Government entities that didn’t comply with the tax laws received different terms in the agreements they reached with the Internal Revenue Service to resolve their tax issues, according to a new report.
The report, by the Treasury Inspector General for Tax Administration, found inconsistencies in the voluntary closing agreements that federal, state and local government entities were able to enter into with the IRS to avoid being penalized for their noncompliance.
The report found that the terms and conditions differed in cases with similar fact patterns. For example, some public employers were required to file corrected information returns, but others did not. The IRS assessed some entities for all of the taxes due, but other government entities were only partially assessed.
“In today’s climate of increased government accountability, it is important not only for government entities to come forward with any tax noncompliance but also for the IRS to be ready to handle the requests fairly and equitably,” said TIGTA Inspector General J. Russell George in a statement.
The IRS has received requests for voluntary closing agreements over the past four and a half years from federal, state and local government entities. The agreements brought in over $17.7 million in additional back taxes that might otherwise have not been collected, the report noted.
The IRS has not always properly controlled, processed, and monitored the requests, however. As a result, TIGTA auditors found inconsistencies, inaccuracies, potential taxpayer rights violations and weak internal controls that might increase the risk of error, fraud or abuse, according to the report, which the IRS had requested.
TIGTA made five recommendations to improve the management of voluntary closing agreements, and the IRS agreed with all of them. The report recommended that IRS officials should develop guidance on how to process, review, and monitor the agreements; follow up on taxpayers whose rights had been potentially violated; research claims and take action to ensure future claims are worked properly; improve inventory and case management controls; and develop guidance on how to negotiate the terms and conditions of the agreements.
“Over the past four years, the [federal, state and local government voluntary closing agreement] process has attracted the interest of 39 public employers, and we have successfully entered into some 31 voluntary closing agreements with them,” wrote Joseph H. Grant, acting commissioner of the IRS’s Tax Exempt and Government Entities Division. “As you point out, we have collected more than $17.7 million in back taxes, and helped improve the climate of compliance for public employers. The program began as an innovative, informal process, but as we and public employers gained experience with voluntary closing agreements, and as it became apparent that the demand for such agreements would grow in the future, we thought it would be wise to make the program more formal and to give it a permanent structure. With that in mind, we felt the program would benefit going forward from a careful review of past cases, and so we asked the TIGTA to conduct this review. We are grateful that you accepted our request, and thank you for the careful review you conducted, and the insight and recommendations you offered for ways to improve the program for the future.”
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