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Tax Talk Blog for Tax Pros

Welcome to TaxBlawg, a blog resource from Chamberlain Hrdlicka 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.

Tax practitioners have previously lacked 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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When It Comes To Compliance With The Tax Laws, How Do IRS Employees Stack Up?

On May 5, 2011, the Treasury Inspector General for Tax Administration (TIGTA) issued a report that is not going to please anybody.  It concluded that IRS employees are provided with ample information about their tax responsibilities to enable them to comply, but some do not, and the agency needs to do more to address the problem.

This is not the first report on the subject, following up on an Employee Tax Compliance program (ETC) initiated in calendar year 1995 “to insure that employees are held to a high standard of compliance.”  In a December 2009 IRS Report, more than 97,000 Federal employees (not just IRS) were found to be behind in paying their taxes.  While that report complimented the IRS on establishing necessary processes to educate its employees, TIGTA concluded that the application of the program was “not detecting all potential noncompliance.”  While the IRS reportedly had a “matching” program – like the one that matches taxpayers with their Forms W-2 and 1099 - TIGTA found 69 employees in the year 2006 and 64 in 2007 who were "noncompliant" who were not identified by the matching program.

The results are several years late, but those employees were found to have either filed their return late, paid their taxes late, had an accounts receivable balance, had additional tax assessments due to income that was not reported, or possibly been the subject of a criminal investigation.  Between 2004 and 2008, TIGTA found from the ETC computer application, almost 44,000 examples of noncompliance, ranging from 8,087 in 2008 to 10,822 in 2006.  Most troubling is that the numbers of individuals who did not file tax returns ranged from 902 in 2004 to 2,394 in 2006, since the willful failure to file a tax return is a misdemeanor for which IRS employees often recommend criminal investigation.  The percentage of IRS employees identified as “noncompliant” ranged from 2.70% in 2005 to 3% in 2006, out of an IRS population of 103,961 employees in 2004 to 109,469 in 2008.  IRS employees are human beings, and subject to some of the same problems that other taxpayers face which causes them to be noncompliant.  However, when one “raises the right hand and takes the oath” to make sure that others are complying with the tax laws, this is a very troubling result even though it is obvious that at least 97% of the IRS employees have been in compliance.  Also disconcerting is that of these almost 44,000, 15,173 were found to be outright noncompliant, but 28,762 of these cases resulted in “no action” by IRS management.  Some of these admittedly involve situations where the employee had left the IRS before the noncompliance was discovered.

No less troubling, given the IRS’s approach to taxpayers who make mistakes, was the rejection by the IRS of one of TIGTA’s recommendations: to conduct “trend” analyses of employee noncompliance over multiple tax years, analyzing referrals received by the ETC branch that would not have been identified by the ETC computer, and more detailed analysis of noncompliance.  In effect, the IRS said “We are doing just fine right now.”  Imagine how a taxpayer would be treated if he said that in response to an allegation that his books and records were not adequate, or that he’ll get around to filing that delinquent return when he feels like it.

Many people were outraged by the stories about Timothy Geithner, Tom Daschle and Congressman Rangle, and that outrage was compounded by the handslaps each received.  When one adds this IRS non-compliance to the story, and the "boys will be boys" attitude of management about trying to remedy the problem, it is clear that there are at least two sets of rules here.  Maybe the Tea Partiers will do something about this if enough of them are elected!

  • George W. Connelly

    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 ...