Scope and Methodology

To determine how long IRS takes to contact employers after an  employment tax delinquency occurs, we analyzed the time between (1) the  receipt of a quarterly Form 941 return and IRS’ mailing of an initial  delinquency notice, (2) when a Form 941 was due and IRS’ mailing of a  delinquency notice when the employer fails to file a Form 941, and (3)  when the employers should have deposited employment taxes during a  quarter and IRS’ mailing of an initial delinquency notice. In addition, the  review covers IRS’ efforts to intervene with taxpayers in order to educate  and inform them of their tax obligations and to expedite compliance. IRS Takes Several Weeks to Notify Employers of Employment Tax Delinquencies

Our analysis of IRS’ delinquent employment tax data indicates that once  IRS receives Form 941 returns, it takes about 5 weeks to notify employers  of employment tax delinquencies. During calendar  years 1999 and 2000, IRS received and processed about 5.7 million Form  941 returns per quarter. In that regard, we found that IRS normally takes  from 14 to 28 weeks after the due date to notify employers of their failure  to file a Form 941 return. Employers owing smaller amounts of employment taxes are allowed to  make less frequent deposits. Efforts to Evaluate IRS Programs to Prevent or Reduce Tax Delinquency Have Monitoring, (2) Federal Tax Deposit (FTD) Soft Letter, (3) ABC’s of FTDs, Experienced Problems

IRS has developed several specific programs designed to intervene with  employers to help prevent employment tax delinquencies and reduce the  pyramiding of additional tax, interest, and penalty charges. To evaluate the effectiveness of these  programs, IRS planned to compare compliance rates of test and control  groups and to use customer surveys and focus groups. IRS’ Ongoing Modernization Could Improve Intervention With Employers

IRS’ ongoing modernization efforts do not currently include any programs  specifically designed to improve IRS’ notification to employers with tax  delinquencies. However, sweeping organizational changes and information  system improvements may in the future reduce taxpayer burden and  improve compliance. It  has also experienced delays in evaluating its efforts to improve its long- standing FTD Alert program.
What GAO Found

Employers are required to withhold amounts from their employees' salary to cover individual federal income tax, Social Security, and Medicare taxes; match the amounts for Social Security and Medicare taxes; and deposit these amounts with the U.S. Treasury. In fiscal year 2000, the Internal Revenue Service (IRS) collected $1.3 trillion in this manner. Most employers withhold and deposit these taxes as required; however, the amount of unpaid employment taxes, penalty, and interest has grown significantly. IRS data show that in 1997, 1998, 1999, and 2000, delinquent employers owed about $3.2, $3.5, $4.4, and $5 billion, respectively, in unpaid employment taxes, penalties, and interest. The time IRS takes to notify employers of delinquent payment of employment taxes varies. On average, IRS takes about five weeks to initially notify employers regarding employment tax delinquencies after the Form 941 return is received. When employers fail to file Form 941 returns, IRS normally takes from 14 to 28 weeks to notify them of this delinquency. Aside from its usual efforts to educate and inform taxpayers of their responsibilities, IRS has four programs to prevent or reduce employers' tax delinquencies. Two of these programs were designed to achieve early contact with employers, and two were designed to identify employers with existing, multiple employment tax delinquencies and help them to return to compliance. To evaluate the effectiveness of these programs and to support informed judgments about whether to adopt new ones, IRS planned to compare compliance rates of test and control groups and to use customer surveys and focus groups. IRS' efforts to evaluate these programs are being adversely affected by, among other things, delays in obtaining reliable data. IRS officials did not identify any specific programs to improve employment tax intervention under IRS' ongoing effort to modernize its organizational structure, management processes, and information technology systems. However, certain aspects of its modernization effort have some future potential to improve intervention.