Don't Mess With Taxes

The Internal Revenue Service has been making use of additional federal funds to crack down on tax scofflaws. Notably, it has collected more than $1 billion from wealthy Americans who had, shall we say, neglected to file returns.

However, a recent federal oversight office review indicates that the IRS also needs to take a look within its own ranks.

Overall, IRS and contractor employees were 95 percent tax compliant, meaning they filed returns and paid (or were paying) due taxes, according to a recent Treasury Inspector General for Tax Administration (TIGTA) investigation.

While just 5 percent not filing or paying is not bad, when it comes to following tax law, the IRS needs its personnel to be 100 percent compliant.

“IRS and contractor employees who are not tax compliant could negatively affect public trust in tax administration and the perception that the IRS is being honest in its dealings with taxpayers,” wrote TIGTA report author Danny R. Verneuille, Acting Deputy Inspector General for Audit.

And the full compliance of IRS staff and contractors is not just for appearances sake. It also affects Uncle Sam’s bottom line. In the cases reviewed by TIGTA, that meant the U.S. Treasury was being shorted around $46 million.

Nonpaying personnel: Of the 85,359 IRS employees on the agency’s rolls as of May 6, 2023, TIGTA found that more than 99 percent, or 85,344 staff, had fulfilled their tax filing obligations. As far as payments, the tax watchdog said 96 percent, or 82,036 employees, met or were paying their tax-due obligations.

IRS contract employees also were mostly following tax law. TIGTA found that of the 25,732 contractors on board as of March 13, 2023, more than 99 percent (25,660 contractors) were return filing compliant, and 23,248 (90 percent) met or were meeting their tax payment obligations.

TIGTA also noted it found an additional 397 IRS employees, and 115 former IRS employees who are current contractor employees, who had previous performance or tax noncompliance issues during Calendar Years 2005 to 2022.

Real tax dollar costs: In addition to the poor public perception, the non-paying IRS personnel, both fulltime staff and contractors, do ding the U.S. Treasury.

During the time periods studied by TIGTA, Uncle Sam’s employees owed around $46 million in taxes.

The 4 percent of IRS personnel, or 3,323 employees, who had not fully paid their tax-due balances owed their boss more than $21 million.

That breaks down to 2,044 IRS employees who owed more than $12 million on one or more tax periods. Another 1,279 IRS employees were on installment agreements that accounted for balances due totaling approximately $9 million.

A similar situation was found among IRS contractors.

TIGTA found that 1,729 of the agency’s 25,732 contractor employee had tax balances due that came to $25 million.

That contractor owed total owed breaks out to more than $17 million on one or more tax periods from non-staff employees who were not on any installment agreement. The 755 contractor employees who had entered into installment payment plans owed a total of approximately $8 million.

IRS’ failed disciplinary actions: While the bad public relations and lost revenue are concerning, TIGTA also chided the IRS for its apparently lax actions against noncompliance employees.

The IRS notes, repeatedly, that all citizens — including its workers — must comply with the U.S. tax law requirements that they file returns and pay taxes. The vast majority of Americans do their civic duty, and voluntarily complies with their tax-filing obligations.

“Taxpayers who fail to file income tax returns and pay taxes pose a serious threat to tax administration and the American economy. Their actions undermine public confidence in the Service's ability to administer the tax laws fairly and effectively,” said the tax agency on a special IRS.gov page.

The TIGTA report notes that § 1203(b) of the IRS Restructuring and Reform Act of 1998 requires the removal of any IRS employees who are found to have “willfully committed certain acts of misconduct, including tax noncompliance, subject only to the IRS Commissioner’s discretion.”

Written rules suggested: The issue, according to TIGTA, is the discretion component.

After detailing the process the IRS followed in regard to employees who did not file and/or owed tax, the TIGTA report noted, with my emphasis highlighted —

“In deciding what disciplinary actions to recommend, the § 1203 Review Board considers the specific facts and circumstances of the issue and the employee, in conjunction with progressive discipline. However, HCO [Human Capital Office] management stated that there are no specific written descriptions of mitigation considerations, or policies and procedures, used by the § 1203 Review Board. The IRM [Internal Revenue Manual] does not describe the facts and circumstances considered by the § 1203 Review Board when making recommendations for mitigation or termination of IRS employees. Establishment of a formal IRM would offer transparency and specific guidelines for how the Board evaluates employees with these serious violations of the law.”

TIGTA officially recommended that “the Chief Human Capital Officer should ensure that any unfiled tax returns have been secured or the instances of unpaid balances due for IRS and contractor employees identified in this report have been resolved.”

The IRS disagreed with this recommendation. The agency responded that the Chief Human Capital Officer “does not have tax collection or enforcement authority; that authority resides with the IRS business operating divisions for all taxpayers, including IRS employees and contractors.”

And even though the IRS disagreed with TIGTA’s recommendation, the report noted that the HCO confirmed in its response that “the tax noncompliance identified during this review are being addressed according to IRS policies and procedures. Therefore, it appears that the HCO has addressed TIGTA’s concern.”

Payment plans for all: When any taxpayers are unable to fully pay a liability, they can look into installment agreement to help them fulfill their tax debt obligation. All taxpayers are entitled to this option, whether an IRS employee or not.

The IRS has several repayment options. They include a couple of pay-over-time plans —

• A short-term plan, for which you apply online, offers payment periods of up to 180 days if the combined tax, penalties, and interest owed is less than $100,000. There is no cost to establish a short-term payment plan.
• Long-term online repayment plans also can be requested online. These installment agreements for tax debts of less than $50,000 are paid at a monthly rate. The IRS does charge to set up long-term plans. The amounts vary depending on how you choose to make the payments, e.g., via direct payment from a bank account or by paying the monthly amount yourself.

You can find more on the various IRS payment options in my post You have options if you can't pay your tax bill in full.

You also might find these items of interest:

• 6 ways to e-pay your federal tax bill
• 10 tips to help you deal with an IRS tax notice
• IRS still accepts checks, but has rules about paper payments

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