Improvements Are Needed in the Withholding Compliance Program

The Commissioner, Small Business/Self-Employed Division, should determine the feasibility of providing revenue officers, and potentially other IRS functions, with the ability to issue lock-in letters when an underwithholding issue is identified.

The Commissioner, Small Business/Self-Employed Division, should identify noncompliant employers and determine the appropriate actions to enforce Internal Revenue Code Section 3403 by holding employers liable that fail to withhold Federal income tax from the employees as instructed in the lock-in letters.

The Commissioner, Small Business/Self-Employed Division, should assess whether the WHC's focus on FERDI taxpayers is the most effective use of resources, considering the high percentage of unfiled returns that ultimately might result in refund returns when filed as well as the compliance resources that are already in place as part of the FERDI.

The Commissioner, Small Business/Self-Employed Division, should analyze the current selection criteria used by the WHCS to determine if the taxpayers identified for systemic lock-in letter issuance are the best use of limited resources. This would include potentially identifying taxpayers with multiple years of underwithholding and the percentage of inventory that includes nonfilers.

The Commissioner, Small Business/Self-Employed Division, should update the quality review process for lock-in letters that are released or modified to verify that the required case documentation is included in the AMS case histories.