September 27, 2012
This story has been updated.
Federal agencies cumulatively owe some $14 million in unpaid employment taxes, according to a report released Thursday by the Treasury Inspector General for Tax Administration.
Though agencies themselves are not required to pay income taxes, they must report and make deposits on their employment taxes -- income tax, Social Security and Medicare withholdings.
In a review of 132 agency accounts, TIGTA found that as of Dec. 31, 2011, 70 agencies, with 126 separate accounts, were delinquent on a total of $14 million. An additional 18 agencies were delinquent in filing 39 employment tax returns.
“Federal agencies must comply with the same filing and paying standards that apply to all American taxpayers,” said J. Russell George, Treasury inspector general for tax administration.
The report, dated Sept. 5, also said the Internal Revenue Service had not developed an adequate process for addressing “aged” agency tax debts. Auditors uncovered 40 such unresolved accounts, totaling about $2.6 million. Of those, the tax service had suspended collection efforts on 34. “Because the IRS has suspended pursuing these aged delinquent tax accounts, the possibility that the delinquent federal agencies will now voluntarily pay their outstanding tax liabilities is very low,” the report said.
Agency names were redacted from the published version.
Since a 2007 TIGTA report, the IRS had expanded its efforts to collect agency taxes, through its federal, state, and local government office of tax exemptions and government entities division and its Federal Agency Delinquency Program.
The report recommended the IRS strengthen procedures for resolving delinquent tax accounts and do more to help agencies understand their tax responsibilities.
After reviewing a draft of the report, Faris R. Fink, commissioner of the IRS’ small business-self employed division, agreed with the recommendations. But he wrote a letter addressing the 34 suspended collection efforts stating that “appropriations law and IRS policies make it difficult to collect delinquent taxes from federal agencies.”
The IRS on Thursday released a statement stressing that the issue is agency withholding of payroll taxes, not individual income taxes. “The IRS is committed to ensuring timely collection of the billions of dollars of employment taxes that federal agencies are required to withhold and pay for their employees each year and has seen substantial progress in this area,” it said. “The number of delinquent taxes has dropped significantly over the last several years, from $406 million in 2005 to $14 million in 2011 -- or less than 0.03 percent of the total tax deposits made by federal agencies last year. Despite a number of complexities, the IRS is working to continue to make progress in this area.”
September 27, 2012