Over 42,000 Federal Employees Cheating on Taxes: Inspector General

The Internal Revenue Service building in Washington on Jan. 28, 2019. Saul Loeb/AFP via Getty Images

Tens of thousands of federal employees have failed to file tax returns for multiple years, an inspector general reported last week.

An analysis of data from fiscal year 2016 through fiscal year 2020 found that more than 42,000 federal workers have “repeatedly failed to file a tax return for multiple years,” the Treasury Inspector General for Tax Administration said in a report (pdf) on the analysis.

The watchdog stated that “repeatedly and intentionally not filing a tax return when required to do so is a brazen form of noncompliance, particularly when it is done by Federal employees.”

IRS officials didn’t respond by press time to a request by The Epoch Times for comment.

Some of the nonfilers have gone nearly a decade without filing. A total of 86 have failed to file for eight years, and 19 failed to file for nine years. More than 7,000 have failed to file for four years or more.

According to the analysis, the three agencies with the most tax cheats were the U.S. Postal Service, the Department of Veteran Affairs, and the Department of the Army. The top 10 are rounded out by the departments of the Air Force, Defense, Agriculture, Homeland Security, and Health and Human Services, as well as the Social Security Administration.

The analysis shows that 19 percent of the nonfilers earn high incomes, or $100,000 or more.

Penalties?

U.S. prosecutors can pursue misdemeanor criminal charges against nonfilers, with assistance from the IRS. The number of federal nonfilers referred to IRS investigators in the time period studied was redacted, as was the number of prosecutions brought.

A civil penalty can also be assessed when elements of fraud are present. Just 10 federal workers were penalized from fiscal years 2016 through 2020, the IRS told the inspector general’s office.

The IRS spends “minimal” time on federal workers who don’t file taxes but began to dedicate one day per quarter for employees to work on the cases, according to the new report.

The repeated nonfilers are a subset of the federal workers who are delinquent, or who owe federal income tax. The number of delinquent federal workers jumped to 149,000 in fiscal year 2021 from 112,000 in fiscal year 2015. That’s 5 percent of the federal civilian workforce, up from 4 percent in fiscal year 2015. The delinquent workers collectively owe nearly $1.5 billion in taxes.

The report was the conclusion of an examination of how well a 1993 initiative to promote tax compliance among federal workers was working and to see whether the IRS was acting against workers who failed to file taxes.

“As the agency primarily responsible for administering Federal tax law, the IRS must ensure that Federal employees comply with the tax law in order to maintain the public’s confidence,” the inspector general said. “If the IRS does not use all available enforcement actions against willful Federal employee nonfilers, these employees will continue to break the law and not face any significant consequences, all while continuing to work in their Federal jobs.”

Recommendations

The watchdog made 11 recommendations to deal with the fraud.

Those recommendations included conducting an annual analysis of the federal nonfiler cases and referring cases with elements of fraud or wilfulness to investigators.

The IRS agreed to 10 of the recommendations.

It disagreed with the advice to work with the Department of Justice to develop criteria that would outline when referrals to prosecutors happen for federal workers who haven’t filed taxes for multiple years.

IRS investigators already have “a well-established process to coordinate the referral of cases” in place, the IRS told the watchdog.

In a reply to the response, the watchdog stated that more action should be taken.

“Multiple year intentional nonfiling of tax returns by Federal employees should, in certain cases, warrant criminal investigation, if for no other reason than [investigators] will not uncover firm indications of evasion of payment, false statements, or other potential felony charges unless it investigates the cases,” it stated.

“We identified over 17,000 repeat Federal civilian employee nonfilers who had not filed an income tax return for three or more years. Yet, these employees continued in their Federal jobs, with pay and benefits, without adequate IRS enforcement scrutiny.”

IRS Letter

Lia Colbert, an IRS commissioner, said in a letter responding to the audit results that many workers who were delinquent had filed taxes in fiscal year 2021.

She said officials will keep prioritizing federal nonfilers “to ensure federal employees meet their obligations while balancing resource constraints and competing priorities, which were compounded by the unprecedented coronavirus 2019 disease pandemic.”

The problems include “severe staffing shortages.”

She also said the recommendation to develop criteria with the Department of Justice was “not feasible” because prosecutors don’t accept cases for prosecution based on “generalized sets of referral criteria.” Further, many of the delinquent workers owe less than $10,000 in taxes, and prosecutions of workers who owe that amount often don’t result in imprisonment.

“Pursuing a criminal prosecution that ends in minimal or no imprisonment could ultimately have a negative impact on voluntary compliance,” Colbert said.