The Internal Revenue Service is making changes to a program that aims to combat tax delinquency by over 300,000 current and retired federal employees who owe more than $3 billion in taxes.
A new report from the Treasury Inspector General for Tax Administration found the IRS is generally successful at collecting delinquent taxes from current and retired federal employees, but some program improvements can be made. 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.
In fiscal year 1993, the IRS developed the Federal Employee/Retiree Delinquency Initiative, or FERDI, program to promote federal tax compliance among current and retired federal civilian and military employees as well as military reservists.
Generally, the IRS is successful at collecting revenue by closing most FERDI cases as fully paid or with an installment agreement, TIGTA found, but the report identified two ways in which the FERDI program can be improved. The first involves the Federal Payment Levy Program, or 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. 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, or 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.
“Like all taxpayers, federal employees and retirees have a legal obligation to pay their taxes,” said TIGTA Inspector General J. Russell George in a statement. “However, federal employees and retirees are held to a higher ethical standard for a number of reasons, including that they draw their compensation from federal taxes.”
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.
IRS officials agreed 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.
“As you noted in your report, federal employees and retirees have fewer instances of tax delinquency than the general population of taxpayers,” wrote Karen Schiller, commissioner of the IRS’s Small Business/Self-Employed Division. “You reported that, on average, from FY 2010-2014, 3.1 percent of federal employees and retirees were delinquent on taxes as compared to 8.4 percent of the general population of taxpayers. However, when federal employees and retirees are delinquent with their tax obligations, we use a variety of collection tools to work and resolve cases. Many of these cases are closed fully paid.”
However, 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. In response, TIGTA said it believes the IRS could further reduce the ACS manual inventory by moving FERDI cases to the ACS systemic levy process when FPLP levies do not fully resolve the delinquency.
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