IRS contractors owe $5.4 million in back taxes

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WASHINGTON — In his second report criticizing the Internal Revenue Service this week, the Treasury Department’s inspector general said the agency’s contractor employees owe millions of dollars in back taxes — even though its own workers must submit their tax payments on time.

The report, released Wednesday, said early 700 IRS contractor employees, or 5 percent of the agency’s total, owed $5.4 million in federal tax debt. More than half of those individuals were not on a payment plan to resolve their obligations.

“Because many contractor employees have access to sensitive IRS systems and facilities, the IRS should address tax noncompliance for these employees in similar manner as it would for its own employees,” said J. Russell George, the inspector general for tax administration.

IRS employees face discipline or removal from their jobs if they fail to pay their taxes on time.

The IRS responded that it would develop policies to ensure contractor employees are tax-compliant. It also noted a smaller percentage of its contractors owe back taxes compared with the U.S. population as a whole, which has a delinquency rate of 8.2 percent.

“The overwhelming majority of IRS contractors are in compliance with their tax obligation,” the agency said Wednesday. “The IRS remains committed to working with these employees to help resolve their tax liabilities, and we remain committed to strengthening our policies to ensure that contractor employees are and remain tax compliant.”

It was the inspector general’s second critical report of the IRS this week.

On Tuesday, an IG report found the IRS has made little progress in reducing its more than $10 billion a year in faulty payments for earned-income tax credits.

The reports come as the agency is recovering from political, administrative and public backlash after it was revealed that it had targeted conservative political groups for tax scrutiny.

Tuesday’s report said the IRS issued $11.6 billion to $13.6 billion in improper earned-income tax credits last year, representing 21 to 25 percent of all such payments for the year.

The numbers show an improvement of more than 15 percent compared with 2011, but they are still higher than the $11.2 billion to $13.3 billion range from President Obama’s first year in office.

The report noted the IRS has not established reduction targets or produced quarterly reports on high-dollar faulty payments, both of which are required under a 2009 presidential order aimed at reducing the improper payouts.

“The IRS must do a better job of reining in improper payments in this and other programs,” George said.

In its response, the IRS said it is dealing with several barriers, including the complexity of the earned-income tax credits and the need to encourage eligible individuals to use them.

The agency also said it is working with the Office of Management and Budget to develop procedures for complying with the executive order. The agency also said its tax filing season next year will begin between Jan. 28 and Feb. 4.

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