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MSP #19: FEDERAL PAYMENT LEVY PROGRAM

Despite Some Planned Improvements, Taxpayers Experiencing Economic Hardship Continue to Be Harmed by the Federal Payment Levy Program

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #19-1

Eliminate the LIF exclusion for unfiled returns.

IRS RESPONSE TO RECOMMENDATION: Taxpayers with delinquent tax returns do not go through the Federal Payment Levy Program (FPLP) Low Income Filter (LIF) because the IRS has decided that the filter should be used only when we have the most accurate and up-to-date information about a taxpayer. Whether an individual is a low income taxpayer is based either on the latest current year tax return or third-party reporting information. An important aspect in the LIF is to build or formulate an estimated income for the taxpayer using the most accurate and most current income information. Including taxpayers with delinquent unfiled returns in the LIF analysis would result in an estimated income analysis based solely on third party information without the benefit of the taxpayer’s return information. Thus, taxpayers with delinquent returns remain in FPLP and are put through the LIF only after delinquent returns are filed. However, in response to a Taxpayer Advocate Directive, we are working on an update to the programming that will allow taxpayers who have a TDI, have filed a return within the last three years, and who do not have a potential delinquency after filing to go through the LIF.

Update: Adopted in Part. We submitted a UWR requesting an adjustment to the Federal Payment Levy Program Low Income Filter to include certain taxpayers with Taxpayer Delinquency Investigations who are receiving Social  Security Administration payments. CIDS worked with the programmers to change the process for those SSA recipients who have a Taxpayer Delinquency Investigation and have filed a return in the last three years without a following delinquency to be included in the FPLP Low Income Filter. UWR Number 155610 was submitted to be implemented by Information Technology in January 2016.

CORRECTIVE ACTION: We are working on an update to the programming for the Low Income Filter (LIF). This update will allow taxpayers who have a TDI, have filed a return within the last three years, and do not have a potential delinquency after the filing to go through the LIF.

TAS RESPONSE: TAS is pleased the IRS has taken steps to eliminate low income taxpayers from the FPLP program. However, as discussed in the Most Serious Problem, the IRS’s implementation to exclude taxpayers from the FPLP program who have a TDI, who have filed a return within the last three years, who do not have a potential delinquency after filing, and who are over 65, will only exclude about ten percent of taxpayers whose incomes fall below 250 percent of the federal poverty guidelines and who have a TDI indicator on their account. The remaining 90 percent of low income taxpayers with a TDI indicator on their accounts are left unprotected and are subject to an FPLP levy. Requiring taxpayers to have filed a return in the past three years may subject those who did not file because their income was below the filing thresholds to unjustified FPLP levies.

Further, the IRS to continue to proclaim filing a return is necessary to determine income and if a taxpayer should be subject to the FPLP LIF is confusing. As it does in other situations, the IRS could consider third-party information to determine a taxpayer’s income level, rather than requiring taxpayers to file a return. Determining a taxpayer’s income level using third-party information, including Forms W-2 and 1099s, is easier than ever before, because of the IRS’s implementation of its Information Reporting Documents Matching Program. IRS established this program after Congress passed legislation requiring banks or organizations who make contractual payments to merchants in settlement of third-party payment card transactions (i.e., transactions made by debit or credit card) to report such payments to the IRS. This program provides the IRS with more than enough information to paint an accurate picture of these elderly and disabled taxpayers’ income levels. The IRS’s failure to consider this third-party documentation in place of a filed return to determine if a taxpayer meets the income threshold for the LIF will only cause more rework (i.e. the IRS will later have to release the FPLP levy because of hardship). This is yet another example of mismanagement and the IRS wasting resources to work inappropriate cases.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #19-2

Expedite programming to exclude taxpayers receiving SSDI payments from the FPLP.

IRS RESPONSE TO RECOMMENDATION: ​​The programming change required to exclude taxpayers receiving Social Security Disability Insurance (SSDI) payments from the Federal Payment Levy Program (FPLP) is to Bureau of Fiscal Service (BFS) system.  We have requested that BFS update their system as quickly as possible. BFS has advised that they are completing programming to exclude SSDI payments from the FPLP and that the programming will be completed in October 2015.

CORRECTIVE ACTION: N/A

TAS RESPONSE: N/A

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #19-3

In collaboration with TAS, SB/SE should review the FPLP program requirements and ensure that the correct taxpayers are bypassing the LIF.

IRS RESPONSE TO RECOMMENDATION: We provided the Taxpayer Advocate Service with all Federal Payment Levy Program (FPLP) requirement packages. We also responded to all of TAS’s questions as they reviewed the taxpayers who were excluded from the FPLP Low Income Filter. In every case that TAS provided to us, the programming was shown to be correct. No further action is required at this time.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Although the National Taxpayer Advocate is pleased with the overall implementation of the FPLP LIF, she is concerned about the LIF programming and other reasons for which taxpayers will bypass the LIF. For instance, a taxpayer will bypass the LIF and be subjected to the FPLP in the following situations:

  1. Taxpayer’s spouse has an invalid Taxpayer Identification Number (TIN) on the liability subject to FPLP;
  2. Taxpayer’s spouse has an invalid TIN on their tax record;
  3. Taxpayer’s TIN on the liability subjected to the FPLP does not match his or her spouse’s TIN on their joint income tax returns; and
  4. Taxpayer’s name on the liability does not match their name on their most recent filed tax return. Although the National Taxpayer Advocate can understand why the IRS would want to put some cases aside and look at them closer (i.e., the taxpayer has had a name change and it is not clear who they are). IRS should not levy on these taxpayers for that exact reason, especially if they are low income. Further, in the example above, there seems to be no good explanation as to why this taxpayer would be excluded from the LIF, since his name did not change and the IRS should be able to determine his income level.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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