Under a U.S. Internal Revenue Service collection program that got under way last month, certain individuals and businesses with unpaid tax bills may be subject to a continual 15 percent levy on money due them from the federal government.
The new effort, the Federal Payment Levy Program (FPLP), is the result of a provision of the Taxpayer Relief Act of 1997. And federal employees will have the dubious distinction of being one of the initial targets of the new IRS collection program.
Through the FPLP, the IRS can collect overdue taxes through a continual levy on certain federal payments, including federal employee pay. This program will be used in conjunction with an already existing levy program.
In its initial phase, the FPLP will reduce federal retirement benefits paid to individuals through the U.S. Office of Personnel Management and federal payments to vendors doing business with the government. Later, the FPLP will expand to include federal employee salaries, some Social Security benefits and other federal payments. Under prior law, the IRS could levy Social Security payments. But other types of federal payments either couldn't be levied at all or the levies were limited to amounts that exceeded a certain exemption level.
Federal payments to a delinquent taxpayer will not be affected in certain circumstances, including when the taxpayer is in bankruptcy, is in a hardship situation or has applied for relief as an innocent or injured spouse. The levy program will not apply to all federal insurance payments: Black lung benefits and Supplemental Security Income payments won't be touched.
A taxpayer whose federal payments are subject to levy under this program can contact the IRS to resolve the issue, either by paying the tax bill, entering into an installment agreement or proposing a compromise.
Determining whether to impose a levy under the FPLP will be done on a case-by-case basis. A file of delinquent taxpayer accounts will be transmitted to the U.S. Treasury Department's Financial Management Service (FMS) to be matched against pending federal payments. When a match is found, the IRS will send the taxpayer a final notice of levy with an explanation of appeal rights.
If the taxpayer doesn't respond, the IRS will lower the boom and transmit the levy electronically to the FMS. From that point on, the FMS will reduce any federal payments subject to the levy by 15 percent.
When fully implemented, the FPLP is projected to generate $478 million in revenues annually.
I'm only surprised that the IRS didn't do this sooner. Why should someone who owes taxes continue to receive federal payments? It doesn't make sense, and this program is long overdue.