Treasury Inspector General for Tax Administration
August 3, 2016
TIGTA - 2016-20
Contact: Karen Kraushaar, Director of Communications
WASHINGTON — While most Internal Revenue Service (IRS) revenue officers follow the law when issuing levies on taxpayers, some took levy action on Social Security recipients that likely caused or exacerbated economic hardship, according to an audit report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
Social Security benefits are the primary source of income for many older and low-income taxpayers. To satisfy tax debts, the IRS may levy Social Security benefits. However, a provision of the Internal Revenue Code requires the IRS to release levies that cause economic hardship. 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.
TIGTA initiated this audit to determine whether the IRS appropriately applied manual levies to Social Security benefits.
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 the audit’s sample, TIGTA found that 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 appears to give equal weight to nonlegal considerations (such as whether taxpayers are “cooperative” within the subjective determination of revenue officers) and the legal requirement to release the levy when the IRS determines that the levy is creating an economic hardship for the taxpayer. In these cases, revenue officers could have discerned from the facts that the taxpayers were experiencing economic hardship.
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 from the levy. However, in 28 percent of the sampled cases, revenue officers used the wrong form to levy Social Security benefits. As a result, the IRS did not consider exemption amounts before establishing the levy. Of these cases, 6 percent involved taxpayers who suffered greater Social Security levies than allowed by law.
“TIGTA’s audit found that a change in policy at the IRS likely contributed to levies that caused economic hardship,” said J. Russell George, the Treasury Inspector General for Tax Administration. “We believe the IRS needs to adjust its policies and procedures to allow revenue officers, with appropriate discretion, not to levy if facts and circumstances clearly show that taxpayers are in or on the threshold of an economic hardship,” he added.
TIGTA made five audit recommendations. The IRS agreed with four of them and partially agreed with the fifth, stating that it reviewed the levy determinations for the levies that caused financial hardship and they did not agree to provide all of the taxpayers in TIGTA’s sample the opportunity to claim the proper amount of exemptions allowed. TIGTA believes that all of its recommendations would benefit the IRS and taxpayers.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.