IRS has difficulty ensuring its own employees’ tax compliance

The agency responsible for enforcing tax laws is having trouble ensuring its own employees are paying what they owe, according to a new watchdog report.

Under the Employee Tax Compliance project, the IRS developed a computer program to monitor its workers, which matches the employee payroll records with the general tax account records for all taxpayers. But in 2006 and 2007, 133 employees slipped through the cracks, the Treasury Inspector General for Tax Administration said in a report filed in May and released Tuesday.

The inspector general's office discovered the 133 cases by conducting its own investigation of potential employee tax noncompliance, but left it to the IRS to follow up on whether these employees actually were behind on paying their taxes.

Additionally, TIGTA discovered that the IRS scaled back its compliance program after conducting a study that showed IRS employees were more likely to pay their taxes than members of the general public.

The report stressed the need for tax compliance by federal employees, especially those working for the IRS, citing a 2009 IRS report that found more than 97,000 federal employees were behind on their taxes and owed more than $1 billion.

"To maintain public confidence in the agency entrusted to administer the nation's tax law system, the IRS must ensure that potential misconduct concerning noncompliance with the tax laws is identified and addressed," J. Russell George, the treasury inspector general for tax administration, said in a statement.

TIGTA also referred to recent legislation in both the House and Senate targeting tax delinquency. The bills, introduced earlier this year by Sen. Tom Coburn, R-Okla., and Rep. Jason Chaffetz, R-Utah, would prevent tax-delinquent employees from working for the federal government.

The National Treasury Employees Union spoke out against the legislation, arguing it was politically motivated and unfairly targeted federal employees.

In response to the TIGTA report, NTEU emphasized that the IRS has an extremely low rate of noncompliance.

"In the face of this minuscule number, a TIGTA recommendation that the IRS spend more on this issue reflects a lack of understanding about how this critical agency should use its limited resources in the most efficient way possible," NTEU President Colleen Kelley said in a statement.

TIGTA made four recommendations in its report, suggesting the IRS examine the ETC computer application, investigate the 133 cases of potential noncompliance, realign the goals and actions of the ETC program, and develop new noncompliance detection efforts for its employees.

IRS officials agreed with first three recommendations and noted in a response to the report that they intend to immediately investigate the 133 cases and revise the mission of the ETC program. But they did not agree with the fourth recommendation, stating that they felt their current process for noncompliance detection was sufficient. They said they had no plans to develop noncompliance detection efforts targeting IRS employees.

"We are committed to quickly analyzing and fairly adjudicating all potential employee tax noncompliance issues and believe we have the appropriate systems in place to do so," James P. Falcone, the IRS chief human capital officer, said in response.

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