When the irresistible force of the Internal Revenue Service meets the immovable object of the rest of the federal bureaucracy, the result is a morass of confusion that yesterday left a congressional panel -- and presumably a lot of taxpayers -- uncertain whether to laugh or cry.
The good news is that the vast majority of $185 million, which made headlines earlier this year as apparently owed by various agencies in employee withholding taxes, seems to have been paid after all, and more or less on time.
The bad news is that an investigation into the IRS's accounts receivable from federal agencies revealed a circus of missing checks, late payments, erroneous credits and incorrect refunds. Agencies, according to findings of Congress's General Accounting Office, place a low priority on filing their tax returns, and the system of filing taxes withheld from employee wages is so complicated even the IRS gets confused.
The issue arose last February when the House Ways and Means oversight subcommittee began looking into the issue of why the IRS's inventory of accounts receivable had climbed to almost $100 million. Analysis of the records indicated that 676 federal agencies owed $185 million in back taxes, with 63 agencies owing $178 million of the total.
But under further probing, most of the debt evaporated. Some $141 million turned out to have been incorrectly assessed or already paid and incorrectly credited. For example:
The U.S. Information Agency owed $1.4 million because somebody in the Treasury Department mistakenly voided a check for that amount. How that happened remains a mystery to GAO. "Nobody we talked to" knows why the check was voided, said Paul L. Posner, GAO associate director for tax issues. However, it turned out that the agency had earlier overpaid its taxes by $1 million, and wrote a new check for the rest.
The Army Communication Command sent in a first-quarter payment late. The IRS mistakenly credited it to the next quarter, resulting in a seeming overpayment, which the agency refunded. However, the IRS then recorded a deficiency for the first quarter. Meanwhile, The refund check was sent to a different office, which didn't know what to do with it, so that the deficiency was not cleared up for nearly a year.
The GAO was recorded as owing money, which, it turned out, had been posted to the wrong account at IRS.
The IRS itself was listed as owing $449, noted Rep. Raymond J. McGrath (R-N.Y.). "It doesn't make me very happy, Mr. McGrath," replied IRS Commissioner Fred T. Goldberg Jr.
Some agencies did, in fact, owe money, including the Environmental Protection Agency ($283,000) and the State Department ($45,000). And the GAO found that more than two-thirds of the agencies it investigated filed returns late. This didn't make the subcommittee members happy, either.
"When the Department of Justice chronically files late tax returns, when the Department of the Treasury or EPA can't figure out how to file its tax returns -- if federal government agencies can't collectand remit to the IRS, how on earth do they expect the rest of the American economy to do so . . . . " asked Rep. Byron L. Dorgan (D-N.D.).
The IRS does not assess interest or penalties against agencies, which are forbidden by law from using appropriated funds for purposes other than their programs, but Goldberg noted that when they file late, it complicates the IRS's task and wastes everyone's time and taxpayers' money. Payment of withholding taxes is a chronic tax problem. Earlier this year, the GAO found that fully one-third of private businesses in the nation were penalized at least once in the previous year for some infraction in this area.