IRS Needs to Improve Oversight of Its Employees’ Tax Compliance

The Internal Revenue Service is unable to detect whether its employees are complying with the tax laws, according to a new government report that identified 133 potentially noncompliant IRS employees.

The report, by the Treasury Inspector General for Tax Administration, acknowledged that the IRS educates its employees on their tax responsibilities. However, while the IRS electronically matches its employee payroll records with tax account records maintained for all taxpayers, it does not detect all potential noncompliance, TIGTA auditors found.

TIGTA identified 133 potentially noncompliant employees who were not detected by the IRS’s computer application over a two-year period. As a result, no action was taken by the IRS to analyze and address this potential employee misconduct for noncompliance with tax laws. The problems listed in the report included employees who had filed their tax returns late, paid their taxes late, had an accounts receivable balance, had an additional tax assessment on unreported income, and even a criminal investigation with an additional tax assessment.

The IRS managed to catch over 8,000 noncompliance cases with its Employee Tax Compliance computer application annually since 2004, according to the report. Each of the cases required further review and analysis to determine whether the employee was in fact noncompliant and whether disciplinary action was warranted. In the end, about 3 percent of IRS employees turned out to be noncompliant each year.

“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,” said TIGTA Inspector General J. Russell George in a statement.

In addition, TIGTA determined that the IRS significantly reduced the focus of its Employee Tax Compliance Program, partially based on a study it conducted showing that IRS employees were more compliant compared to the general taxpaying public. TIGTA’s audit concurred with the IRS’s decision to use resources as efficiently as possible; however, the report concluded that the IRS should periodically re-evaluate the ETC program’s direction to ensure proper oversight of employees’ compliance with their tax obligations.

TIGTA made four recommendations in its report, including that the IRS should determine whether disciplinary action is warranted in the cases of the 133 potentially noncompliant employees it found. The IRS agreed to work the additional cases, review its computer application, and revise the goals and mission of the program, but it stated that it had no plans to develop new noncompliance detection efforts to specifically monitor IRS employee tax compliance because it believes the current noncompliance detection processes used for all taxpayers (including IRS employees) are sufficient in number and appropriate in scope.