Taxpayer allegations of harassment and other forms of misconduct by Internal Revenue Service employees have declined sharply in recent years, and the vast majority of charges that are leveled against IRS personnel turn out to be unsubstantiated, investigators for the Government Accountability Office told Congress.
However, the news of a drop in harassment incidents was blunted by a disturbing rise in allegations of income tax noncompliance by IRS personnel.
The employee misconduct findings represent a sharp reversal of course from the 1990s, when widespread allegations of taxpayer abuse by tax service personnel prompted Congress to enact the IRS Restructuring and Reform Act of 1998.
Under Section 1203 of that law, IRS employees face summary termination for such abuses as falsifying information during an audit, taxpayer harassment, and engaging in other forms of misconduct such as failing to personally file tax returns or otherwise comply with the federal tax laws.
In a report to House Ways and Means Committee chair Bill Thomas, R-Calif., the GAO said that complaints against IRS employees for abuses increased immediately after the new law took effect in July 1998, but that the number of allegations peaked in 2000 at approximately 1,700.
Since then, "Most types of taxpayer and employee rights allegations have decreased each year," the investigators said. "For example, Section 1203 allegations related to retaliation or harassment declined from 1,000 in 2000 to 143 in 2003."
Even more telling is the fact that the overwhelming majority of those charges are ultimately determined to be unfounded.
Of the 2,477 investigations of taxpayer and employee rights allegations completed by the IRS and the Treasury Inspector General for Tax Administration between July 1998 and April 2004, only 36 - 1.5 percent - substantiated violations by service personnel, the GAO said.
If it's not one thing ...
But the frequency of tax non-compliance among IRS personnel was another story.
"In contrast [to the declining number of abuse complaints], Section 1203 allegations related to employee noncompliance with tax filings and reporting laws steadily increased almost every year since 1998," the GAO said. "Partial-year data for 2004 through April suggest that this trend might continue."
Moreover, the investigators found that a substantially higher proportion of those tax compliance complaints against IRS personnel turn out to be valid.
Since the IRS reforms were enacted more than six years ago, 2,986 alleged instances of tax noncompliance by IRS employees have been investigated, and 22.3 percent of those charges were substantiated.
Of the 667 employees found to have engaged in violations, 115 were fired, another 296 resigned, retired or left the IRS for other reasons, and 256 were subjected to "penalty mitigation," the GAO said.
Some IRS officials, however, contend that many of these noncompliance allegations are for relatively minor infractions, such as failing to file a tax return when a refund is due.
Several members of Congress have also raised concerns that "the Section 1203 provisions could hamper the IRS's enforcement efforts by having a 'chilling effect' on IRS employees' willingness to take enforcement actions against non-compliant taxpayers," the GAO report noted.
Too much stick?
Legislation was introduced earlier this year to soften the Section 1203 sanctions, but the GAO suggested that this may be premature because the IRS has not yet developed the tools necessary to measure whether the threat of these penalties is having an adverse effect on tax code enforcement.
"In light of IRS officials stating that they still believe that Section 1203 can have a chilling effect on enforcement, measuring these effects is important," the report concluded.
For their part, officials at the tax service have formed an internal task force to study procedures for promoting tax compliance among IRS employees. A report focusing on how to "more effectively educate employees about their responsibilities to comply with the federal tax law" is expected to be issued in November 2004.
Additionally, the IRS plans to conduct a new survey of agency enforcement employees to determine whether the threat of Section 1203 sanctions has affected their willingness to undertake tax enforcement actions. That survey, which will focus on agency personnel who contact small business and self-employed taxpayers about their tax compliance, is expected to be completed before the end of this year, the GAO told Congress.
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