The report, from the Treasury Inspector General for Tax Administration, pointed out that the IRS’s own employees and contract employees are required under the Internal Revenue Manual to pay any federal tax debts and file their taxes on time, but employees of IRS contractors are not held to the same standards.
TIGTA found that as of June 14, 2012, 691 of the 13,591 IRS contractor employees, or 5 percent, it reviewed had $5.4 million in federal tax debt. These debts were either agreed to by the taxpayers or affirmed by the court. Of the 691 contractor employees, 352 are not currently on a payment plan to resolve their tax debts.
Most of the contractor employees appeared to have been compliant when their initial staff-like access was granted, but at least 319 contractor employees had tax debts assessed after they were granted staff-like access, and these employees are not on a payment plan at this time. Under IRS policy, these 319 contractor employees were not eligible for staff-like access and should not have had access to IRS facilities, systems and data, the report noted.
TIGTA’s review identified weaknesses in the IRS’s existing practices that allowed contractor employees with federal tax debts and instances of nonfiling to go undetected after the IRS initially granted staff-like access because the IRS does not continuously monitor contractor employee tax compliance in the same way it monitors IRS employee tax compliance. Instead, the IRS reviews contractor tax compliance only once every five years or if the contract employee has longer than a two-year break in service.
“Because many contractor employees have access to sensitive IRS systems and facilities, the IRS should address tax noncompliance for these employees in a similar manner as it would for its own employees,” said TIGTA Inspector General J. Russell George in a statement.
TIGTA conducted its review to determinate the effectiveness of the IRS background investigation process to identify contractor employees who do not file required federal tax returns or who owe federal taxes but are not currently on a payment plan.
TIGTA made three recommendations, including further evaluating contractor employees TIGTA identified as potentially noncompliant and promptly bringing those individuals into compliance or removing them from IRS contracts. The IRS agreed with TIGTA’s recommendations and stated that it plans to establish and implement policies to ensure that contractor employee tax compliance is continuously monitored and background clearance revalidations include a tax compliance component. In addition, the IRS plans to further research and carefully evaluate the contractor employees identified by TIGTA as potentially noncompliant and refer them for additional action as appropriate. Finally, the IRS plans to convene a team to fully explore all viable options to address any future tax noncompliance.
“I understand the seriousness of this issue as it relates to both our mission and responsibility to enforce tax law with integrity and fairness to all and therefore agree with all three recommendations,” IRS human capital officer David A. Krieg wrote in response to a draft of the report. “Employee tax compliance is a key foundation of the public’s trust in the IRS. The IRS remains committed to working with all contractor employees to help resolve their tax liabilities. We agree we can strengthen our existing practices by implementing all of the recommendations.”
An IRS spokesperson also emailed a statement to Accounting Today reacting to the TIGTA report. “The IRS takes tax compliance for taxpayers and those who work for the IRS very seriously,” said the IRS. “For an IRS employee, failure to timely pay one’s full federal tax liability is considered misconduct, which may result in discipline or removal. With regards to contractors, the IRS remains committed to working with these employees to help resolve their tax liabilities, and we remain committed to strengthening our policies to ensure that contractor employees are and remain tax compliant. IRS is also convening a team to explore all viable options to address future noncompliance issues. The overwhelming majority of IRS contractors are in compliance with their tax obligation.
“A total of 2.6 percent, or 352 out of 13,591 contractor employees, are noncompliant, and the IRS has committed to reviewing these cases and taking additional action as necessary,” the IRS statement continued. “Roughly half of the contractor employees in question are on payment plans and paying what they owe. The IRS contractor 2.6 percent noncompliance rate is below the 3.2 percent average for all federal workers and retirees and the 8.2 percent delinquency rate for the U.S. population as a whole.”
The National Treasury Employees Union, which represents IRS employees, reacted to the TIGTA report by pointing to the lower standards given to contractor employees. “Employees are held to a very strict standard, even in cases of personal hardship. If they fail to file on time or pay their tax debts, they face disciplinary action, including removal,” said NTEU president Colleen M. Kelley in a statement. “The IRS has the same requirement for contractors, but they are monitored with much less frequency.”
Kelley pointed out that the NTEU has long advocated limiting the number of contractor employees at the IRS due to reasons of cost, information security and accountability. “At a time when the IRS is furloughing employees for lack of funding, why is it continuing to employ thousands of contract employees who probably cost more and hold them to lesser standards? No one does the work of the federal government better or is more accountable than federal employees,” said Kelley.
She noted that the source of many of the current challenges at the IRS can be directly tied to the severe funding problems at the agency. The IRS budget has been cut by $1 billion, or roughly 10 percent, in the last two years and its workforce has 8,000 fewer employees than just one year ago.
“Drastic budget cuts at the IRS have likely affected the agency’s ability to stay on top of enforcement of the contractor compliance issue, just like these cuts are affecting so many other critical IRS functions,” said the NTEU leader. “This has a serious detrimental effect on services, enforcement and ultimately the nation’s deficit.”
Article by Accounting Today