Treasury Inspector General for Tax Administration
July 20, 2011
TIGTA - 2011-38
Contact: Karen Kraushaar
WASHINGTON -- The Internal Revenue Service (IRS) needs to improve its management of Voluntary Closing Agreements which allow Federal, State and local government entities to voluntarily enter into agreements to resolve their noncompliance with Federal employment and income tax laws without being penalized.
That’s according to a new report from the Treasury Inspector General for Tax Administration (TIGTA).
As of Calendar Year 2008, public employers employed approximately 24 million employees and paid wages in excess of $760 billion annually and employment taxes in excess of $200 billion. The IRS has received requests for Agreements from all segments of public employers (e.g., Federal, State, and local entities) and the Agreements resulted in more than $17.7 million in additional back taxes that might otherwise have not been collected. While this represents a relatively small number of Agreement requests, the IRS has not always properly controlled, processed, and monitored the requests, TIGTA found. As a result, TIGTA found inconsistencies, inaccuracies, potential taxpayer rights violations and weak internal controls that increase the risk of error, fraud or abuse.
“In today’s climate of increased Government accountability, it is important not only for Government entities to come forward with any tax noncompliance but also for the IRS to be ready to handle the requests fairly and equitably,” said J. Russell George, the Treasury Inspector General for Tax Administration.
TIGTA also determined that Agreement terms and conditions differed in cases with similar fact patterns. For example, some public employers were required to file corrected information returns, while others were not. In addition, some entities were assessed for all the tax due, while others were only partially assessed. Ongoing IRS compliance initiatives may lead to an increase in demand for these types of Agreements, heightening the need for a better-defined process that protects and promotes fair tax administration and ensures fair and equitable taxpayer treatment.
TIGTA made five recommendations to improve the management of Voluntary Closing Agreements. The IRS agreed with the recommendations.
View the report.
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