File this one in the category of “do as we say, not as we do.”
The Internal Revenue Service over one decade tolerated “willful tax noncompliance” from 1,589 employees without consistent or clear procedures for addressing individual cases, according to a report released Wednesday by the Treasury Inspector General for Tax Administration.
In 60 percent of the cases, the watchdog found, the tax agency mitigated proposed terminations of employees found to have committed, as defined by regulation, a “voluntary intentional violation of a known legal duty (timely filing of a tax return or accurate reporting of a tax obligation) for which there is no reasonable cause.” Instead of being fired, the employees received lesser penalties such as suspensions, reprimands, or counseling.
"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,” TIGTA J. Russell George said. “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."
The study of employee disciplinary cases from fiscal 2004-13 found that only 620 employees (39 percent) of those committing willful tax noncompliance were terminated, resigned or retired. In some case, TIGTA said, employees with similar violations received different discipline. And among cases that were mitigated, files included mitigating factors as well as evidence that violations of tax law were willful, but the documents did not make clear the basis for the commissioner’s decisions to mitigate.
Some of the violators had evidence in their files of additional misconduct, TIGTA reported, and that managers had documented sometimes repeated tax noncompliance, only to have the proposed firings overruled by the commissioner, using a review board. Examples of willful violations include overstatement of expenses, claiming the first-time homebuyer tax credit without buying a home, and repeated failure to file required tax returns on time.
TIGTA recommended that the IRS commissioner amend existing policy to include a requirement to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties.
The IRS agreed, saying it will review procedures, improve documentation and consult with attorneys on improving transparency while respecting the commissioner’s authority.
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