FERDI: The IRS Program That Tracks Federal Employees and Retirees

If you work for the federal government, wear the uniform, or draw a federal pension, the IRS treats your balance a little differently. There is a name for it: the Federal Employee/Retiree Delinquency Initiative, or FERDI. Most people who are in it have never heard of it. Here is what it is and what it means for you.

What FERDI is

IRM 5.1.7.8 says the IRS developed FERDI in 1993 "to promote federal tax compliance among current and retired federal employees." The manual ties the program to the Office of Government Ethics regulation at 5 CFR 2635.809, which requires federal employees to "satisfy in good faith their obligations as citizens, including all just financial obligations, especially those such as federal, state, or local taxes that are imposed by law."

The procedures apply to all taxpayers currently receiving a salary or pension from the federal government, which the manual lists as:

• Civilian employees, including the U.S. Postal Service.
• Civil Service and FERS retirees.
• Active duty military.
• Military retirees.
• National Guard and Reservists.

The manual notes the procedures do not apply to survivors of federal retirees.

How the IRS finds you

IRM 5.1.7.8.1 explains that the IRS matches the Social Security numbers on balance due and return delinquency accounts against OPM personnel files, Department of Defense military and civilian records maintained by the Defense Manpower Data Center, Postal Service employment files and selected W-2 records. A match sets a FERDI indicator on your account. On joint accounts, the indicator posts to the primary Social Security number regardless of which spouse is the federal employee.

IRS systems display the indicator in various ways. On some notices, an "F" appears after the notice number. Once a year, the IRS removes the indicator from accounts of people who are no longer federal employees or retirees.

What changes when you are flagged

You cannot fall through the cracks

IRM 5.1.7.8.2 lists closing actions the system blocks on FERDI accounts. A balance due cannot be closed as unable to locate, and other closures are restricted. Delinquent return investigations cannot be closed as unable to locate, surveyed or shelved. IRM 5.1.7.8.3.3 adds that FERDI cases "cannot be reported as Unable to Locate." Translation: the IRS knows where you get paid, so it will not let your case go quiet.

More scrutiny before more time

IRM 5.1.7.8.3 tells IRS employees that because of the sensitivity of FERDI cases and the ethics regulation, they should "take extra care when granting FERDI taxpayers additional time to pay." It also says the IRS must determine the cause of the delinquency and take corrective action to prevent future ones. Expect questions about your withholding.

Unfiled returns get pursued

The manual says to secure all required returns and to reverse certain earlier closures on delinquent return modules. If you have unfiled years, plan to file them. See unfiled tax returns.

The IRS knows exactly where your paycheck comes from. Plan as if it does.

Payment options that work for federal employees

The IRM encourages, but does not require, direct debit or payroll deduction installment agreements for federal employees. It names the payroll providers for most federal employees: the USDA National Finance Center, the Interior Business Center, DFAS, GSA and the Postal Service. Two practical details:

• DFAS accepts payroll deduction agreements for civilian employees only.
• NFC, the Interior provider and GSA accept Form 2159, Payroll Deduction Agreement. Payroll deduction agreements with USPS and DFAS can be set up using Letter 3676.

See installment agreements for military and federal employees.

Hardship still applies

FERDI does not take hardship off the table. IRM 5.1.7.8.3 says a FERDI case may be closed Currently Not Collectible if the taxpayer cannot pay reasonable basic living expenses, and it is direct about levies: they "cannot be issued or left in place if the taxpayer meets the criteria for CNC (hardship)." See CNC status.

Levies on FERDI taxpayers

IRM 5.1.7.8.3.2 covers levies. The IRS may serve Form 668-W on federal salary and on pensions. It notes that most FERDI taxpayers will already be subject to the Federal Payment Levy Program, which can take up to 15% of certain federal payments. The manual also tells revenue officers not to serve a paper levy or set up a payroll deduction agreement with the federal agency while the FPLP is levying the same payment, because the agency will not process it. The FPLP must be blocked or released first. See FPLP levies on federal salary and Form 668-W levies on federal wages.

The same section reminds employees to take no enforcement action if the taxpayer is serving in a qualified combat zone.

Offers in compromise

IRM 5.1.7.8.3.1 says offers from IRS employees will be considered but that, due to the sensitivity of tax delinquencies of federal employees, public policy implications must be considered in all cases. If you are a federal employee considering an offer, expect the IRS to look at it carefully, and make sure your financial disclosure is complete. See how the offer math works.

If you think you are in FERDI

1. Pull your IRS account transcripts and list every open year and every unfiled year.
2. Check your current withholding. The IRS manual tells employees to find the cause of the delinquency and fix it.
3. File what is missing.
4. Choose a resolution that runs automatically: payroll deduction or direct debit.
5. Keep the paperwork. If your agency or a clearance adjudicator asks, you want to hand over proof, not promises.

Why this matters beyond the IRS

FERDI is an IRS program, but the ethics regulation it cites is your agency's rule. A tax balance can become a workplace issue under 5 CFR 2635.809, and for cleared employees a security issue under the financial considerations guideline. See federal ethics rules and tax debt and security clearances and tax debt.

FERDI is not a punishment program. It is a visibility program. The best response is to get your filings current and a resolution in place before the IRS has to use what it can see.