While civil servants overwhelmingly pay their taxes, the delinquency rate has ticked up for several years.
Federal employees overwhelmingly pay their taxes and do so on time, but the Internal Revenue Service’s watchdog wants to see a significant uptick in enforcement on the growing minority of delinquent civil servants.
Just 5% of current federal workers owed the IRS money or did not file their taxes in 2021, according to a new report from the agency’s inspector general, up from 3% in 2014 and 4% in 2015. The number of tax delinquent feds jumped by 32% between fiscal years 2015 and 2021, however, while their collective debt rose by 36% to $1.5 billion. More than 1,000 of the nearly 150,000 feds who owed taxes were delinquent for six years or longer.
The IG identified 42,000 employees with multiple years of unfiled returns, but IRS management said it had resolved 80% of those cases by September 2022. Federal employee advocates have noted the delinquency rate in the civil service is lower than national estimates of around 9% for taxpayers overall.
Under a 1998 law, IRS is the lone agency that faces a statutory requirement not to employ anyone willfully out of date on their taxes. The results, the IG said, speak for themselves: the agency has the lowest non-compliance rate of any in government at just 1.35%. The watchdog praised IRS management for successfully handling examples of willful fraud or delinquency.
IRS is prohibited from sharing its list of non-compliant feds with other agencies, a ban the IG suggested the Treasury Department lobby Congress to change.
“Willful [federal employee] non-filers are a risk to tax administration in terms of lost revenue, integrity of the tax system, and reputational damage to the federal government,” the auditors said.
Congress has made repeated, unsuccessful efforts to apply the firing-of-delinquent-employees requirement governmentwide, coming the closest during the Obama administration. While IRS meets with officials across government to share numbers of non-compliant individuals they employ and discuss strategies for confronting them, it cannot share names and the non-IRS agencies are under no obligation to take action. IRS agreed to strengthen its referrals of multi-year, non-filer federal employees to its criminal investigation team, but said it did not need to create a new process in conjunction with the Justice Department.
“Multiple year intentional non-filing of tax returns by federal employees should in certain cases warrant criminal investigation, if for no other reason than CI will not uncover firm indications of evasion of payment, false statements, or other potential felony charges unless it investigates the cases,” the IG said.
Lia Colbert, commissioner for IRS’ Small Business/Self-Employed Division, said IRS could better use its resources by seeking voluntary compliance from delinquent feds than pursuing criminal prosecutions. The average delinquent fed owes less than $10,000, she said.
IRS uses its annual report on federal employee delinquencies to identify individuals to route to its Automated Collection System for top priority. If the system is able to connect with the employees, IRS staff will discuss the debt with them to set up a payment or payment plan. The agency can also issue levies on financial assets and liens on properties.
The IG criticized the agency for failing to prioritize federal employee cases as it is required to do, but management noted it is starved for resources and has reassigned employees who usually work in that area to general backlog reduction. The COVID-19 pandemic has created additional delays. Dedicated IRS employees have typically only worked on federal employee cases when they had time, but during the IG’s review the agency began requiring them to address the government non-filers at least one day per quarter. Management agreed with the IG’s recommendation to give top priority to working federal employee cases going forward.
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