Federal Employee Tax Compliance

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The Treasury Inspector General for Tax Administration (TIGTA) just published an interesting report on tax compliance by federal employees outside the IRS.  I read it with interest because I have an article coming out in the forthcoming Pittsburgh Tax Review on Section 1203 of the Restructuring and Reform Act of 1998.  The Pittsburg Tax Review edition focuses on RRA 98 looking back on it from the perspective of a quarter century of living with the greatest procedural changes made to the tax code in one piece of legislation.  We will have several posts in the next few months to highlight the articles in this edition of the Pittsburgh Tax Review.  You can see my article on Section 1203 here.

I chose to write about Section 1203 because I find it to be a misguided piece of legislation that inappropriately targeted IRS employees.  This off Code provision creates 10 deadly sins that cause termination of an IRS employee with the only possible reprieve coming from the Commissioner.  My concern was not necessarily that IRS employees should not be terminated for committing one of the identified acts but that targeting IRS employees alone served a political rather than logical purpose.  The TIGTA report highlights why the narrow scope of Section 1203 misses the mark.  My position is that placing the burden of commuting dismissals at the Commissioner level unduly burdens the Commissioner and focusing only on IRS employees too narrowly imposes the basic tax compliance requirements that should exist across federal employment.


One thing that struck me about the TIGTA report was the number of high-level employees at federal agencies who were non-compliant.  One of my biggest criticisms of Section 1203 is that it primarily targets low level IRS employees.  If you look at the data displayed in my article (which primarily comes from annual TIGTA reports and one Government Accountability Office report) regarding the IRS employees terminated as a result of Section 1203 you see that failing to timely file a return leads all other categories by a significant margin and that the only other category producing any significant volume of terminations is fraudulent returns. 

The terminated IRS employees fall heavily into the lowest grades on the GS scale meaning that these employees generally work at the Service Centers, do not engage with the public and do not do technical tasks involving taxes.  These employees should still file their tax returns on time but targeting and terminating employees at this level doesn’t really protect the integrity of the tax system.  Section 1203 does not apply to Chief Counsel attorneys; to Treasury Department employees outside the IRS including the Treasury employees who work on tax policy; to Department of Justice attorneys in the Tax Division; to attorneys working on the Joint Committee; or to anyone working in the federal government other than those working for the IRS.    

The TIGTA report shows that in other federal agencies employees at high levels on the GS scale are well represented among the non-compliant:

The chart does not display employees in the executive level of service at these agencies.  I would like to think it does not display them because they are all compliant, but I doubt there is 100% compliance at that level.

The TIGTA report showed that the IRS was not doing a great job of collecting from federal employees who should be very easy targets for collection:

Further analysis of the status of the more than 61,000 TDI modules, as of May 2021, showed that taxpayers had filed their delinquent returns in approximately 29 percent of these modules and had fully paid balances or had balances that were in the process of being collected by the ACS.38 Another 41 percent of these modules were closed as either unable to locate, not liable, or shelved; were being reviewed in Examination or CI; or were waiting for another tax period to post to the Master File.39 However, about 30 percent (over 18,000) of the 61,000 modules were still in unresolved TDI status. 

The TIGTA report also showed that the number of federal employee delinquencies and the amount of dollars was going up rather sharply over the past several years:

Almost 20% of the non-compliant federal employees had income over $100,000:

Federal employees engaged in delivering the mail or in the military or veterans affairs seemed to have the most difficulty complying with their federal tax obligations:

The TIGTA report focuses on what the IRS should do to address the non-compliance of federal employees.  Certainly, the IRS could use some of its $80 billion to increase compliance in this easy to target sector, but Congress should rethink section 1203 to broaden it to federal employees generally with respect to the two provisions regarding timely filing and non-fraudulent filing.  Tax non-compliance by federal employees should be a basis for removal bypassing normal civil service protections.  IRS employees are not the only ones who create a black eye regarding tax compliance when they fail to follow the rules.  All federal employees should be fully compliant or face consequences.  The IRS should not bear the sole burden to track down these non-compliant federal employees.  Other agencies should be helping the IRS by removing them or taking personnel actions that dictate and promote compliance.


  1. I am skeptical that “[f]ederal employees engaged in delivering the mail or in the military or veterans affairs seemed to have the most difficulty complying with their federal tax obligations” is a fair characterization of the “Top 10 Agencies” graph. Those are probably the 10 largest agencies by number of employees. A graph showing the agencies with the highest rates of noncompliance per capita would be more revealing.

  2. Keith,

    TIGTA also recommended the following:

    The IRS Commissioner should:

    Recommendation 5: Share this report and recommendation with the Treasury Department Office of Tax Policy to consider a legislative proposal to amend IRC § 7203 by replacing “misdemeanor” with “felony,” and additionally, by replacing the time for potential imprisonment from “one year” to “two years,” thereby making willful nonfiling a felony. Management’s Response: IRS management agreed with this recommendation. The IRS will share TIGTA’s report and this specific recommendation with the Treasury Department Office of Tax Policy. The IRS does not formally propose legislation.

    I wrote on this recommendation on my Federal Tax Crimes Blog: TIGTA Recommendation for Legislation Consideration to Make Failure to File a 2-Year Felony (3/9/23), http://federaltaxcrimes.blogspot.com/2023/03/tigta-recommendation-for-legislation.html


  3. Kenneth H. Ryesky says

    Three comments, in no particular order:

    I. Page 7, paragraph 2: “… if the taxpayer did not call or write to resolve the delinquency …”

    Query: What about the taxpayers who attempted to call, but their call was not answered?

    II. I discoursed at length on the matter 25 years ago:

    “Of Taxes and Duties: Taxing the System with Public Employees’ Tax Obligations,” 31 AKRON LAW REVIEW 349 (1998)

    III. When I was with the IRS way back when, one of the instructors at a training session mentioned that if he ever were to win the lottery, during the televised winner announcement he would respond to the inevitable question of whether he planned to retire from the IRS with “What, and lose the employee discount?”

  4. Anthony Rodriguez says

    The reality of the application of Sec.1203 (8) is that it has led to an incredible waste of taxpayer dollars. TIGTA has shown that the bulk of employee terminations at the IRS have been for late filed returns but does not break down which are refund returns.
    At the service center level, employees claiming their refund after the due date triggers a years long investigation through every layer of management culminating in an interrogation with video, sound and stenographer recordings of the same questions asked at every previous questioning. Willfulness is then determined by local management, if sent up to the commissioner he will send it back down to local management. This was admitted by Commissioner Rettig to Sen. Grassley in a letter responding to why more employees aren’t fired. All of this essentially allows management to add “investigator” to their resumes and use up as much of the budget apportioned to fighting corruption as possible.

    In March 2002 Rep. Amo Houghton introduced H.R. 3991 107th Congress, Taxpayer Protection and IRS Accountability Act of 2002. It attempted to correct some glitches in the 10 Deadly Sins, in particular employees who overpaid their taxes and claimed their refund after the due date would have been spared scrutiny and forced the IRS to dig deeper for wrongdoing. In Sec. 301 of his bill, Rep. Houghton included the words “when a tax is due and owing” to amend S1203 (8), unfortunately it went nowhere. That simple change would have spared taxpayers millions of their dollars. Perhaps it’s time to revisit that bill. Eventually the public will realize how much money is squandered by middle management in their “investigations”. In this climate of agency dissatisfaction and an $80 billion budget approval it’s time for responsible spending.

  5. Norman Diamond says

    “26 U.S. Code § 7203 – WILLFUL failure to FILE return, supply information, or pay tax”
    “who WILLFULLY fails to pay such estimated tax or tax, MAKE such return, […]”
    [emphases added by Diamond]

    If I understand correctly, the word MAKE in the text has priority over the word FILE in the title. If a person makes a return but fails to file it because of a rejection from the IRS’s web server, they have failed to FILE the return but have they failed to MAKE the return? And whether or not MAKE is defined as FILE (I couldn’t find the definition), could someone please remind me how courts reasoned that the person WILFULLY failed?

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