IG: ‘IRS Overpaid More Than 600 Employees Approximately $4.2 Million’

Terence P. Jeffrey | May 10, 2017 | 10:34am EDT
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IRS Commissioner John Koskinen (Screen Capture)

(CNSNews.com) - The Internal Revenue Service, which is responsible for collecting federal taxes and enforcing federal tax law, was unable to accurately deal with its own complex rules governing the payment of its own employees and ended up overpaying more than 600 IRS workers about $4,200,000, according to an audit report by the Treasury Inspector General for Tax Administration.

The IRS also underpaid more than 900 employees about $2,700,000, according to TIGTA's estimate.

The inspector general found that the IRS’s rules for how it determines the correct pay for one of its own employees when he or she is promoted to a management position are “confusing.”

“The procedures for setting pay require the application of cumbersome and oftentimes confusing rules that vary depending on, among other things, the nature of the promotion, the salary history of the employee, and the management position the employee will be occupying,” the inspector general said in a report entitled, “Some Managerial Salaries Were Calculated Incorrectly Due to Complex Pay-Setting Rules.”

The IG audited a sample of the pay records of nearly 5,000 IRS management-level employees who received pay increases of more than 10 percent over a ten-year period.

“Analysis of pay records from January 2006 to November 2015 identified 4,985 IRS employees who received a pay increase that exceeded 10 percent, which would generally be the maximum amount an employee would receive when being permanently promoted to a management position,” the IG report explained.

“We examined pay records for a statistically valid sample of these employees and found that 85 (31 percent) of 274 employees were not paid correctly,” the IG said. “Based on our sample of results, we estimate that the IRS overpaid more than 600 employees by approximately $4.2 million and underpaid more than 900 employees by approximately $2.7 million between fiscal years 2006 and 2015.”

The IRS’s miscalculation of its own employees pay had a negative effect on the lives of those employees, who were not responsible for—or even aware of—their incorrect compensation level.

“However, improper payments are not the only concern,” the IG report said.

“Errors in setting pay, especially those discovered years after they were made, can have a significant impact on employees because employees are required to reimburse the IRS for the amount of the overpayment,” said the IG.

“Additionally,” the IG said, “the IRS must add interest that is due to employees for any underpayment.”

“We reviewed employee debt lists and interviewed all current IRS employees who had debt of more than $5,000 resulting from salary overpayments when they were promoted to the management pay system,” said the report. “The employees we interviewed stated that they were unaware of any overpayment until notified by the IRS and did not understand how the pay calculations were made.

“Several expressed frustration and confusion,” said the IG, “with some employees stating that they had delayed retirement, experienced medical issues, contacted their Member of Congress, or turned down recent offers to enter management due to the salary issues they encountered.”

As a result of the IG’s audit, the IRS is now reviewing the compensation of nearly 1,000 present IRS employees who might have been overpaid.

“The IRS formed a team during our audit to review the pay actions associated with almost 1,000 current IRS employees who were potentially overpaid,” said the report. “As part of this review, the IRS is analyzing the pay for current IRS employees who received a salary that was above the minimum rate for the new management position and who received a salary increase that was above 10 percent, which is the percentage generally given upon entering the management pay system.”

The IG made two recommendations to the IRS as a result of the audit. First, it recommended that the IRS “address the salary overpayment and underpayment cases…identified in the audit;” and, secondly, that the IRS “look for ways to simplify pay calculation processes in areas where common pay errors are identified.”

The IRS agreed with the recommendations.

“We acknowledge that pay setting can be complex,” IRS Human Capital Officer Daniel T. Riordan responded to the IG in a March 6, 2017 memorandum.

On its website, the IRS calls itself “one of the world’s most efficient tax administrators.”

“In fiscal year 2015,” the IRS said, “the IRS collected almost $3.3 trillion in revenue and processed almost 240 million tax returns.”

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