IRS overlooks federal contractors with delinquent taxes

The Internal Revenue Service could have collected over $1 million from federal contractors who owe back taxes if it included them in a special levy program, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, found the IRS could potentially collect $1.14 million in payments from delinquent contractors through the Federal Payment Levy Program.

For the report, TIGTA looked at 45 sampled individual federal contractor accounts and at of 68 sampled business federal contractor accounts and found that eight of the individual accounts (18 percent) and 19 (28 percent) of the businesses were improperly excluded from the levy program for over a year while they were in the IRS’s Automated Collection System inventory. The IRS excluded them because it made changes to the selection criteria for the program, but didn’t apply the changes to the existing inventory. The IRS also didn’t update the Internal Revenue Manual to tell employees to manually update the tax modules for inclusion in the levy program when they manually assign cases to specific Automated Collection System inventories.

Treasury Inspector General J. Russell George addressing a House subcommittee
J. Russell George, U.S. Treasury inspector general for tax administration, speaks during a House Appropriations subcommittee hearing in Washington, D.C., U.S., on Monday, June 3, 2013. Acting Internal Revenue Service Commissioner Danny Werfel told lawmakers he is working to restore trust in the beleaguered U.S. tax agency and said he wants to make improvements before pressing for a bigger budget. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** J. Russell George

The Treasury’s Bureau of the Fiscal Service administers the Federal Payment Levy Program and works with other federal agencies to increase the number of participating agencies. Some agencies don’t participate in the program, so their contractors’ delinquent tax debts aren’t part of the FPLP. TIGTA identified 193 federal agencies that don’t appear to participate in the FPLP, but neither the BFS nor the IRS could confirm the number.

“If continuous levies are not processed through the Federal Payment Levy Program for federal contractors, there is a risk that federal contractors who owe taxes might incorrectly receive payments from the federal government,” said TIGTA Inspector General J. Russell George in a statement. “It is important that the IRS use all available tools to hold delinquent federal contractors accountable for nonpayment of taxes.”

TIGTA made four recommendations in the report, and IRS management agreed with all of them. TIGTA recommended the IRS identify all the tax modules that were improperly excluded from the FPLP and take action to include them, and it should update the Internal Revenue Manual to include proper instructions for employees to manually update tax modules for inclusion in the levy program when manually assigning cases to specific Automated Collection System inventories. The IRS should also make sure it makes programming changes to fix the problems with the systemic reversal of the FPLP exclusion, TIGTA recommended, and it should work with the BFS to identify agencies that don’t participate in the levy program and set up a process to add those agencies.

In response to the report, the IRS agreed to identify and include the modules that were improperly excluded from the FPLP, and provide guidance to Automated Collection System employees to manually unblock cases when appropriate. The IRS also said it would ask for programming changes on the systemic reversal process of the FPLP exclusion. The IRS also plans to meet with the BFS to discuss ways to identify agencies that don’t participate, actions that can be taken to add those agencies to the FPLP, and to prepare a possible legislative proposal for increasing participation in the FPLP program.

“In 2014, we evaluated the Automated Collection System (ACS) inventories to consider including more of them for FPLP levy actions,” wrote Mary Beth Murphy, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. “Based on that analysis, we updated programming to systematically include more ACS inventories in the FPLP. However, certain tax modules that were in these inventories prior to the programming change were not included in the update. We agree with your recommendations to correct these issues and to update guidance to our employees.”

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