TREASURY INSPECTOR GENERAL FOR TAX
ADMINISTRATION
THE FEDERAL TAX DEPOSIT ALERT PROGRAM
HELPS TAXPAYERS COMPLY WITH PAYING TAXES, BUT ALERTS CAN BE WORKED MORE
EFFECTIVELY
Issued on September 17, 2007
Highlights
Highlights of
Report Number: 2007-30-180 to the
Internal Revenue Service Commissioner for
the Small Business/Self-Employed Division.
IMPACT ON TAXPAYERS
The Federal Tax Deposit (FTD) Alert program (the Alert
program) provides for early intervention by the Internal Revenue Service (IRS) when
employers do not deposit and pay taxes withheld from employees. It identifies taxpayers that appear to be
behind in making deposits of withholding taxes before their quarterly
employment tax returns are due to be filed so the IRS can contact the
identified taxpayers to resolve the underpayments. FTD Alerts serve the taxpayer’s interest by
involving the IRS before enforced collection action or bankruptcy becomes the
sole remaining alternative for collecting the taxes owed.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine the effectiveness of
the Alert program criteria and case actions to bring taxpayers into compliance
with paying taxes. The audit was
conducted as part of the annual audit plan.
WHAT
TIGTA FOUND
Although some management information, such as inventory
received and disposed, hours charged, and productivity rates, is regularly
captured for the Alert program, an analysis of whether taxpayers are more
compliant subsequent to issuance of an Alert is not regularly performed. This type of analysis should be performed
more frequently (the last research study was conducted in November 2005 based
on data from the last quarter of Calendar Year 2003 and the first quarter of
Calendar Year 2004) so the effect of working FTD Alerts is known.
Research of IRS guidelines showed those that reflect Alert
program criteria need to be updated.
Several reference document sources contain obsolete information and data
based on the old Alert selection criteria.
In addition, information displayed on the IRS computer system that
employees use for research does not contain the new Alert priority codes. Inaccurate information is being displayed,
and employees could make incorrect assumptions about a taxpayer’s account, such
as thinking the taxpayer is accruing additional liabilities.
Lastly, our
review of a judgmental sample of 50 FTD Alert cases showed revenue officers can
improve their actions on cases by following the required procedures. Documentation in the case files showed that, in
25 of the 50 cases, revenue officers did not always contact the taxpayers
within the required 15 calendar days, monitor current FTDs, inform taxpayers
about potential penalties related to not depositing taxes on time, and/or
inform taxpayers about potential enforcement action consequences.
WHAT TIGTA RECOMMENDED
TIGTA
recommended the Director, Collection, periodically measure taxpayer compliance
after contact on an FTD Alert, update IRS guidelines with the current Alert
priority codes, and emphasize procedures and documentation requirements for
working Alerts.
In their
response to the report, IRS officials agreed with the report’s recommendations. They plan to take adequate corrective actions
that include sampling a group of taxpayers who have had FTD Alerts issued on
their accounts and following their compliance for the two subsequent tax
periods, revising IRS Processing Codes and Information (Document 6209) to
reflect current Alert priority codes, submitting a request to the Modernization
and Information Technology Services organization for a programming change that
will reflect the current priority codes on the Master File, and developing
training specific to Alerts for revenue officers.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2007reports/200730180fr.html.
Email
Address: Bonnie.Heald@tigta.treas.gov
Phone Number: 202-927-7037
Web Site:
http://www.tigta.gov