Office of Audit
Revenue Officer Levies of Social Security benefits
further Modification to Procedures is Warranted
Final Report issued on June 30, 2016
Highlights of Reference Number: 2016-30-043 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.
IMPACT ON TAXPAYERS
Social Security benefits are the primary source of income for many older taxpayers. To satisfy tax debts, the IRS may levy Social Security benefits. However, by law, levies that cause economic hardship must be released. In addition, taxpayers have the right to claim an exemption against the levy, which allows them to receive a minimum amount of the Social Security payment and prevent all or part of the levy.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether the IRS appropriately applied manual levies to Social Security benefits.
WHAT TIGTA FOUND
Revenue officers make levy determinations of Social Security benefits on a case-by-case basis and exercise judgment in making the determination to levy. While there are special procedures and thresholds for levying individual retirement accounts and 401(k) retirement accounts, there are no special considerations or procedures for revenue officers when levying Social Security benefits. In these cases, revenue officers follow procedures for levying assets in general. In most cases, revenue officers are compliant with these general IRS procedures when levying Social Security benefits. However, for 15 percent of our sample, revenue officers took levy action on Social Security recipients that likely caused or exacerbated economic hardship. These levies may be due in part to a change in collection policies that appear to be giving equal weight to nonlegal considerations (such as whether taxpayers return revenue officers’ telephone calls) with the legal requirement to release the levy when the IRS determines that the levy is creating an economic hardship for the taxpayer.
Additionally, while existing procedures allow revenue officers to manually levy up to 100 percent of Social Security benefits, taxpayers have the right to claim an exemption against the levy. However, in 28 percent of our sampled cases, revenue officers used the wrong form to levy Social Security benefits. As a result, exemption amounts were not considered prior to establishing the levy. Of these cases, 6 percent involved taxpayers who suffered greater Social Security levies than allowed by law.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Small Business/ Self-Employed Division Director, Collection: 1) provide guidance on levying Social Security benefits and give examples to guide revenue officers; 2) revise the Internal Revenue Manual to clarify that levy actions should not be taken if they will likely cause or exacerbate an existing economic hardship based on facts and circumstances of the case; 3) review the levy determinations for the levies that caused financial hardship; 4) remind Field Collection employees of the proper form to use when levying Social Security benefits; and 5) provide the opportunity to claim the proper amount of exemptions allowed for the affected taxpayers in our sample.
The IRS agreed with four recommendations and partially agreed with the fifth. The IRS plans to: provide guidance on using discretion before levying Social Security benefits; clarify the Internal Revenue Manual on requirements for a determination of economic hardship; and remind employees to use proper forms. The IRS stated that it reviewed the levy determinations for the levies that caused financial hardship and did not agree to provide all taxpayers in TIGTA’s sample the opportunity to claim the proper amount of exemptions allowed. TIGTA believes that all of our recommendations would benefit the IRS and taxpayers.
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to:
Phone Number / 202-622-6500
E-mail Address / TIGTACommunications@tigta.treas.gov
Website / https://www.treasury.gov/tigta