IRS Fails to Pay Income Tax on Travel Expenses, Has Resource Issues

The IRS continues to find ways to draw negative attention to itself, in this case as the result of executives who failed to adhere to the IRS’s own rules regarding expenses and poorer service levels because of a shortage of resources.

IRS Executives Fail to Pay Income Tax on Taxable Expense Reimbursements

The Treasury Inspector General for Tax Administration performed a review of how the IRS categorized expense reimbursements paid to executives who performed long-term travel for the IRS.  Per the Internal Revenue Code, such expense reimbursements paid to any employee should be considered taxable income and are subject to state, federal, Medicare, and Federal Insurance Contributions Act taxes.

However, the Treasury Inspector General for Tax Administration found that a number of executives for the IRS who received such expense reimbursements did not pay any taxes on the monies.

The finding is one more example in a growing list of questionable behavior by the IRS that has Republican and other critics wondering if a complete overall of the IRS is in order.

“Here were the top people doing what no other citizen can do,” said Representative Jim Jordan, Ohio Republican.  “You underreport income, you don’t pay your taxes, you can’t get away with it.  And yet the very people who run the IRS were doing just that.”

In response to the report, the IRS issued a statement indicating it was implementing controls to prevent executives from failing to pay income tax on travel reimbursements in the future.

“Cutting costs is a top priority, and the IRS has put in place a number of steps to reduce expenses involving executive travel,” read the IRS statement.  “The IRS agreed with [the Treasury Inspector General report’s] recommendations and has put in place new steps to prevent future issues in this area.”

IRS Budget Issues and Increased Responsibility Hurt Customer Service

The report on the failure of some IRS executives to follow income tax laws comes days after IRS Commissioner John Koskinen, in a speech to the House Ways and Means Subcommittee on Oversight, noted that the level of service the IRS can provide to taxpayers has taken a step backward this year.

“I can guarantee you, that we would answer more calls, if we had more people,” said Koskinen.  “I can guarantee you we don’t have the people because we don’t have the funding.”

Koskinen’s comments come after Congress budget $11.3 billion to the IRS for 2014, after the agency requested $13 billion.

In addition, the IRS is being expected to do more with less, as ObamaCare has added to their list of responsibilities.

“[ObamaCare brings] very significant duties for the service, and in an era of tightened resources, frankly, everything else gets squeezed,” noted Mark Everson, former IRS Commissioner.  “[Navigating ObamaCare] is going to be very delicate for the service, particularly of the fact that this law is so, well, it’s so controversial.”

In addition to the concerns noted above, the IRS has dealt with a scandal involving the targeting of Tea Party and other conservative organizations applying for tax-exempt status, in which the IRS delayed review and approval of the applications for years in some cases.

IRS Commissioner Koskinen was also criticized for choosing to reinstate 2013 IRS bonuses despite the breadth and depth of the targeting scandal.

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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.