	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. IRS plans to continue expanding the  program by adding additional federal employee salaries and other types of  federal payments. 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 does not measure the extent that FPLP helps IRS function  more efficiently by decreasing its accounts receivable inventory. These   55,900 taxpayers owed about $460 million in delinquent taxes and received   $4.1 billion in federal payments during 2002. 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. IRS’s 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. 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. 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 IRS’s decision to  block some delinquent accounts from being matched to federal payments  under FPLP impacts the agency’s 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. 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.
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. IRS measures only about 27 percent of the revenues that can be attributed to the continuous levy program. IRS does not measure revenues that are received through voluntary payments as taxpayers respond to the notice of intent to levy or certain other results. Understating the program's impact may hinder IRS in making well-founded decisions on program management and resource allocation. IRS plans to revise its measure of program results but has not yet decided how to do so. IRS blocks many eligible delinquent accounts from being included in the Federal Payment Levy Program, thereby missing an opportunity to gather information on which debtors are receiving federal payments, that could be used to collect these delinquent taxes more efficiently. IRS recently unblocked some accounts and plans to unblock more, but has not established a time frame to complete these changes. IRS uses an inaccurate income criterion of ability to pay when determining whether taxpayers receiving Social Security benefits can afford to have their benefits levied under the Federal Payment Levy Program. As a result, fair treatment of taxpayers is compromised because taxpayers with a similar ability to pay their delinquent taxes likely are treated differently. IRS recognizes that the criterion is flawed but continues to use it.