IRS Planning to Pay $70 Million in Bonuses Despite Budget Shortfall

The IRS is planning to pay over $70 million in bonuses to employees on Wednesday despite mandatory budget cuts and a directive from the Obama administration to cancel such discretionary payouts.

The White House order to cancel the bonuses was issued on April 4 by Danny Werfel, who was a member of the White House budget office.  The order came because of budget cuts, known as sequestration, that were enacted by Congress across virtually all governmental agencies.

Werfel’s letter noted that “discretionary monetary awards should not be issued while sequestration is in place, unless issuance of such awards is legally required.  Discretionary monetary awards include annual performance awards, group awards, and special act cash awards, which comprise a sizeable majority of awards and incentives provided by the federal government to employees.  Until further notice, agencies should not issue such monetary awards from sequestered accounts unless agency counsel determines the awards are legally required.  Legal requirements include compliance with provisions in collective bargaining agreements governing awards.”

Werfel is now the acting IRS commissioner, putting him in a position to actively enforce a stoppage of the bonus payout.

The office of Senator Chuck Grassley of Iowa learned of the plan to pay the bonuses as a part of an agreement the IRS reached with union employees.

“The IRS always claims to be short on resources,” Grassley said.  “But it appears to have $70 million for union bonuses.  And it appears to be making an extra effort to give the bonuses despite opportunities to renegotiate with the union and federal instruction to cease discretionary bonuses during sequestration.”

Grassley provided a letter to Werfel on Tuesday noting that the IRS had notified union employees in March that approximately $75 million in bonus funds would not be paid.  However, the IRS took no further steps to stop the payout, instead negotiating a new agreement with union employees that called for the $70 million bonus payout planned for today.

“[Office of Management Budget] guidance directs that agencies should not pay discretionary monetary awards at this time, unless legally required,” noted Michelle Eldridge, a spokesperson for the IRS.  “[The] IRS is under a legal obligation to comply with its collective bargaining agreement, which specifies the terms by which awards are paid to bargaining-unit employees.”

Grassley noted no such obligation exists for the IRS.

“While the IRS may claim that these bonuses are legally required under the original bargaining unit agreement, that claim would allegedly be inaccurate,” Grassley wrote.  “In fact, the original agreement allows for the re-appropriation of such award funding in the event of budgetary shortfall.”

The impending bonus payment is yet another in a string of recent negative stories concerning actions of the IRS.

In May, IRS representatives confirmed they had targeted conservative groups applying for tax-exempt status with additional scrutiny in an effort to delay or prevent approval of their applications.  Weeks later allegations of excessive spending on IRS conferences and training surfaced, bringing to question the care the IRS takes in using taxpayer dollars wisely.

The previous issues led to the replacement of much of the IRS’ leadership, including the installation of Werfel as acting IRS commissioner.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.