Nearly 2 million businesses owed nearly $50 billion in payroll taxes as
of September 1998, or about 22 percent of the Internal Revenue Service's
(IRS) $222 billion total outstanding balance of unpaid tax assessments.
The businesses that failed to remit withheld payroll taxes were
typically in wage-based industries and had few available assets from
which IRS could recover these taxes. They were usually small, closely
held businesses using a corporate structure, but this varied throughout
GAO found that the most common types of businesses with
unpaid payroll taxes were construction companies and restaurants,
although other types of business--computer software; child care; and
such professional services as legal, medical, and accounting firms--also
have unpaid payroll taxes. Most unpaid payroll taxes are not fully
collectible, and there is often no recovery potential because many of
the businesses are insolvent, defunct, or otherwise unable to pay.
Penalties of about $15 billion had been assessed against, and continue
to be owed by, about 185,000 persons--typically corporation
officers--found responsible for the nonpayment of payroll taxes withheld
from employees. Individuals responsible for the nonpayment of payroll
taxes and businesses that owe payroll taxes receive significant federal
benefits and other federal payments. Several factors affect IRS' ability
to enforce compliance and pursue collections of unpaid payroll taxes.
For example, financial management system shortcomings and other internal
control weaknesses affect the completeness and the accuracy of
taxpayers' accounts, making it difficult for IRS to manage its unpaid
assessments. Also, federal law does not prevent businesses or
individuals from receiving federal payments or loans when they are
delinquent in paying federal taxes. GAO summarized this report in
testimony before Congress; see: Payroll Taxes: Billions in Delinquent
Taxes and Penalties Due but Unlikely to Be Collected, by Gregory D.
Kutz, Associate Director for Governmentwide Accounting and Financial
Management Issues, and Cornelia M. Ashby, Associate Director for Tax
Policy and Administration Issues, before the Subcommittee on Government
Management, Information and Technology, House Committee on Government
Reform. GAO/T-AIMD/GGD-99-256, Aug. 2 (29 pages).
Click here for the full GAO Report, PDF Version, 47pgs. 264K