Occasionally, our editorial staff has a good chuckle over some of the news we report.   Such was the case last week, when an item crossed our desks about a Government Accountability Office report that showed an increase in the number of employees at the Internal Revenue Service who either failed to file their taxes on time or understated their federal tax liability.   Let me offer a little background information. The GAO report to Congress related to the IRS's efforts to evaluate its Section 1203 process for employee misconduct and to measure its impact on tax administration. Section 1203 of the IRS Restructuring and Reform Act of 1998 outlines the 10 "deadly sins" that would require the firing of an IRS employee. Two of those sins relate to IRS employee tax compliance (the rest relate to employee and taxpayer rights). They are: "Willful failure to file any return of tax required under the Internal Revenue Code on or before the date prescribed therefore (including any extensions), unless such failure is due to reasonable cause and not to willful neglect," and "Willful understatement of federal tax liability, unless such failure is due to reasonable cause and not to willful neglect."   According to the GAO analysis of IRS data, the number of allegations related to noncompliance with tax laws has increased steadily almost every year since 1998. Between July 1998 and April 2004, there were 1,668 Section 1203 allegations filed for failure to timely file a federal return, and 1,952 filed for understatement of federal tax liability.   Of course, one could argue that there are far worse crimes than not filing your taxes on time or understating your federal tax liability. But given where these people work, one has to wonder, what the heck is their excuse? Did the filing deadlines just slip their minds? Did they understate their tax liability because they didn't know where to get help with filing their returns? It also made me wonder whether or not the offenders have CPAs helping them file (or not, as the case may be) their returns.   Since July 1998, the GAO reported that nearly 3,000 investigations into alleged tax noncompliance by IRS employees have been completed, with charges substantiated against 667 people. While Section 1203 requires that IRS personnel be fired for failing to file a tax return, only 115 of those employees were fired because of their violations, while 256 were allowed to remain on the job due to "penalty mitigation," and the rest either resigned, retired or left the agency for other reasons.   It's also interesting to note that the investigations into alleged tax noncompliance by IRS employees made up the majority of the 5,463 Section 1203 investigations that were completed from 1998 to 2004, and they accounted for nearly all of the 703 cases in which the allegations were substantiated.   IRS managers said that the agency is "starting to consider the need for mandatory annual training to remind all employees about the importance of Section 1203." Might not be a bad idea.   By the way, a report from an IRS task force formed to address the problem outlining plans to "more effectively educate [IRS] employees about their responsibilities to comply with the federal tax law" is expected next month. I can't wait to read that one.

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