A ‘I United States General Accounting Office GAO Report to the Joint Committee on Taxation, U.S. Congress December 1990 TAX ADMINISTRATION Extent and Causesof Erroneous Levies l . , GAO United States General Accounting Office Washington, D.C. 20648 General Government Division B-240727 December 21,199O The Honorable Lloyd Bentsen Chairman The Honorable Dan Rostenkowski Vice Chairman Joint Committee on Taxation Congress of the United States This report, the last of four reports responding to the request of the Joint Committee on Taxation that we review the Internal Revenue Ser- vice’s (IRS) use of levies,’ addresses erroneous levies. Erroneous levies occur when IRSlevies the assets of taxpayers who do not owe taxes, levies for an amount greater than the taxes owed, or levies when the taxpayer has an installment agreement to pay the delinquency or is in bankruptcy. Specifically, this report discusses (1) the extent and causes of erroneous levies and (2) IRS’ controls to prevent erroneous levies or mitigate their effects. Levies are one of IRS most widely used collection tools; 2 million levies were initiated in each of the past 3 fiscal years. According to IRSstatis- tics, most levies are initiated through IRS Automated Collection System (ACS).~ About 1.8 million of the 2 million levies initiated during each of the past 3 fiscal years were through ACS.The remainder were initiated by revenue officers in IRS district offices. However, IRS does not maintain statistics on erroneous levies. An erroneous levy can cause financial hardship for the taxpayer whose assets are levied and tarnish his or her reputation. In addition, erro- neous levies can be costly for IRS. Our report discusses IRS’ use of levies initiated through ACS. As agreed with the Committee, we did not develop information on erroneous levies initiated by revenue officers because complete information on their use of levies was not available. ‘Levies, as used in this report, refer to seizures of taxpayers’ liquid assets, such as wages and bank accounts, in the possession of employers and financial institutions. ‘ACS ls a computerized inventory management system designed to promote efficient case manage- ment and improved taxpayer contact. AC3 staff can automatically dial the taxpayer’s telephone number, access case information, update the taxpayer’s case, and initiate enforcement actions. Page 1 GAO/GGDSl-9 Erroneous Levies 5240727 requests the taxpayer to contact IRS immediately if the tax bill is not correct and to provide information to resolve the discrepancy. Accounts not resolved through these notices are classified as delinquent and generally transferred to Acs-the second stage of collection. During the ACS stage, IRS tries to contact the taxpayer by telephone. However, if IRS has information regarding the taxpayer’s employer or financial insti- tution, IRS’ first action is usually to levy assets before attempting tele- phone contact. If the initial levy does not satisfy the delinquency, ACS staff, using existing or newly identified levy sources, can use additional levies to collect any outstanding delinquencies. When IRS levies a taxpayer’s account in the ACS stage, ACS staff transmit levy information, including the name and address of the third party holding the taxpayer’s funds, to a computer at the service center. Over- night, the service center computer prints the levy, which is then mailed to the third party. During a prior review,” we found that IRS initiated 850,3007 levies on the assets of an estimated 448,200 taxpayers, or almost 51 percent of the 883,300 individuals and businesses whose delinquent accounts were sent to ACS during fiscal year 1986. IRS used an average of two levies per taxpayer, and collected an estimated $700 million from the time the accounts were sent to ACS until mid-1988. IRS statistics show that, during fiscal year 1989, IRS initiated over 1.8 million levies through ACS. Although not the focus of our review, field collection is the third stage of the collection process. Revenue officers from IRS’ 63 district offices attempt to collect delinquent taxes through more direct means, such as face-to-face contact with taxpayers. They can also levy taxpayers’ assets. IRS has various controls to prevent erroneous levies. Section 6331(d) of the Internal Revenue Code requires that before issuing a levy, IRS must notify the taxpayer in writing of its intent to levy. This notice must be (1) given in person, (2) left at the dwelling or usual place of business of the taxpayer, or (3) sent by certified or registered mail to the taxpayer’s last known address at least 30 days before the levy is initiated unless “Tax Admimstration: Statistics on IRS’ IJse of Levies to Collect Delinquent Taxes (GAO/ I- 97F3, Jul. 17,1989) iSampling error is greater than 5 percent. However, we are 95 percent confident that IRS initiated at least 815,900 levies and may have initiated as many as 884,800. Page 3 GAO/GGDSI-9 I3moneous Levies R-240727 The objectives of this assignment were to (1) determine the extent to Objectives, Scope, and which IRS erroneously levies taxpayers’ assets, (2) identify the causes of Methodology erroneous levies, and (3) evaluate the adequacy of IRS’controls for preventing or mitigating the effects of erroneous levies. To determine the extent and causes of erroneous levies, we analyzed IRS’ use of levies for our stratified nationwide sample of 787 delinquent tax- payers whose accounts were sent to ACS in fiscal year 1986. (The sample contained levies on 404 individuals and 383 businesses. It was selected during work for our 1989 report.) The sample was stratified to allow us to make separate universe estimates for individuals and businesses. We examined information on each levy to determine whether the levy was erroneous and, if so, the reason why the levy was issued errone- ously. We discussed our determinations with IRSITpIXSentatiVeS. Using our sample results, we estimated the number of erroneously levied taxpayers in a universe of 448,200 delinquent taxpayers who had assets levied as a result of accounts sent to ACS during fiscal year 1986. (See app. I for a detailed discussion of sample selection and universe estimates.) To evaluate the adequacy of IRS’ controls for avoiding erroneous levies or mitigating their effects, we used the 787 sample cases to determine whether IRS’ policies and procedures were being followed. We also obtained information on the levy verification programs at the Kansas City, Memphis, and Philadelphia Service Centers, the only service cen- ters with such programs. We cannot generalize information on IRS’ con- trols obtained from the sample cases to the universe because there were not a sufficient number of erroneous levies in the sample to permit reli- able universe estimates. Our work was done between July 1989 and March 1990 in accordance with generally accepted government auditing standards. We did our audit work at IRS’ headquarters in Washington, D.C.; IRS Service Centers in Kansas City, Missouri; Memphis; and Philadelphia; and IRS’ Midwest Regional and District Offices in Chicago. IRS provided written comments on a draft of this report. These comments are incorporated where appro- priate and are included in appendix II. Page 6 GAO/GGBSl-9 Erroneous Levies B-240727 been a major problem for IRS This is particularly true for business tax- payers, who can have as many as 10 separate accounts per year.” Once payments are posted to the master files, MCC creates new computer tapes that are sent to the service centers to update ACS and other collec- tion computer systems. Thus, there is a built-in delay of up to 7 days between the time IRS receives payments and the time collection computer systems are updated. However, according to an IFSstudy completed in 1988, delays of up to 4 weeks are not uncommon. In the interim, IRS IDRS terminals will show payments received after the last ACS update as pending transactions (i.e., payments not yet posted) until the updated tapes from MCC are received and used to update ACS. The IDRS terminals are located at each service center. The posting delays in our sample ranged from 7 days to 3 years. Infor- mation was not available to determine the reasons for delays in posting payments to the accounts of the taxpayers in our sample whose assets were erroneously levied because of such delays. However, on the basis of our discussions with IRS officials, we believe some of the longer delays could have occurred because of insufficient information to associate the payments with specific taxpayers. These payments may have been ini- tially posted to suspense accounts and later transferred to appropriate taxpayer accounts as additional information became available.12 had notified, by certified mail, all of the 787 taxpayers in our sample Controls to Prevent or IRS of its intention to initiate levies. However, from the information IRS Mitigate the Effects of maintains, we were unable to determine whether the taxpayers received Erroneous Levies and responded to these notices. We found information indicating that IRShad released about half of the erroneous levies in our sample. Information on the release of levies was not shown in the other case files we reviewed, but not all erroneous levies require IRS action to be explicitly released. Levies on wages gener- ally remain in effect until the delinquency is satisfied or IRS releases the levy. However, levies on bank accounts apply to funds in the account only at the time the bank receives the levy. Therefore, if IRS levies a taxpayer’s bank account and that account has no funds, IRS would not ’ ‘Businesses can be required to file four quarterly employment tax returns, four quarterly excise tax returns, one unemployment tax return, and one corporate tax return each year. ‘LSuspense accounts are accountz in which incoming payments are temporarily recorded when IRS does not know to which taxpayer account the payment pertains. Page 7 GAO/GGDSlB Erroneous Levies Lb240727 as pending transactions at the time IRS levied the taxpayer’s assets. However, on the basis of discussions with IRSofficials about the manual levy verification programs in place at three service centers, we believe that the majority of these pending payments would have appeared on IDRS, and IRS could have avoided issuing these erroneous levies. To further assess the potential benefits of the manual levy verification programs in preventing erroneous levies, we obtained available IRS infor- mation on the results of its verification of over 117,000 levy notices at the three service centers in late 1989 and early 1990. This information showed that IRS identified approximately 5,600, or 4.7 percent, of the 117,000 levy notices as incorrect. The percentages of incorrect notices ranged from about 4.4 percent at the Philadelphia Service Center to approximately 12.7 percent at the Memphis Service Center. Upon identi- fication of the incorrect notices, IRS researched and corrected them, and when appropriate, did not issue them. The reasons for incorrect levies at the three service centers indicated that a levy verification program would reduce the number of erroneous levies caused by IRS’ delays and errors in recording taxpayers’ payments and by changes in taxpayers’ account status. Statistics obtained from these service centers showed that over 70 percent of the 5,600 incorrect levy notices were due to pending payments on IDRS that had not been posted to ACS, overpayments in other accounts of the taxpayers, or changes in the status of taxpayers’ accounts. Currently, the Philadelphia Service Center is developing an automated system to match taxpayer information on the levy notice with the most recent IDRS information. The planned automated system is designed to identify (1) overpayments in other accounts of the taxpayer, (2) pending payments, and (3) changes in the status of the taxpayer’s account. The Philadelphia Service Center plans to test this program locally. If successful, it will be proposed for nationwide testing and implementation. Precise cost information on manual levy verification was not available. Officials at the Kansas City and Memphis Service Centers estimated that costs are about 1 staff year; officials at the Philadelphia Service Center estimated between 3 and 4 staff years. However, these local IRS officials said that they believe the costs of their programs were clearly justified by the benefits they would give both taxpayers and IRS. Page 9 GAO/GGBSI-9 Elmmeous Levies 5240727 Until the computer modernization effort is completed, a levy verifica- tion program would provide needed safeguards for both taxpayers and IRS. We recommend that the Commissioner of Internal Revenue establish a Recommendation to nationwide levy verification program that would determine whether the Commissioner of there are (1) overpayments in the taxpayer’s other accounts, (2) Internal Revenue pending payments, and (3) changes in the status of the taxpayer’s account. IRSagrees with our recommendation and expects to implement it by IRS Comments December 31, 1990. As arranged with the Committee, we are sending copies of this report to the Commissioner of Internal Revenue and other interested parties. We will make copies available to others upon request. Major contributors to this report are listed in appendix III. If you have questions about this report, please call me at (202) 272-7904. Paul L. Posner Associate Director, Tax Policy and Administration Issues Page 11 GAO/GGDSl-9 Firmneous levies Appendix I sampling Metllodology Table 1.1:Estimates and Associated Sampling Errors of the Extent 01 Samplin error at Erroneous Levies the 9B-percent confidence level Description Type of taxpayer Estimate (plus or minus) Taxpayers with accounts Indtvidual 514,175 23,588 sent to ACS with Business 13,235 Information on collectlon Combmed ~::;~ 27,134 actions Cases In which IRS used lndivldual 312,371 19,071 levles to attempt Business 135,800 10,798 collection Combmed 448,171 21,915 Number of cases in which lndlvidual 4,639 3,682 etroneous levies were Business 7,801 3,160 used Combined 12,440 4,852 Percent of cases In which lndlvidual 1.5 1.2 enoneous levies were Business 5.7 2.3 used Combined 2.8 1.1 Total number of levles used Combined 850,346 34,404 to attempt collectlon Number of erroneous levies Combined 16.114 7,284 Erroneous levies due to IRS Combined 12,666 5,470 recording errors and delavs Page 13 GAO/GGDSlB EITO~~OIM Levies Appendix III Major Contributors to This Report General Government Issues Division Charles G. Kilian, Assignment Manager Michael M. Yacura, Evaluator Mark H. Egger, Evaluator-in-Charge Office Jo Ann Bufford, Evaluator Miriam Kahn, Evaluator Francis M. Zbylski, Technical Advisor (269419) Page 15 GAO/GGB91% Ermnenns Levies h - _ _ _- ,.. . . ,. -- _ - --,- - _ ,. _ ,,. .--,----- . .----- -- Ordering Information The first five copies of each GAO report are free. Additional copSes are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 106 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P. 0. Box 6015 Gaithersburg, MD 20877 Orders may also be placed by calling (202) 275-6241. i Comments From the Internal RevenueService DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON. DC. 20224 SEP 28 1990 Mr. Richard L. Fogel Assistant Comptroller General. United States General Accounting Office Washington, DC 20548 Dear Mr. Fogel: We have reviewed your recent draft report entitled "Tax Administration: Extent and Cause of Erroneous Levies." We agree with the recommendation in the draft report, that we establish a verification program for notices of levy issued by the Automated Collection System (ACS). We plan to evaluate the procedures of the three service centers that have levy verification programs and to develop a uniform, nationwide program. We expect to have a system in place by December 31, 1990. We believe this action will further improve the quality of ACS notices of levy by ensuring that we are alerted to recent overpayments, pending payments and changes in the status of the taxpayer's account. Best regards. page14 GAO/GGDSl-9 Erroneous Levies Appendix I Sampling Methodology To develop information on the extent and causes of erroneous levies and the adequacy of IRS’controls to prevent erroneous levies or mitigate their effects, we used a random sample of delinquent taxpayers. This sample was stratified by individual and business taxpayers, which allowed us to make separate statistical estimates of the number of tax- payers who were erroneously levied and the number of levies that were erroneous. Our sample, developed during previous work. was drawn from IRScom- Sample Selection puter tapes containing the universe of 1.4 million t,axpayers with accounts classified as delinquent during fiscal year 1986. We initially sampled 2,652 delinquent taxpayers-l ,052 individuals and 1,600 busi- nesses Of these, we did not review 946 cases-387 individuals and 559 businesses-either because they had been srnt t,o revenue officers in the field or because IRSwas otherwise unable to provide information on the collection actions taken. Accordingly, we reduced the sample size to 1,706, resulting in an ad,justed univcrsc of 883,281 delinquent tax- payers. Of the 1,706 cases reviewed, we idontificd 787-404 individuals and 383 businesses--in which 11~used levies to attempt collection. This represents an ad.justrrl universe of 448.17 i taxpayers-3 12.37 1 individ- uals and 135,800 busmesses. ‘To develop our results. WCanalyzed tax- payer account data from IRS’individual and business master files and ACScase files. We do not cite numbers for the cases in which IRSrefunded money and bank charges (see 1’ 8). This is because msrecords were insufficient t,o determine whethcll’ rc:‘ru~ls wcrc rn:rc!~~ ;n iii c C.::t’~, Because we review erl d statist i(~l sample , ,a F :‘;i:x5 in which IRs ~iscd Sampling Errors for levies to collect, dclmquent laxes. each es1mat t’ dt~vclopeti from the Results on Extent of sample has a measurable precision. or sampling error. The sampling Erroneous Levies error is the amount by which the estimate obtained from a statistical sample can be expected to differ frOm the true universe value at a given level of confidence,. Sampling errors arc usually stated at a c,ertain confi- dence level; in this cast 1~is 95 percent. This means thr chances are 19 out of 20 that if WV rcviewcd all taxpayers with accounts sent to ACS during fiscal year I988 and for which information on collection actions was available, the results would differ from the estimates obtained from our sample by no more than t,hc sampling l’rrors of such estimates, Table I. 1 shows our estirnal~!s and sampling errors. Page 12 GAO/GGDY 1-Y Erroneous Levies B-249727 IRS’ Computer IRS’computer modernization effort may address problems associated with erroneous levies over the long term by providing more accurate, Modernization Initiatives up-to-date information. Improvements in computer hardware and pro- May Help in the Long Run grams may result in payments being posted more quickly to accounts, thereby reducing the number of erroneous levies caused by posting delays. At the present time, however, we do not know the full effect computer modernization will have on reducing erroneous levies. These improvements may take up to 10 years to complete, according to IRS. IRS has several more near-term, narrowly focused automation efforts, in progress now. The efforts, to be completed soon, may provide IRS with additional information that could reduce errors and delays in recording taxpayers’ payments. For example, in some instances, the On Line Entity Project should provide IRSemployees with taxpayer identification information that could be used to associate payments with the correct taxpayer accounts. IRSofficials estimate that this information could reduce by 3 to 4 weeks the time it takes to properly record some uniden- tifiable payments. However, we do not know whether the reduction in recording time will be sufficient to significantly reduce erroneous levies. In addition, the Connectivity Project, which will allow operators to simultaneously access ACS and IDRS, could provide ACS personnel ready access to the most current information on delinquent taxpayers. How- ever, the Connectivity Project cannot reduce erroneous levies unless it is used as part of a systematic verification program in which analysts use the linked IDRS-ACS to verify levies before issuance. Although IRS is following its procedures and the Internal Revenue Code Conclusions provisions to provide taxpayers with opportunities to resolve discrepan- cies, erroneous levies still occur. They are costly for affected taxpayers and IRS. The majority of the erroneous levies in our sample were caused by IRS’ delays and errors in recording taxpayers’ payments. The levy verification program used at the three service centers should prevent most of the erroneous levies that result from such delays and errors. We believe that such a program should be adopted by IRSnationwide. The benefits in terms of reducing erroneous levies are substantial, while the costs, which are estimated to be between 1 and 4 staff years at each of the three service centers, appear to be small. While IRS’ computer modernization effort may eventually address the erroneous levies problem, we believe it will not resolve the problem in the near term. page 10 GAO/GGDSl-9 Emoneous Levies B-240727 need to release the levy for it to be no longer in effect. We could not determine from IRS' records whether the erroneous levies in our sample for which no release information was found were levies on zero-balance bank accounts. For most of the erroneous levies in our sample that resulted in collec- tions, IRS’records showed that the amounts erroneously collected were refunded with interest. IRS’records did not contain sufficient informa- tion on the others for us to determine whether IRS made refunds. We were also unable to determine whether taxpayers received reimburse- ments for bank charges incurred in connection with any of the erro- neous levies in our sample. The 21-day freeze requirement of the Taxpayer Bill of Rights is not applicable to the levies in our sample because they were initiated before July 1, 1989. To help minimize the number of erroneous levies, IRS Kansas City, Mem- phis, and Philadelphia Service Centers instituted manual levy verifica- tion programs. Although the procedures and criteria used to identify incorrect levies differed slightly among the three programs, they all included the basic features that should eliminate many of the types of erroneous levies we identified. Each of the three levy verification pro- grams relies on IDRS (which, as we noted earlier, has more up-to-date information than ACS) to determine whether the status of the taxpayer’s account has changed, if there are pending payments that would affect the amount of the levy, and whether the taxpayer has overpayments in other tax accounts. IRScompares information on the notice of levy with taxpayer account information on IDRS to identify discrepancies. If dis- crepancies exist, IRS determines whether it is still appropriate to levy the taxpayer’s assets. If the taxpayer has made a payment, a change in the dollar amount of the levy may be all that is needed to issue the levy. Our analysis of the causes of the erroneous levies in our sample and information on the procedures and results of the levy verification pro- grams indicated that at least one-third and as many as two-thirds of the erroneous levies could have been avoided by using this type of levy review. For example, by checking the taxpayers’ other accounts on IDRS, IRScould have identified overpayments in these other accounts and avoided erroneous levies caused by payments it incorrectly applied to these accounts. Also, we believe some of the erroneous levies caused by IRSdelays in recording taxpayers’ payments might have been prevented if, while IRS staff were verifying the amounts of the levies, these pay- ments had appeared on IDRS as pending transactions. Information was not available to show whether the payments actually appeared on IDRS Page8 GAO/GGD91-9 Erroneous Levies I%240727 IExtent and Causes of payers in our sample, we estimate that IRS erroneously levied the assets Erroneous Levies of 12,400, or 2.8 percent, of the 448,200 taxpayers who had assets levied as a result of accounts sent to ACSduring fiscal year 1986. An estimated 7,800, or 5.7 percent, of the 135,800 businesses and 4,600, or 1.5 percent, of the 3 12,400 individual taxpayers had assets erroneously levied. We estimate that a total of 16,100 erroneous levies were issued for business and individual taxpayers. Erroneous levies have adverse effects on both the taxpayer and IRS.The taxpayer can be deprived of his or her money. Erroneous levies are also costly to IRS because they can damage its image and require staff time and money to correct. When IRSdiscovers an erroneous levy, it must release the levy and refund any money erroneously collected plus interest. In situations in which taxpayers’ actions or inactions did not contribute to the erroneous levies, IRSmust pay the taxpayers’ associ- ated bank expenses. We estimate that 12,700 of the 16,100 erroneous levies were caused by errors and delays by IRSin recording payments in taxpayers’ accounts9 Errors we identified included applying payments to wrong tax periods, to wrong tax returns, or to accounts of other taxpayers. The remaining erroneous levies had other, less frequently occurring causes. These included levying the assets of taxpayers who had entered into install- ment agreements prior to the levies and levying the wrong taxpayers.‘” Because IRS maintains multiple accounts for each taxpayer, a payment must be posted not only to the records of the appropriate taxpayer but also to the taxpayer’s proper account. Tax information is maintained on magnetic tape master files at IRS’ Martinsburg Computing Center (MCC) in West Virginia. For each individual and business taxpayer, separate accounts are maintained for each tax period for which a tax return is required and for each type of tax. Generally, tax returns and payments are initially processed at IRS’ 10 service centers, and computer tapes reflecting payment information are shipped weekly to MC% to update the master files. Errors in posting payments to the correct account have %mpling error is greater than 5 percent. However, we are 95 percent confident that at least 7,200 of the erroneous levies we identified were due to enws and delays m posting payments to taxpayer accounts. ‘%like the erroneous levies discussed above, which wew caused by IRS misapplying payments, in these cases IRS levied the wrong taxpayer. Page 6 GAO/GGD-918 Erroneous Levies B-249727 collection of the tax is in jeopardy. It must also inform the taxpayer of available alternatives that could prevent the levy. IRSgenerally satisfies this requirement by sending the final service center notice (during the first stage of the collection process) by certified mail. IRS procedures state that if the certified letter is returned as undeliverable, IRS is not to attempt a levy until the taxpayer is properly notified. ACS personnel are required to verify that the final notice was sent before a levy is issued by the service center. IRSprocedures also require that levy notices be reviewed for complete- ness and readability prior to mailing. This process, however, is normally limited to a check of the name and address appearing on the levy. Although there are no other Ins-wide verification requirements, 3 of IRS’ 10 service centers-the Kansas City, Memphis, and Philadelphia Service Centers-have established local procedures to manually review all levies to help ensure that the amount is correct and the taxpayer’s delin- quency status has not changed. In these manual reviews, IRSstaff com- pare the information on the levy notice with account information contained in IRS’ Integrated Data Retrieval System (IDRS)-a computer system that has more up-to-date information than ACS. If IRS erroneously levies a taxpayer’s assets, its procedures require the immediate release of the levy. A release of a levy is a notification to a bank or other third party that the levy is no longer valid and should not be honored. If money has already been sent to IRS, the money will usu- ally be refunded with interest to the taxpayer. In addition, the taxpayer can also file a claim with IRS for reimbursement of bank expenses related to erroneous levies. In 1988, in an effort to better protect taxpayers, Congress passed the Taxpayer Bill of Rights8 One provision of this law requires that begin- ning July 1, 1989, financial institutions freeze the taxpayer’s account for the amount of the levy for 21 days before sending the money to IRS. During the Zl-day period, the taxpayer cannot withdraw the amount of the levy from the account. This provision was enacted to provide tax- payers an opportunity to resolve any differences with IRS before any money is sent to IRS. 8Technical and Miscellanm~s Revenue Act of 1988 (Public Law 100-647). Page 4 GAO/GGD91-9 Erroneous Levies I%240727 IRSinitiated levies on the assets of an estimated 448,200 taxpayer@ Results in Brief whose delinquent accounts were sent to ACS during fiscal year 1986.4 We estimate that IRS erroneously levied the assets of 12,400, or 2.8 percent, of those taxpayers. IRSerroneously levied the assets of businesses to a much greater extent than those of individuals-5.7 percent for busi- nesses and 1.5 percent for individuals. IRS initiated 16,1006 erroneous levies on the assets of these 12,400 taxpayers. Delays and errors in recording taxpayers’ payments were the two primary causes of the erro- neous levies. IRScan improve its controls and significantly reduce the number of erro- neous levies by instituting a levy verification program nationwide. As of March 1990, when we completed our work, 3 of IRS’ 10 service centers were using a manual levy verification program before issuing levies. This program helps ensure that the amount of each levy is correct by searching for changes in the taxpayer’s delinquency status, unrecorded payments received from the taxpayer that could affect the amount of the levy, and overpayments in the taxpayer’s other accounts that would reduce the taxpayer’s liability. This type of verification program, if properly implemented, could have eliminated at least one-third, and pos- sibly as many as two-thirds, of the erroneous levies we identified. IRS officials agreed with our recommendation to establish a levy verification program nationwide and expect to implement it by December 31,199O. IRS’process for collecting delinquent taxes consists of three stages, Background which afford taxpayers several opportunities to satisfy their tax obliga- tions and resolve any discrepancies before levy action is taken. In the first stage, a service center attempts to collect unpaid taxes, penalties, and interest by sending a series of computer-generated notices, or bills, to the taxpayer. (The notices are usually sent at 5-week intervals.) Depending on the type and amount of delinquent taxes owed, a taxpayer can receive up to five notices. The final notice is sent by certified mail alerting the taxpayer that if payment is not received within 30 days, IRS can levy the taxpayer’s assets without further notification. Each notice 3All nunben reported are estimates based on OUTsample results. Estimates are made at the 96 per- cent confident level. plus 01’ minus 5 percent, unless otherwse noted. Estimates are rounded to the nearest 100. see app. I 4Although these taxpayer accounts were sent to ACS in fiscal year 1986, we monitored IRS’ activity, including the issuance of Iwirs on these accounts, through mid-1988. 5Sampliig error is greater than 5 percent. However, we are 95 percent confident that IRS initiated at least 8,800 erronews levies and may have initiated as many as 23,400. Page 2 GAO/GGB91-9 Erroneous Levies
Tax Administration: Extent and Causes of Erroneous Levies
Published by the Government Accountability Office on 1990-12-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)