The Treasury Inspector For General For Tax Administration (TIGTA) recently released a stunning report about tax delinquencies for their employees on July 24,2024.

Why TIGTA Did This Audit
This review was initiated based on a congressional request asking TIGTA to conduct an updated review of the IRS’s employment practices. This included determining how many agency employees are not currently fully compliant on their tax debts and how many rehires on the IRS payroll were previously separated for performance issues, including failure to fully pay their taxes, and what actions the agency is taking, if any, to remedy these compliance issues.

The overall objectives of this audit were to evaluate the process for identifying and remediating willful IRS and contractor employee tax noncompliance, and the steps taken to mitigate the risks of rehiring former employees with past conduct or performance issues.

Impact on Tax Administration

In Section (§) 1203(b) of the IRS Restructuring and Reform Act of 1998, Congress made mandatory the removal of any IRS employees who were found to have willfully committed certain acts of misconduct, including tax noncompliance, subject only to the IRS Commissioner’s discretion. Hiring employees of high integrity is essential to safeguarding taxpayer information. 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.

What TIGTA Found

The IRS has policies and procedures in place to detect and remedy IRS and contractor employee willful and non-willful tax noncompliance as well as conduct/performance issues. However, some current IRS and contractor employees have previous tax noncompliance or prior conduct/performance issues. Overall, IRS and contractor employees were 95 percent tax complaint, consisting of filing and payment tax compliance. Of the 85,359 IRS employees on the rolls as of May 6, 2023, 85,344 (more than 99 percent) were compliant with their tax filing obligations and 82,036 (96 percent) were compliant with their tax payment obligations. In addition, of the 25,732 contractor employees on board as of March 13, 2023, 25,660 (more than 99 percent) were compliant with their tax filing obligations and 23,248 (90 percent) were compliant with their tax payment obligations. Between October 1, 2021, and April 1, 2023, the IRS closed 1,175 cases with disciplinary actions, for 1,068 current employees, with confirmed tax noncompliance issues. During that same time period, 70 employees were identified with substantiated willful § 1203(b)(8) or (b)(9) violations and 20 were removed as a result.

Although the law requires an employee who has either willfully not filed or willfully understated their taxes due to be removed, subject only to the IRS Commissioner’s mitigation, this disciplinary action is not always enforced. The Internal Revenue Manual does not describe the facts and circumstances considered by the § 1203 Review Board when making recommendations to the IRS Commissioner for mitigation or termination of IRS employees.

Further, there were an additional 397 rehired IRS employees, and 115 former IRS employees who are current contractor employees, with previously substantiated conduct/performance or tax noncompliance issues during Calendar Years 2005 to 2022.

What TIGTA Recommended

TIGTA recommended that the IRS 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 and include in the Internal Revenue Manual the policies, procedures, and standards for the § 1203 Review Board.

Although the IRS disagreed with the first recommendation, it verified that the identified instances of tax noncompliance were being addressed according to IRS policies and procedures. To support consistency in the § 1203 Review Board review process, the IRS agreed to consolidate documentation of the § 1203 Review Board policies and procedures.

Read TIGTA Report In Its Entirety

According to an article in the Epoch Times, 5,800 IRS Employees and Contractors Owe Nearly $50 Million in Unpaid Taxes: Treasury IG