was subsequently weighted to represent the

Determining the

Number of Spouses

Receiving Payments

Under Own TIN Who

Are Jointly Liable for

Delinquent Taxes

Table III.2: Spouses’ TIN sample
Appendix III

Sampling and Data Analysis Methodology

Page 33 GAO/GGD-00-65 IRS’ Levy of Federal Payments

total population of 53,605 tax returns where spouses received federal

payments.

We identified 12,484 of the 227,891 taxpayers matching on TIN and name

that had spouses receiving Social Security benefits under the primary

taxpayer’s entitlement. These spouses received $45 million in annual

benefit payments while jointly owing about $202 million in delinquent

taxes. As previously stated, IRS does not plan to submit spouses’ TINs to

FMS for matching against federal payments when the continuous levy

program is implemented because the Treasury Offset Program is not

currently able to match more than one TIN against federal payment

records per each debt.

To identify the amount of potential revenue that IRS could generate from

levying such payments, we selected a random sample of 96 taxpayers

whose spouses were receiving Social Security benefits under the primary

taxpayer’s entitlement. However, levy would be inappropriate if the

spouses were not jointly liable for the delinquent taxes in question. To

determine if the spouses were jointly liable, we reviewed IRS transcripts of

accounts.

In our analysis, the taxpayer information in our sample was weighted to

represent the total population of 12,484 taxpayers matching on TIN and

name that had spouses receiving Social Security benefits under the

primary spouse’s entitlement.

IRS data showed that 432,737 of the 4.4 million delinquent taxpayers had

both an SSN, and an EIN for business purposes. IRS has a file that crossreferences SSNs with EINs, but it does not plan to use this file to identify

delinquent taxpayers with both an SSN and EIN because, as noted, FMS

cannot currently match more than one TIN per federal debt to its payment

records. As a result, taxpayers delinquent under an SSN on individual taxes

who received payments under their EIN or vice versa will not be matched.

To determine the amount of additional revenue IRS could generate by

using its cross-reference file to identify delinquent taxpayers with both an

SSN and EIN, we matched the SSNs and EINs for the 432,737 taxpayers

having both an SSN and EIN against the FMS payment records.

Because we followed a probability procedure based on random selections

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

Determining the

Number of Jointly

Liable Taxpayers

Receiving Social

Security Benefits

Under Spouse’s

Entitlement

Using the EIN/SSN

Cross-Reference File in

Matching Accounts

Receivable Records to

Payment Records

Sampling Errors for

Key Estimates Used in

the Report
Appendix III

Sampling and Data Analysis Methodology

Page 34 GAO/GGD-00-65 IRS’ Levy of Federal Payments

precision of our particular sample’s results as a 95-percent confidence

interval (e.g., plus or minus 10 percentage points). 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.
Appendix IV

Additional Revenues That Could Be

Generated Through the Continuous Levy

Program

Page 35 GAO/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.

Payment type

Jointly liable

spouses receiving

paymentsa

Estimated annual

revenue that could

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

a

The number of jointly liable spouses by payment type may not add to the estimated total because of

rounding.

b

The 95-percent confidence interval ranges from 36,327 to 40,855.

c

The 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

 

1

The 95-percent confidence interval ranges from 6,315 to 8,769.

Table IV.1: Additional Revenue Potential

From Levying Jointly Liable Spouses

Receiving Federal Payments
Appendix IV

Additional Revenues That Could Be Generated Through the Continuous Levy Program

Page 36 GAO/GGD-00-65 IRS’ Levy of Federal Payments

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.

Payments received

Number of

taxpayers

Annual

levy revenues

(millions)

Under SSN (but delinquent under EIN) 17,640 $28.3

Under EIN (but delinquent under SSN) 453 1.9

Total 17,913 $30.2

Source: GAO analysis of IRS and FMS data.

 

2

The 95-percent confidence interval ranges from $3.8 million to $5.6 million.

Table IV.2: Additional Revenue Potential

by Levying Taxpayers Who Receive

Payment Under an SSN While

Delinquent Under an EIN or Vice Versa
Appendix V

Comments From the Internal Revenue Service

Page 37 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix V

Comments From the Internal Revenue Service

Page 38 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix V

Comments From the Internal Revenue Service

Page 39 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix V

Comments From the Internal Revenue Service

Page 40 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix VI

Comments From the Financial Management

Service

Page 41 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix VI

Comments From the Financial Management Service

Page 42 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix VI

Comments From the Financial Management Service

Page 43 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix VII

Comments From the Social Security

Administration

Page 44 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix VII

Comments From the Social Security Administration

Page 45 GAO/GGD-00-65 IRS’ Levy of Federal Payments
Appendix VIII

GAO Contacts and Staff Acknowledgments

Page 46 GAO/GGD-00-65 IRS’ Levy of Federal Payments

Cornelia M. Ashby (202) 512-9110

Ralph T. Block (415) 904-2000

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.

GAO Contacts

Acknowledgments
Page 47 GAO/GGD-00-65 IRS’ Levy of Federal Payments
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