Tax compliance software fails IRS

The Internal Revenue Service might need to improve the technology and process it uses to screen for tax compliance among its employees because some noncompliant workers might be falling through the cracks, according to a new audit from the Treasury Inspector General for Tax Administration.

TIGTA identified 133 IRS employees who were potentially noncompliant on their taxes during a two-year period and were not detected by the IRS’ internal compliance process, the June 21 audit report states.

Since 1995, the IRS’ Employee Tax Compliance Program has held workers accountable for adhering to tax laws. It relies on a computer program to detect whether employees are filing and paying their personal income taxes on a timely basis. The agency also conducts training sessions to ensure that employees are educated about their personal tax responsibilities, TIGTA said.

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TIGTA sought to determine whether the IRS’ computer application and other internal controls were sufficient for identifying problems. In the process, auditors discovered that 133 employees were potentially noncompliant but had not been detected by the IRS’ computer program.

“Although the IRS developed the computer application, TIGTA determined that the application was not detecting all potential noncompliance,” the report states.

The audit also determined that the IRS had scaled back its original Employee Tax Compliance Program — in part because the IRS had determined that its employees were typically more compliant than the general public. IRS reports have shown that about 3 percent of IRS employees are noncompliant on taxes each year.

TIGTA said IRS officials should do more to document the decision to scale back on internal reviews and should conduct further analysis and periodically re-evaluate that decision.

Auditors also said the IRS should determine whether disciplinary action is warranted in the cases of the potentially noncompliant employees. In addition, officials should revise the goals of the Employee Tax Compliance Program to align it with current activities and conduct trend analyses of employees’ noncompliance.

IRS officials agreed with most of the recommendations but said they had no plans to develop new noncompliance detection efforts specifically for IRS employees.