The IRS is cracking down on more tax cheats this year but failed to enforce this standard on thousands of its employees.
The failure could be one of the first areas of focus for President-elect Donald Trump’s newly created Department of Government Efficiency (DOGE). Its co-leader, Tesla and SpaceX CEO Elon Musk seems to be scrutinizing the tax agency for areas in need of reform as Tax Notes (paywall) first reported.
According to Trump, Musk was appointed to the external advisory body to “dismantle government bureaucracy, slash excess regulations, cut waste to expenditures, and restructure Federal Agencies.”
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One week after being tapped, Musk pointed to an audit signaling that IRS employees owed $50 million in taxes.
“There are thousands of examples of taxpayer dollars being wasted,” Musk noted on Nov. 15 on his social media platform X.
The oversight report published in July showed that despite 96% of IRS employees fulfilling their tax obligations last year, a significant share were delinquent. The lack of accountability among the agency's ranks raises questions, particularly given sweeping IRS efforts to enforce tax compliance and restore fairness in the nation’s tax system — starting with non-compliant taxpayers.
“We believe that IRS and contractor employees who are not tax compliant could negatively affect public trust in tax administration and the perception that the IRS is being honest in its dealings with all taxpayers,” Danny Verneuille, Acting Deputy Inspector General for Audit wrote in the report.
IRS tax enforcement?
The IRS audit comes as the tax agency’s funding is under major scrutiny. Bolstered by $80 billion from the Inflation Reduction Act (IRA), a key initiative has been to ramp up audit rates targeting high-wealth filers.
What’s concerning: Most IRS employees with confirmed tax noncompliance issues weren’t on a repayment plan and seemingly faced little repercussions.
The tax agency’s inability to get its employees to abide by rules they enforce on millions of taxpayers has also faced criticism from Congress.
“Surely the irony and hypocrisy can’t be missed here: taxpayers are being forced to pay billions more to the IRS to audit America while the agency won’t even collect the tens of millions of dollars in unpaid taxes owed by its employees,” said Sen. Joni Ernst (R-IA), who commissioned the audit. “Taxpayers will never trust the IRS when the agency’s own auditors can’t even pass a tax audit.”
Tax delinquent IRS employees and contractors
You would expect that IRS employees would be the first to file their federal tax returns on time, but that’s not always the case. Data show that roughly 5,800 IRS and contractor employees were delinquent on their taxes last year, and that’s not the worst part.
Taken together, IRS and contractor employees who didn’t have a repayment plan owed the federal government approximately $29 million as of May of last year. Meanwhile, those on installment plans owed about $17 million to the IRS. This was the case even though the agency offers several payment options for those unable to pay the full amount of their federal taxes by the tax deadline.
What’s more: some IRS employees — particularly contractors — dragged delinquencies beyond one tax cycle.
- Just under 30% of IRS employees not on a repayment plan owed taxes on more than one tax period
- Over one-third of IRS contractors that weren't in repayment owed taxes for more than one tax season
Why were these employees behind on their taxes? The audit failed to narrow that down. However, IRS guidelines require that all federal employees comply with federal tax obligations to continue working at the agency.
“Contractor employees must be Federal tax compliant by filing and paying all taxes when due,” the inspector general wrote in the report. “Contractor employees, just like any other taxpayers who are unable to pay what they owe, may enter an installment plan.”
IRS failed to enforce harsh disciplinary actions
While the IRS warns that “tax evasion is a serious crime punishable by imprisonment, fines, and the imposition of civil penalties,” the agency's disciplinary actions against its employees were seemingly lax.
Congress requires the removal of IRS employees who willfully fail to file their federal tax return on time or understate their federal tax liability. However, the IRS Commissioner has sole authority to “mitigate the mandatory removal of employees,” the report said.
For instance, the audit cited that the failure of an IRS employee to pay their taxes on time would be considered “misconduct” and could result in disciplinary actions including termination.
Still, while thousands of IRS employees and contractors were behind on their taxes only 70 cases were referred to the review board due to substantiated willful violations of tax noncompliance. Ultimately, only 20 employees were laid off.
How to pay taxes if you owe
So, what does this mean for you? Whether you are an IRS employee or not, you're expected to pay your taxes on time and the IRS has several repayment options available to pay taxes you owe.
- For example, short-term online plans offer payment periods of up to 180 days if the combined tax, penalties, and interest owed is under $100,000. It’s also free to set up.
- Longer-term online repayment plans are installment agreements paid at a monthly rate for debts under $50,000. These require a set-up fee, though taxpayers with low incomes may qualify for a fee waiver or reimbursement.
If you’re not eligible or cannot pay online, you can file a Form 9465, installment agreement request. (The IRS generally responds to installment agreement requests within 30 days.)
Should the IRS determine you can't pay your tax debt due to hardship, there are still other options! You might qualify for a delayed collection, where the IRS will temporarily suspend your tax collection. Keep in mind, that you’ll still have to pay back your tax bill, and interest and penalties will continue to accrue.
Finally, you can request an offer in compromise (OIC), where your IRS debt could be settled for less than the full amount due. An OIC requires a non-refundable $205 application fee, but according to the IRS, the fee is generally waived for low-income taxpayers.
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