IRS Doesn't Fire Its Tax-Delinquent Employees as the Law Requires

The Internal Revenue Service fails to fire the overwhelming majority of employees who are delinquent on their taxes, despite a legal requirement to do so.

Of the 1,250 employees the IRS identified as not fully paying their tax bills or not doing so on time in fiscal 2017, it only took disciplinary action in 90 cases—just 7% of the time. In the vast majority of cases, the Treasury Inspector General for Tax Administration found, IRS management concluded that employees were not “willfully” failing to pay their bills and therefore should not be fired.

Management made those decisions despite three-quarters of those cleared employees working in such tax-related positions as examiners, compliance investigators and employees responsible for answering tax questions.

Under a 1998 law, the IRS must fire employees willfully out of tax compliance. Failing to pay taxes is considered willful if the individual knew or should have known about their non-compliance, though the inspector general noted IRS employees are responsible for being aware of their requirements under the law.

The IRS maintains an Employee Tax Compliance Branch to review potential cases in which its workers fall behind on or do not pay their taxes. The employee’s management team then makes a decision on whether the employee should be fired in coordination with the agency's labor relations office. That decision then goes to a review board, which makes a recommendation to the IRS commissioner. Only the commissioner has the right to mitigate discipline against a non-compliant IRS employee, a decision that cannot be appealed.

More than 300 employees in fiscal 2017 identified as delinquent on their taxes had documented non-compliance issues in previous years, but still were not fired. More than 700 employees determined to be “unwillfully” non-compliant worked in tax-related positions, TIGTA said.

In a review of sample of cases, the auditors found that management failed to make a determination on willfulness in nearly half of cases. In a majority of cases TIGTA reviewed, it determined IRS management made the incorrect decision. Employees provided a variety of excuses for their non-compliance that managers accepted, including unfamiliarity with TurboTax software or forgetting to include certain income streams.

The inspector general pressed IRS to take more seriously its enforcement of the law requiring it to fire employees who do not pay their taxes.

“As the agency responsible for administering the federal tax law, IRS employees have a higher expectation and responsibility for full tax compliance,” TIGTA wrote. “As such, it is essential that the IRS take appropriate steps to ensure that employees who willfully do not comply with the Federal tax laws are appropriately and consistently penalized.”

The investigators recommended IRS require those involved in decision-making on non-compliant employees to review all relevant factors when making a disciplinary determination. The agency agreed to update its guidance and provide new training.