TIGTA: IRS Contractor Employees Owe $5.4 Million in Tax Debts
By Jason Bramwell
A report released October 23 from the Treasury Inspector General for Tax Administration (TIGTA) – Contractor Employees Have Millions of Dollars of Federal Tax Debts – revealed that hundreds of IRS contractor employees owe millions of dollars in federal tax debts.
While the IRS requires its personnel to file their federal tax returns on time and pay any taxes owed, TIGTA identified hundreds of employees working for IRS contractors who were not held to that same requirement.
TIGTA found that, as of June 14, 2012, 691 of 13,591 IRS contractor employees, or 5 percent, had incurred $5.4 million in federal tax debts. These debts were either agreed to by the taxpayers or affirmed by the court. However, 352 of the 691 contractor employees were not on a payment plan to resolve their debts.
As of June 2012, there were approximately 14,500 IRS contractor employees assigned to active contracts who were granted staff-like, or unescorted, access to IRS facilities and/or sensitive data in IRS information systems. TIGTA found most contractor employees to be compliant with that access.
However, at least 319 contractor employees had tax debts assessed after they were granted staff-like access and were not on a payment plan, TIGTA stated. According to IRS policy, these contractor employees were not eligible for staff-like access and should not have been granted rights to IRS facilities, systems, and data.
Access was also granted to five contractor employees who either did not file tax returns or filed them late. Thirteen contractor employees who were tax compliant at the time they received staff-like access failed to file a federal tax return while assigned to an active IRS contract.
According to TIGTA, the IRS reviews contractor tax compliance only every five years or if the contractor employee has longer than a two-year break in service.
"Because many contractor employees have access to sensitive IRS systems and facilities, the IRS should address tax noncompliance for these employees in a similar manner as it would for its own employees," J. Russell George, Treasury Inspector General for Tax Administration, said in a written statement.
In its report, TIGTA made the following three recommendations to the IRS:
- Establish and implement policies and procedures to ensure that contractor employee tax compliance is continuously monitored, similar to the way IRS federal employee tax compliance is monitored.
- Establish and implement policies and procedures to require that contractor employee background investigation revalidations, which occur when a contractor employee has had longer than a two-year break in service, include a tax compliance component.
- Ensure that any contractor employees identified as potentially noncompliant are further evaluated and that any contractor employees who are not tax compliant are promptly brought into compliance or removed from IRS contracts (including removal of access to IRS facilities, information systems, and taxpayer data).
The IRS agreed with all of TIGTA's recommendations and stated it will establish and implement policies to ensure that contractor employee tax compliance is continuously monitored. The agency noted it would "conduct manual tax checks annually and establish a cross-functional team comprised of members from the Human Capital Office, IT, and Agency-Wide Shared Services to create a systemic process" that would match and monitor systems related to the contractor background investigations process and the Integrated Data Retrieval System.
The IRS added that it has begun reviewing the records of the 691 employees working for agency contractors who have tax debts and will determine if they are still active contractor employees and whether they are still potentially noncompliant. The agency plans to evaluate all the cases and refer them for additional action if needed. Additionally, the IRS stated it will "convene a team to fully explore all viable options to address any future noncompliance."
In a memorandum responding to the TIGTA report, IRS Human Capital Officer David Krieg said he understood the seriousness of the issue as it relates to the agency's mission and responsibility of enforcing tax law with integrity and fairness to all taxpayers.
"Employee tax compliance is a key foundation of the public's trust in the IRS," he wrote. "The IRS remains committed to working with all contractor employees to help resolve their tax liabilities. We agree we can strengthen our existing practices by implementing all of the recommendations."
The National Treasury Employees Union (NTEU), the union that represents the IRS workforce, chimed in on the findings of the TIGTA report, saying on October 23 it has advocated limiting the number of contractor employees at the IRS due to cost, information security, and accountability.
"At a time when the IRS is furloughing employees for lack of funding, why is it continuing to employ thousands of contract employees who probably cost more and hold them to lesser standards?" NTEU President Colleen Kelley said in a written statement. "No one does the work of the federal government better or is more accountable than federal employees."
Kelley cited the severe funding problems at the IRS as the culprit of many of the current challenges the agency is facing. The IRS budget has been cut by $1 billion, or roughly 10 percent, in the last two years, and its workforce has 8,000 fewer employees than one year ago, according to the NTEU.
"Drastic budget cuts at the IRS have likely affected the agency's ability to stay on top of enforcement of the contractor compliance issue, just like these cuts are affecting so many other critical IRS functions," she said. "This has a serious detrimental effect on services, enforcement, and, ultimately, the nation's deficit."
- NTEU Says Cutting IRS Budget Hurts Taxpayers
- IRS Issues Furlough Notices to More than 89,000 Employees
- TIGTA Report: The IRS Must Do More to Reduce Improper Payments
This Week on AccountingWEB
CPA Robert A. Raiola of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC, talks with AccountingWEB about All-Star second baseman Robinson Cano’s taxes related to his new deal with the Mariners.
Alexandra DeFelice summarizes Tom Hood's AccountingWEB Live! presentation on the new era of talent development and learning.
It's official! The IRS announced the 2014 tax filing season will begin January 31.
IRS Notice 2013-74 provides valuable guidance on in-plan Roth 401(k) rollovers.