Continuous Federal Tax Levy Program
Updated February 4, 2002
The Financial Management Service (FMS) is a bureau of the Department of the Treasury, and part of its mission is to provide centralized debt collection services to most federal agencies. FMS has begun implementing two Congressionally mandated federal debt collection programs. One is designed to collect delinquent non-tax debt by offsetting certain federal payments and the other to collect delinquent tax debt from individuals who receive certain federal payments. This paper provides background and details on the delinquent tax debt collection program.
Statutory Authority:The 1997 Taxpayer Relief Act authorizes the Internal Revenue Service (IRS) to collect overdue federal tax debts of individuals and businesses that receive federal payments, by levying up to 15% of each payment until the debt is paid.
Affected/Excluded Recipients:In July 2000, FMS and the IRS launched the program. Presently, vendor payments disbursed by Treasury, Office of Personnel Management retirement payments, and travel advance and reimbursement payments to federal travelers are being levied. In October 2001, the IRS began notifying certain Social Security beneficiaries of the intent to levy their benefit payments to collect delinquent tax debts. Supplemental Security Income benefit payments as well as payments to children, lump sum death benefit payments, payments currently being reduced to repay Social Security benefit overpayments, and payments to beneficiaries who turned age 72 by 1971, will be excluded from the tax levy program. IRS also has the discretion to exempt people suffering hardship situations, residing in a federally declared disaster area (including those affected by the September 11, 2001 terrorist attacks), entitled to a military deferment, and seeking bankruptcy protection.
Levy Process: Federal tax debts will be collected by FMS through the Treasury Offset Program (TOP), which is also used to collect non-tax debt. The TOP database maintained by FMS includes delinquent debtor information submitted and updated by federal agencies, such as the IRS, that are either owed debts or are collecting debts on behalf of other federal agencies. In the case of the tax levy program, IRS will supply FMS with an electronic file containing tax debt information for inclusion in the TOP database. After FMS matches federal payment information with TOP database information, FMS will notify IRS of any matches and will specifically identify any debtors that are recipients of Social Security benefit payments. Subsequently, IRS will send a notice of levy to FMS to reduce matched payments continuously at a rate of 15% until the debt is paid, until other satisfactory repayment arrangements are made, or until the expiration of the statutory collection period. In February 2002, FMS began reducing the payment amounts of Social Security beneficiaries who owe a delinquent federal tax debt. The levied amount is sent to IRS, and the balance of the payment is sent to the taxpayer.
Levy Notification: Before IRS transmits the electronic file to FMS, IRS will send each tax debtor a notice that will include the tax bill, a statement of the intent to levy, an explanation of an individual's appeal rights, and an IRS telephone number for inquiries and assistance. The notice, which will be sent by certified mail to the taxpayer's last known address, will also inform the debtor that if repayment arrangements are made within 30 days, the levy will not proceed. IRS will send tax debtors who receive Social Security benefit payments an additional notice, providing another opportunity to make repayment arrangements. To coincide with the timing of each payment, FMS will send a notice to the debtor explaining the reason for the reduced payment and giving a contact at IRS who will answer questions regarding the tax debt. At any time, either before or after the levy process begins, a debtor may make repayment arrangements with IRS, which will then release the levy.
Implementation: Since implementation of the Tax Levy Program, the Internal Revenue Service has referred $126 billion in delinquent federal tax debt, of which $62.3 billion is available for matching. Of this amount, 1,379,129 debts representing $14.6 billion have been activated for tax levy. Tax levy collections through December 2002 were 593,232 levies for $101,380,953. From January 1 through July 30, tax levy collections were 352,302 levies for $49,974,206. Compared to the same period in calendar year 2002, the number of tax levies has increased by 44 percent and dollar collections by 32 percent.
Outreach: Prior to implementation, FMS sponsored a tax levy program workshop for agencies that refer delinquent debt for collection through TOP. At the workshop, FMS and IRS briefed program administrators and administrative staff and provided a forum for questions and answers. FMS and IRS have provided information about the continuous tax levy program to key House and Senate committee staff. FMS, IRS, and SSA have also shared program information with federal labor unions, senior citizen organizations, as well as ethnic and faith-based organizations. Independently, IRS will provide program materials to taxpayer practitioner organizations.