The IRS needs to take a closer look at the federal government in its search for tax scofflaws.
That's right -- a Treasury Department watchdog office said Thursday that 70 federal agencies owed about $14 million in unpaid taxes at the end of last year.
Federal agencies are exempt from paying federal income taxes, but they are responsible for turning over employment taxes, mainly Social Security and Medicare taxes, that their employees must pay.
The Treasury Inspector General for Tax Administration said 40 of these delinquent tax accounts totaling about $2.6 million were still open three years after being identified, and in 80 percent of those cases, the investigations had been suspended. The offending agencies were not identified.
The $14 million isn't a lot compared to the $768 billion in employment taxes the IRS collected in 2011.
But Inspector General J. Russell George stressed that "federal agencies must comply with the same filing and paying standards that apply to all American taxpayers."
Cracking down on delinquents is complicated by IRS policies that do not allow enforcement actions against federal agencies and restrictions against penalizing or imposing interest on agencies that are behind in making their payments.
Another problem is that federal law generally allows agencies to pay their current-year taxes only with current-year funds, making it difficult to come up with the money to pay for past-year delinquencies.
The IRS, in a statement, said it was committed to the timely collection of employment taxes and that the amount of delinquent taxes had dropped from $406 million in 2005 to $14 million last year, a small fraction of tax deposits made by federal agencies.
The agency said that last year agencies made more than $90 billion in employment tax deposits.
The report was a follow-up to a 2007 study that found the IRS needed to better identify and address the causes for federal agency delinquencies. It did find that an office in the IRS set up to pursue federal agency delinquencies in the 2008-2011 period had been able to resolve cases involving nearly $197 million in delinquent taxes owed and closed out 2,900 instances of delinquent tax returns.
But it said the tax agency needed to do more, including developing a process to send formal letters to non-paying federal agencies and pursuing regulatory or legislative options that would allow the IRS to collect taxes from agencies that have not fulfilled their tax obligations.
The report said the IRS had agreed with these recommendations.