The IRS refused to fire most of its own employees found to be cheating on their taxes – and in some cases even quickly turned around and promoted them within the year, according to a new audit released Wednesday.
In about 60 percent of cases of “willful violations” IRS managers found mitigating circumstances and refused to fire the employees, even though the law calls for that penalty. In some of those cases the managers didn’t even document why they’d overridden the penalty, said Treasury Inspector General for Tax Administration J. Russell George.
“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,” Mr. 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.”
During the decade from 2004 to 2013, the IRS identified nearly 130,000 potential cases of tax violations by its own employees, and concluded about 10 percent of those were actual violations. Mr. George said the agency did a good job of spotting those issues.
Of those 13,000 cases, 1,580 were deemed to be intentional cheaters, and they were sent to managers for discipline. But in 60 percent of the cases, the managers refused to fire the employees.
Among the abuses were employees who repeatedly failed to file their returns on time, those who intentionally inflated their expenses and those who claimed the stimulus homebuyer’s tax credit without actually buying a home.
The IRS said its employees have a compliance rate of higher than 99 percent, which is actually much higher than other employers and is tops among all major federal agencies.
“Over ten years, TIGTA found an average of a little more than 150 IRS employees a year committed a willful tax violation. Of the total cases, 620 – or nearly 40 percent – resulted in the employee leaving their position because they were terminated, resigned or retired. Others faced strong disciplinary actions that included terminations, suspensions and reprimands,” the agency said.
The IRS also said it has taken steps to cancel bonuses that would otherwise have been paid to the tax cheats.
“Nonetheless, the IRS agrees that we can improve this process. The changes will include a more proactive approach to ensure timeliness and consistency and provide more transparency in the mitigation process while preserving the commissioner’s authority provided by federal law,” the agency said in its statement.
Of the 1,580 employees deemed to have intentionally cheated on their taxes, 108 of them received no punishment at all. The others were at least admonished, while 25 percent were fired and 14 percent were allowed to resign or retire instead of being fired.
The vast majority of substantiated reports involved “nonwillful” violations. Of those, just 238, or about 1 percent, were deemed serious enough to be fired. Another 1 percent were allowed to retire or resign, 47 percent were admonished, 26 percent were sent to counseling and 14 percent were closed without any punishment.
More than 2,000 employees had multiple red flags during the decade, the inspector general said. Investigators pulled a sample of 15 cases where an employee had repeated intentional violations and found that even there, the majority were allowed to remain on the job.
The inspector general took a sampling of 364 cases of intentional cheaters and found that 108 of them were not only not fire, but were given raises or promotions within a year of being found to be cheating.
Sen. Orrin G. Hatch, chairman of the Finance Committee, which oversees the IRS, said the report was a black mark for the IRS.
“Even worse, the agency appears to have rewarded some of them with cash bonuses, promotions, and paid time off,” the Utah Republican said. “This is unacceptable – American taxpayers deserve better.”
IRS Commissioner John Koskinen, who along with a review board must approve the decision to keep any employees deemed to have intentionally cheated on their taxes, has insisted things at his agency have improved over the last two years, which is when another report from Mr. George exposed that the IRS had singled out tea party groups for special scrutiny in their tax-exempt applications.
Mr. Koskinen has argued that budget cuts have eviscerated morale at the IRS, and he has pleaded with Congress to give him more money to hire staff. He also defended doling out bonuses to employees.
“They are not bonuses. They are performance awards. Over 40, 45 percent of the employees don’t get them. You only get them if you perform,” he said.
But he said he’s taken steps to try to make sure tax cheats don’t get awards.
“Even though we have over 99 percent compliance, I thought it was an important point,” he said.