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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention. The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

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How Does the IRS Treat Federal Agencies Who Owe Employment Taxes?

Previous Blawg articles have cautioned my readers about the problems they can face if they do not take care of their Federal employment taxes, ranging from collection action against their business, to the trust fund recovery penalty being asserted against individuals determined to be “responsible officers.”  Since Federal agencies are also required to pay employment taxes for their employees, it is only fair to wonder if the IRS is dealing as harshly with them.  The answer warrants a letter to your Congressman.

On September 5, 2012, the Treasury Inspector General For Tax Administration (TIGTA) issued a report to follow up one prepared in August 2007, when TIGTA found that there were serious weaknesses in the Federal Agency Delinquency Program’s efforts to identify and address the causes for delinquencies in filings and payments.  TIGTA found that the corrective action the IRS took in response to that prior report did not fully address the previously identified weaknesses, and particularly those involving delinquent tax accounts. TIGTA  analyzed 132 aged Federal agency delinquent tax accounts from December 2008, and found that as of December 31, 2011, 40—totaling approximately $2.6 million—were still open after three years, and that collection action had been suspended for 34 of those 40 accounts, totaling $2.4 million.

TIGTA noted that the IRS does not have the same set of tools available when the taxpayer is another Federal agency.  For instance, Federal agencies are not authorized to pay interest and penalties for late filed returns or underpaid employment taxes.  Also, various IRS policies—policies!—do not allow enforcement actions to be taken against Federal agencies with delinquent tax accounts.  These apparently prevent filing of a Notice of Tax Lien, sending a Final Notice of Intent to Levy, or assessing the trust fund penalty against responsible officers, let alone seizure of property.  Of the 132 aged delinquent tax accounts for 68 Federal agencies in December 2008, TIGTA found that 36% had their collection statutes expire—the collection statute is ten years from the time of assessment!—and thus prevented the IRS from ever collecting those amounts.  40 accounts were open and unresolved after three years and in 85% of those, collection action had been suspended by the IRS.

There’s an old saying:  “What’s good for the goose is sauce for the gander.”  There is simply no reason why our hard-earned tax dollars should go to paying interest and penalties incurred by Federal agencies which should be setting a standard for compliance with employment taxes.  However, if the trust fund recovery penalty could be asserted against the persons in those agencies who are not performing their jobs, we would see a different response from them.  Moreover, we would not have to worry about the IRS wasting resources on chasing the few dollars it does collect from them.

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    George Connelly is recognized as one of the leading federal tax litigators in the United States.  His practice focuses on IRS audit, collection and criminal matters including civil and criminal tax litigation matters, for clients ...