Nearly a thousand Internal Revenue Service employees who willfully violated the tax laws received suspensions, reprimands or counseling over a 10-year period instead of being fired, according to a new report.
The report, by the Treasury Inspector General for Tax Administration, found that the IRS mitigated proposed terminations in over 60 percent of the cases involving willful tax noncompliance by IRS employees and did not clearly identify the reasons why some of the employee terminations were reduced to lesser penalties.
Section 1203 of the IRS Restructuring and Reform Act of 1998 states that the IRS should terminate the employment of any IRS employee if there is a final determination that the employee committed certain acts of misconduct, including willful violations of tax law, unless the penalty is mitigated by the IRS commissioner, the report noted. The IRS defines a willful act as the voluntary intentional violation of a known legal duty (such as timely filing of a tax return or accurate reporting of a tax obligation) for which there is no reasonable cause.
TIGTA found that, over a 10-year period from Oct. 1, 2003 through Sept. 30, 2013, 1,580 IRS employees were found to be willfully tax noncompliant. While the law states that the IRS should terminate employees who willfully violate tax law, it also gives the IRS commissioner the sole authority to mitigate cases to a lesser penalty. Over this 10-year period, 620 employees (or 39 percent) with willful tax noncompliance were terminated, resigned, or retired. For the other 960 employees (61 percent) with willful tax noncompliance, the proposed terminations were mitigated to lesser penalties such as suspensions, reprimands, or counseling.
TIGTA’s review found that in some cases, employees with similar violations received different discipline. In cases that were mitigated, the files included mitigating factors as well as evidence that violations of tax law were willful; however, the basis for the commissioner’s decisions to mitigate were not clear.
Some employees had significant and sometimes repeated tax noncompliance issues, and a history of other conduct issues. Management had also concluded that the employees were not credible, but the proposed terminations were nonetheless mitigated by the IRS commissioner. These cases included willful overstatement of expenses, claiming the First-Time Homebuyer Tax Credit without buying a home, and repeated failure to file required federal tax returns on a timely basis.
"Given its critical role in federal tax administration, the IRS must ensure that its employees comply with the tax law in order to maintain the public’s confidence,” said TIGTA Inspector General J. Russell George in a statement. “Willful violation of the law by IRS employees should not be taken lightly, and the IRS commissioner should fully document decisions made to retain employees whom management has proposed be terminated.”
TIGTA recommended that the IRS commissioner should amend the existing policy on how Section 1203 cases are handled to include a requirement to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties to something less than termination.
In response, the IRS agreed with TIGTA’s recommendation, noting it plans to review existing procedures to document the analysis of evidence and the basis for its decisions, and will consult with its General Legal Services on potential improvements to the transparency of the mitigation process while not interfering with the commissioner’s authority. In addition, the IRS has subsequently advised TIGTA that it has begun to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties for 1203 cases to something less than termination.
“Employee tax compliance is a key foundation of the public's trust in the IRS, and we are committed to maintaining an effective process to address those employees who fail to meet their tax compliance responsibilities,” wrote IRS human capital officer Daniel T. Riordan, on behalf of IRS Commissioner John Koskinen, in response to the report. “The IRS ranks at the top of all federal agencies for tax compliance, as reported by the Federal Employee/Retiree Delinquency Initiative in September 2013.”
“While our current procedures include the documentation of how management determined whether the employee's actions were willful violations of a Section 1203(b) provision, the Commissioner does not revisit that issue in the course of deciding whether to mitigate,” he added. “Although we currently document the mitigating factors specific to the employee and the decision whether to mitigate a termination to a lesser penalty, we agree that we can improve this process. We, therefore, agree with your recommendation and will amend our existing policy on how Section 1203(b) cases are handled. Our changes will include a more proactive approach to ensure timeliness and consistency, where appropriate, and provide more transparency in the mitigation process while ensuring we do not interfere with the Commissioner’s authority or damage the integrity of the 1203 adjudication process.”
An IRS spokesperson emailed Accounting Today a further response to the report Wednesday. “The IRS is committed to ensuring that employees meet their tax compliance responsibilities,” said the IRS statement. “It’s important to note that the IRS has a more than 99 percent tax compliance rate, the highest of any major federal agency. TIGTA’s report focused on a sample of only 34 cases, which represents just a fraction of one percent of the IRS’s total workforce. Over ten years, TIGTA found an average of a little more than 150 IRS employees a year committed a willful tax violation. Of the total cases, 620—or nearly 40 percent—resulted in the employee leaving their position because they were terminated, resigned or retired. Others faced strong disciplinary actions that included terminations, suspensions and reprimands. The IRS also put in place new internal procedures to ensure that employees who have willfully failed to pay their taxes are now ineligible for performance awards.
"Nonetheless, the IRS agrees that we can improve this process," the IRS added. "The changes will include a more proactive approach to ensure timeliness and consistency and provide more transparency in the mitigation process while preserving the Commissioner’s authority provided by federal law.”
Senate Finance Committee chairman Orrin Hatch, R-Utah, whose committee oversees the IRS, pointed to the irregular pattern in the IRS’s handling of employee misconduct cases. “It is crucial that IRS employees are held to the same standards as the hardworking taxpayers that pay their salaries,” Hatch said in a statement Wednesday. “That means filing their taxes and paying the taxes they owe to the government. Unfortunately, as today’s report shows, the IRS has often failed to maintain that standard, and has instead allowed employees with serious tax violations to go about their business as usual. Even worse, the agency appears to have rewarded some of them with cash bonuses, promotions, and paid time off. This is unacceptable—American taxpayers deserve better.”
House Ways and Means Oversight Subcommittee chairman Peter Roskam, R-Ill., also reacted with dismay to the report. “Earlier this year, we learned the IRS rehired hundreds of employees formerly fired for performance or misconduct issues, including improperly accessing private taxpayer information,” he said. “Today, we also learn that the agency acted with impunity in purposely refusing to fire a majority of employees who violated tax law, including some repeat offenders with other documented misconduct issues. The IRS owes the American people an explanation for this display of bureaucratic incompetence. To argue that budget cuts provide a tax cut for tax cheats’ while harboring employees who violate the laws they are supposed to enforce quite frankly defies logic. The gulf of trust between taxpayers and the IRS has never been wider, and the IRS can and must do better.”
Rep. Diane Black, R-Tenn., another Republican member of the House Ways and Means Committee, also weighed in on the report. “While this report should not come as a surprise, given the misdeeds we have already witnessed at the IRS, it is nonetheless outrageous and unacceptable that the very agency tasked with enforcing our tax laws would knowingly retain employees who fail to pay their own tax bill,” she said. “Clearly this is another case of the Washington political class saying do as I say, not as I do.’ My Republican colleagues and I on the Ways and Means Committee will not relent in our efforts to hold the IRS accountable. Perhaps now that we have concrete proof from the agency’s own Inspector General that the IRS keeps tax cheats on the payroll, Democrats in Congress will finally join us in this effort.”
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