IRS Internal Report Shows Collection Problems with its Own Contractors

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3-17-1When you’re being chased by the IRS for unpaid taxes, it can seem like there’s no escape. The IRS is slow, but relentless when it comes to finding tax dollars from taxpayers.

Except, apparently, when you work for the IRS. In that case, not only can you owe taxes, but the IRS will still pay you to do work for them.

The scope of the problem came to light in a new Treasury Report released in mid-February. The report’s authors found that a group of contractors hired by the IRS to assist in collections from delinquent taxpayers were themselves delinquent, to the tune of $3.8 million in back taxes. As the amounts were under dispute, though, it was business as usual at the IRS, and despite the back tax claim, the IRS paid more than $350 million to the group during 2009. In fact, the Treasury Report also indicated that three of the contractors receiving IRS contracts owed over $3 million in taxes before the contracts were even awarded!

It’s not the first time the IRS has had a bad case of “Do as I say, not as I do.” In 2009, the Treasury Department released another report dealing with the high prevalence of fraud in the $8,000 first-time homebuyer credit program. Amongst the fraudsters were some 53 IRS employees found to have filed “illegal or inappropriate” claims for the credit.

If the “what?” isn’t troubling enough, you could always investigate the “why?.” The following is taken directly from the Treasury Report:

Guidelines allow the IRS to impose a trust fund penalty equal to 100 percent of the unpaid taxes that are withheld. The penalty is typically pursued against a “responsible officer” of the employer once the employer itself fails to pay the taxes. However, the IRS did not assess a trust fund recovery penalty for any of the contractors and, as of March 4, 2010, ******************1***********************.

We discussed this issue with IRS management and were advised of the following reasons why the penalty could not be assessed:

  • *************************************; and
  • **********************************

It will be interesting to see if Congress takes any significant action to make sure the recommendations in the Reports are followed.

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