Because of a massive foul-up by the Internal Revenue Service, thousands of companies in the mid-Atlantic region have mistakenly been threatened with seizure of property in recent weeks for nonpayment of taxes, IRS officials said yesterday.
Through a combination of computer and human error, the IRS misplaced computer records documenting the payment of as much as $300 million in withholding taxes made last fall.
Although the IRS said it now has the problem under control, the companies won't be notified for several more days that tax agents don't really plan to take away their assets.
"We apologize for the inconvenience, frustration and anxiety that might have been caused by this event," said Daniel Seklecki, spokesman for the IRS Mid-Atlantic Region office in Philadelphia.
Although that office's territory includes Maryland and the District (Virginia tax returns are administered there but processed in Memphis), the problem apparently was less severe here than in Philadelphia.
The Philadelphia Inquirer, which first reported the snafu in yesterday's editions, said one bank had assigned a staff member to sort out the accounts of more than 450 corporate clients victimized by the confusion. Other banks, which act as agents for the type of payments involved, were receiving from 15 to 20 requests per day from firms that wanted verification of their payments in response to IRS inquiries.
"The amount of money, time and manpower being wasted on this is incalculable," one unnamed banker told the Inquirer.
In Washington, three large banks, several accounting firms and 11 companies informally surveyed said they had not heard about the foul-up. Nor had the offices of Maryland Sens. Charles McC. Mathias Jr. (R) and Paul S. Sarbanes (D), Rep. Michael Barnes (D-Md.) or Del. Walter Fauntroy (D-D.C.).
Staff aides in the office of Sen. William Roth (R-Del.), which was inundated with complaints from Delaware-based firms, said they had been told by an IRS official that the problem was concentrated in Philadelphia.
But at least one local company -- Bethesda-based Marriott Corp. -- was caught in the mix-up and directed to prove it had paid the taxes involved. The hotel firm did so with "no problem," according to spokesman Robert T. Souers.
The error was caused by defective instructions on a computer tape that was transferring data from the Philadelphia office to the national computer center in Martinsburg, W.Va.
The information on the tape was not recorded. Thus, confirmation that the companies had turned over their regular payments of the taxes withheld from employes' checks never arrived.
IRS officials in the service's computer department were aware of the problem, which occurred between Oct. 1 and Oct. 5. Unfortunately, they failed to mention it to the office's return-processing unit, which assumed that the non-payments were genuine.
"Sometimes when you're a little close to the action, you forget about the big picture," Seklecki said. "We're attributing it essentially to human error, although it was computer error, too."
He compared the IRS' error to that of a credit-card company that fails to record a customer's payment and continues to bill him.
The agency has the tax returns from the companies whose records were lost, and thus won't need additional confirmation that they actually made the payments. Nor are more dunning notices going out in the mail, although the last batch were arriving as late as last week. But the only notification so far has been informal contacts between the service and representatives of some of the companies.
Before the error was discovered, companies received as many as four nonpayment notices from the IRS. The last one threatened that "a notice of federal tax liens may be filed which constitutes public notice to your creditors that a tax lien exists against your property. . . . Property or rights to property such as automobiles may also be seized or sold to satisfy your tax liability." Apparently, the service did not actually attempt to seize any property.
Workers whose withheld taxes were part of the "missing" money won't be affected in any way, Seklecki said.