Federal Agencies Need to Pay Their Taxes, TIGTA Finds

TIGTA issued it’s report on September 27, 2012, entitled “Federal Agencies Need to Pay Their Taxes,” which might come as a surprise to you. Federal agencies owe approximately $14 million in unpaid taxes.

While Federal agencies are exempt from paying Federal income taxes, they are not exempt from meeting their employment tax deposits and related reporting requirements. As of December 31, 2011, 70 Federal agencies with 126 delinquent tax accounts owed approximately $14 million in unpaid taxes. In addition, 18 Federal agencies had not filed or were delinquent in filing 39 employment tax returns.

A 2007 TIGTA report found that the Internal Revenue Service (IRS) needed to expand its efforts to identify and address the causes for Federal agency delinquencies, strengthen controls over case processing, and develop strategies to resolve aged cases. TIGTA’s latest review assessed the effectiveness of the IRS’s process to collect delinquent taxes and secure delinquent tax returns from Federal agencies. TIGTA also followed up on the effectiveness of the corrective actions taken in response to the prior TIGTA report.

TIGTA found that the IRS has not fully developed a process to resolve aged Federal agency delinquent tax accounts. TIGTA identified 40 aged Federal agency delinquent tax accounts totaling approximately $2.6 million that were still open after three years. In addition, Federal Agency Delinquency Program employees suspended collection actions for 34 of the 40 aged delinquent tax accounts totaling approximately $2.4 million. Because the IRS has suspended pursuing these aged delinquent tax accounts, the possibility that the delinquent Federal agencies will now voluntarily pay their outstanding tax liabilities is very low.

Additionally, management information reports do not provide sufficient details about the causes of Federal agency delinquencies in order to be effectively used to enhance outreach and educational efforts. Insufficient controls over the processing of Federal agency cases permitted the use of enforcement actions that violated IRS policies. In addition, limited procedures concerning the timeliness of case processing resulted in delayed case resolution.

“Federal agencies must comply with the same filing and paying standards that apply to all American taxpayers,” said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA made several recommendations to the Commissioner, Small Business/Self-Employed Division, which include strengthening the procedures for resolving delinquent tax accounts and assisting Federal agencies with understanding and meeting their tax responsibilities.

IRS management agreed with the recommendations and the outcome measures in this report. In addition, IRS management responded that in October 2011 they had completed the corrective action for one of the recommendations.

Read the report.