IRS employees still owe millions in back taxes, says agency
More than 860 IRS employees still collectively owe millions of dollars in back taxes, according to a recent letter from IRS Commissioner Daniel Werfel to Sen. Joni Ernst (R-IA).
The letter, shared with the Washington Examiner, said that 860 IRS employees have not paid overdue taxes. The number is down from 2,044 employees in July, who at the time owed $12,169,374 in taxes and had not worked out an installment plan.
This was uncovered by an audit conducted by the Treasury Department Inspector General for Tax Administration at Ernst’s request. The report also found that 1,729 contractor employees owed $17,352,041 and had also not agreed to installment plans.
The inspector general’s report drew significant backlash when it was published four months ago, which may have forced the IRS to crack down on those employees who were delinquent on their taxes. It caused Ernst to introduce the Audit the IRS Act, which would require regular audits of IRS employees and prohibit the agency from hiring workers who evade taxes.
Still, 860 remain delinquent, and it is unknown if the nearly 2,000 contractor employees have begun to pay their overdue taxes yet.
Ernst noted how Americans are subjected to rigorous audits and threats of fines and imprisonment if they fail to pay taxes but IRS employees have a different experience.
“We haven’t seen a tax revolt like this since the Boston Tea Party,” Ernst said in a statement. “If hardworking Americans dodge taxes, they are faced with steep fines and imprisonment, but it appears that tax collectors in Washington believe those rules are for thee but not for me.”
Lenience for non-compliant employees
The inspector general audit discovered that IRS management is lenient on employees who are tax non-compliant. Between April 2021 and October 2023, IRS management initiated disciplinary action proceedings against 1,068 employees who were tax non-compliant. Seventy of those employees were found to have either willfully refused to file taxes or willfully underreported their income. Only 20 were fired.
“Although the law requires an employee who has either willfully not filed or willfully understated their taxes due to be removed, subject only to the IRS Commissioner’s mitigation, this disciplinary action is not always enforced,” said the report.
An additional 69 employees who had willfully violated tax laws were referred to a Review Board which recommended that the IRS commissioner treat most of them leniently or let them off the hook entirely. The Review Board cited the employees’ years of service, performance ratings, past tax compliance, and cooperation during the investigation as reasons why their cases should be “mitigated.”
Furthermore, between 2005 and 2022, the IRS rehired 512 former employees who had non-compliance issues or performance issues. These included 15 former employees who had committed fraud or theft, over 100 who had tax noncompliance issues, and 24 who willfully violated tax laws.
In response to the audit, the IRS simply noted that the IRS commissioner is allowed to mitigate non-compliance cases at will, and does so. “[F]or certain offenses, including the willful failure to file a tax return and willful understatement of a Federal tax liability, IRS employees shall be terminated unless the IRS Commissioner decides to mitigate the penalty of termination . . . The Commissioner exercised this authority,” the IRS commented.
Cracking down on low-income Americans
While its employees are often granted clemency, the IRS has increased audits on low-income families.
According to a report from Syracuse University’s Transactional Records Access Clearinghouse (TRAC), in 2022 the IRS subjected low-income taxpayers to “unbelievably high” audit rates — over five times more than nearly everyone else. On the other hand, just 1.1% of millionaires — those who earned a million dollars or more in positive income — were audited.
The IRS has found it easier to conduct correspondence audits through the mail, which is more feasible with lower-income tax returns. Such audits are automated and usually begin with a letter from the IRS asking the taxpayer for more documentation. In FY 2022, 85% of all 1040 audits began with such a letter, compared with 48% of millionaire audits.
The TRAC report explained that lower-income wage earners “are easy marks in an era when the IRS increasingly relies upon correspondence audits yet doesn’t have the resources to assist taxpayers or answer their questions.”
Small businesses ‘won’t fight back’
National Taxpayers Union Foundation Executive Vice President Joe Hinchman told the New York Post why Biden’s IRS is targeting small- and medium-sized businesses (SMBs).
“The IRS will have to target small and medium businesses because they won’t fight back,” said Hinchman. “We’ve seen this play out before. . . . [T]he IRS says, ‘We’re going after the rich,’ but when you’re trying to raise that much money, the rich can only get you so far.”
Hinchman explained that the IRS typically goes after SMBs also because they don’t have the financial bandwidth to challenge the agency in court.
“The approach here is to double the IRS workforce, take the leash off, and see how much they can collect,” Hinchman added. “I think they’ll collect it but it will be quite painful.”
