Most Federal Employee/Retiree Delinquency Initiative Cases Are Resolved With the Collection of Revenue; However, Some Program Improvements Can Be Made

Treasury Inspector General for Tax Administration

Office of Audit

MOST FEDERAL EMPLOYEE/RETIREE DELINQUENCY INITIATIVE CASES ARE RESOLVED WITH THE COLLECTION OF REVENUE; HOWEVER, SOME PROGRAM IMPROVEMENTS CAN BE MADE

Issued on June 29, 2015

Highlights

Highlights of Report Number: 2015-30-051 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.

IMPACT ON TAXPAYERS

Like all taxpayers, Federal employees and retirees have a legal obligation to pay their taxes.  However, Federal employees and retirees are held to a higher ethical standard for a number of reasons, including that they draw their compensation and funds from Federal taxes.  In Fiscal Year 1993, the IRS developed the Federal Employee/Retiree Delinquency Initiative (FERDI) program to promote Federal tax compliance among current and retired Federal civilian and military employees as well as military reservists.

WHY TIGTA DID THE AUDIT

The IRS identified 304,665 Federal employees and retirees who owed approximately $3.54 billion in unpaid taxes at the end of Fiscal Year 2014. This audit was initiated to determine whether the IRS has adequate controls and procedures in place to properly identify and resolve tax compliance issues among Federal employees and retirees.

WHAT TIGTA FOUND

Generally, the IRS is successful at collecting revenue by closing most FERDI cases as fully paid or with an installment agreement.

TIGTA identified two ways in which the FERDI program can be improved. The first involves the Federal Payment Levy Program (FPLP), one of the key collection tools used for the FERDI program, which allows the IRS to levy up to 15 percent of certain Federal payments, including wages, to delinquent taxpayers. Federal payments for certain Federal employees are excluded from the FPLP due to legal or policy constraints, e.g., bankruptcy or military service men and women in combat zones, but the IRS excludes certain other Federal payments from the FPLP without a legal or articulated policy basis.  TIGTA forecasts that expanding the FPLP to include more Federal payments could potentially increase revenue by approximately $18.3 million over the next five years.

The second improvement opportunity involves the IRS’s policy to handle many FERDI cases manually.  Besides the FPLP, FERDI cases bypass the IRS’s other Automated Collection System (ACS) tools that can systemically identify taxpayer assets for levy in favor of manual handling.  Moving FERDI cases to the ACS’s systemic levy process if the FPLP levy attempts fail or if the FPLP levy will not fully pay the amount owed could result in potential benefits such as faster case resolutions and smaller manual inventory sizes.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS continue identifying and expanding the use of the FPLP to other Federal payments, including military retirement payments, and consider applying ACS systemic levies to FERDI taxpayers.

In their response to the report, IRS officials agreed with the recommendation to expand the use of the FPLP to other Federal payments and plan to work with the Defense Finance and Accounting Service and Bureau of the Fiscal Service to make the programming changes necessary to expand the FPLP to include military retirement payments.

IRS officials disagreed with the recommendation to apply ACS systemic levies to FERDI taxpayers because they believe that the majority of manually worked FERDI cases will be included in the FPLP after the programming changes.

TIGTA believes that the IRS could further reduce ACS manual inventory by moving FERDI cases to the ACS systemic levy process when FPLP levies do not fully resolve the delinquency.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treas.gov/tigta/auditreports/2015reports/201530051fr.html.

E-mail Address: TIGTACommunications@tigta.treas.gov

Phone Number: 202-622-6500

Website: http://www.treasury.gov/tigta