After previous testimony from the Government Accountability Office that federal contractors have abused the tax system with little consequence, the office was asked to review the Internal Revenue Services coding of tax debt excluded from the Federal Payment Levy Program.The levy program is an automated system used to collect unpaid taxes from certain federal payments, and the GAO estimated that as of Sept. 30, 2005, over 500,000 tax records -- equated to about $2.4 billion in tax debt -- contained inaccurate codes that IRS systems used to exclude tax debts from the program. Among the inaccuracies were tax debts coded as having active installment agreements, even though the tax debtor had stopped making payments.

The GAO recommended that the IRS better monitor financial hardship cases to ensure their ongoing accuracy. And the office also noted that although the IRS has increased the amount of tax debt it submits to the levy program, since 1992 the agency has almost tripled the maximum income it allows tax debtors in financial hardship to earn -- raising it to $84,000 in 2004, almost double the national median income. As a result, whereas in 1992 no one earning above the median income was considered to be in financial hardship, by 2005 almost two-thirds of the tax debt in financial hardship was owed by individuals earning over the median income. The GAO suggested reviewing the fairness of such a provision.

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