Conflict of Interest Conflicts IRS, Watchdog Finds

IRS Lacks Authority to Investigate Its Employees’ Tax Returns

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Too Many IRS Employees Working as Tax Preparers, Watchdog Reports. Joe Raedle/Getty Images

Despite being a clear violation of agency policy, 44 Internal Revenue Service employees worked outside the agency as paid tax return preparers between 2009 and 2013, one of whom pleaded guilty to illegally obtaining taxpayer data for his private business, according to a federal inspector general.

In a September 29 audit the Treasury Inspector General for Tax Administration (TIGTA) reported that during 2011, nearly 3,000 of the more than 6,000 active, full-time IRS employees who held jobs or participated in business activities outside the agency did so without the required approval from the Treasury Department.

According to TIGTA, one unnamed IRS employee, now former employee, had pled guilty to engaging in a criminal conflict of interest. Between 2005 and 2008, the employee repeatedly and illegally collected taxpayer information stored on IRS computer systems for use in his or her prohibited private tax and accounting business.

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In addition, found TIGTA, the employee abused the authority of his or her position in the IRS by ordering unsuspecting, subordinate IRS employees to obtain information for him or her. These employees were led to believe the information was to be used for official IRS purposes.

While IRS employees are not generally barred from outside work, they must get special approval, part of which requires them to swear that will not use their position in the IRS to benefit them personally.

TIGA also found that of the 44 IRS employees who prepared tax returns for compensation, six employees’ outside employment interfered with their IRS position, and four had outside employment that involved illegal or potentially unethical behavior.

How Much Are They Making?

TIGTA’s auditors reported that among a sample of 20 IRS employees found to be doing outside work with a “high risk” of conflict of interest, four of them earned between $500,000 and $7 million through outside work between 2005 and 2008.

“Significant outside income could impact the employee’s effectiveness on the job,” the report said.

Why Does the IRS Have This Problem?

According to TIGTA, the IRS’ conflict of interest problems stem partially from the fact that the agency too often fails to assign managers to oversee the process of approving outside work.

And, did you know that the IRS does not have the authority to investigate its own employees’ tax returns? Well, it does not, which says TIGTA hinders the agency in catching cases of conflict of interest. Instead, the IRS has had to rely on its employees to self-report their outside work.

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“Without performing analyses to identify employees who have unapproved outside employment and assuring that employees and supervisors input all requests to the [tracking system], the IRS is at increased risk that outside employment activities may be in conflict with employees’ IRS responsibilities,” the report said.

Finally, TIGTA’s review found that 93% of the records in the IRS’s outside-employment requests database are out-of-date and that approvals, if any, are not recorded, partly because of confusing and incomplete guidance.

Basically, the IRS’ processes and procedures hinder its ability to know exactly which of its employees are doing outside work, what kind of work they are doing, and whether that work might represent a conflict of interest or even be illegal.

What TIGTA Recommended

The inspector general recommended the IRS:

  • Create new and effective rules regarding outside employment of its employees;
     
  • Enforce those new rules and appoint somebody to manage the outside employment approval process;
     
  • Ensure that its database of outside employment is complete and accurate; and
     
  • Consider asking Congress to enact a new law giving the IRS the authority to review its own employees’ tax returns.

And the IRS Said

The IRS agreed with three of TIGTA’s recommendations, but ruled out the idea of new legislation to address the problem.

“We do not believe that sensitive taxpayer information should be used to oversee the IRS’s outside employment program,” said the IRS a response letter. “Furthermore, we do not agree that the IRS should be singled out to utilize such a method for oversight simply because we are the repository for and custodians of such information.”