A third-party mediator has upheld the Internal Revenue Service’s plan to withhold employee bonuses this year despite a challenge from the union that represents most of the agency’s workers.

Principal Deputy IRS Commissioner Daniel Werfel. (Andrew Harrer/Bloomberg) Principal Deputy IRS Commissioner Daniel Werfel. (Andrew Harrer/Bloomberg)

Acting IRS director Daniel Werfel announced in a memo to employees last week that he would stick with his earlier decision to forego performance awards, also noting that the agency would be able to avoid furlough days it postponed in August.

The IRS was one of several agencies resorting to unpaid leave as a result of the automatic spending cuts known as the sequester. IRS officials had initially planned for five furlough days, but they determined over time that the agency could meet its budget-trimming targets with just three days.

The IRS would save an estimated $70 million by withholding bonuses this year.

The National Treasury Employees Union contends that the awards are legally required as part of the collective bargaining agreement between the labor group and the IRS. “NTEU believes frontline employees earned these awards and the IRS should pay them,” union President Colleen M. Kelley said in a statement.

But Sen. Chuck Grassley (R-Iowa), who has raised concerns about the bonuses at a time of IRS controversies and government-wide austerity, has said the contract allows for “re-apportionment of such award funding in the event of a budgetary shortfall.”

The NTEU has rejected that argument. The group has filed a national grievance with the IRS to compel payment of the 2013 bonuses, and an arbitrator will resolve the issue as early as spring, the union said.

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