This week has been rough for the Internal Revenue Service, which has come under criticism for oversight problems in two new watchdog reports.
A Treasury Department inspector general found the IRS has made little progress in reducing its more than $10 billion per year in faulty payments for earned-income tax credits and that its contractor employees owe millions of dollars in back taxes — even though its own workers must submit their tax payments on time.
The reports come as the agency is still recovering from political, administrative and public backlash after it was revealed last spring that it had targeted certain political groups for tax scrutiny.
One of the inspector general’s reports, released Tuesday, said the IRS issued $11.6 billion to $13.6 billion in improper earned-income tax credits in 2012, representing 21 percent to 25 percent of all payments in that category for the year.
The numbers show an improvement of more than 15 percent compared with 2011, but they’re still higher than the $11.2 billion to $13.3 billion range from President Obama’s first year in office.
The report noted that the IRS has not established reduction targets or produced quarterly reports on high-dollar faulty payments, both of which are required under a 2009 presidential order aimed at reducing the improper payouts.
“The IRS must do a better job of reining in improper payments in this and other programs,” J. Russell George, inspector general for tax administration, said in a statement on Tuesday.
In its response to the findings, the IRS said it is dealing with several barriers to improvement, including the complexity of the earned-income tax credits and the need to encourage eligible individuals to use them.
The agency also said it is working with the White House Office of Management and Budget to develop procedures for complying with the executive order. “The IRS protects nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims,” the agency said in a statement on Tuesday.
As for back taxes, a report released on Wednesday by the inspector general’s office showed that nearly 700 IRS contractor employees, or five percent of the agency’s total, owed $5.4 million in federal tax debt. More than half of those individuals were not on a payment plan to resolve their obligations, the report said.
“Because many contractor employees have access to sensitive IRS systems and facilities, the IRS should address tax noncompliance for these employees in similar manner as it would for its own employees,” George said. IRS employees face discipline or removal from their jobs if they fail to pay their taxes on time.
The IRS said in response to the audit that it would develop policies to ensure contractor employees are tax-compliant. It also noted that a smaller percentage of its contractors owe back taxes compared to the U.S. population as a whole, which has a delinquency rate of 8.2 percent.
“The overwhelming majority of IRS contractors are in compliance with their tax obligation,” the agency said Wednesday. “The IRS remains committed to working with these employees to help resolve their tax liabilities, and we remain committed to strengthening our policies to ensure that contractor employees are and remain tax compliant.”
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