The IRS needs to spend more time hounding tax dodgers in an unexpected place - the federal government - according to a Treasury Department Inspector General.
Yes, happy and loyal taxpayers, a report by Inspector General J. Russell George, Treasury Inspector General for Tax Administration, shows that 70 federal government agencies owed about $14 million in unpaid taxes in December 2011, and there's not really much the IRS can do about it.
Related: What Do Inspectors General Do?
While federal agencies are not required for paying federal income tax, they are, just like private sector employers, required to withhold and pay employment taxes - mainly Social Security and Medicare taxes - paid by their employees, as well as the agency's share of Social Security tax.
In addition to the 70 agencies having 126 delinquent tax accounts worth $14 million, 18 other agencies had not filed or were delinquent in filing 39 employment tax returns, according to the inspector general's report.
While the $14 million owed by the federal agencies may be a drop in the bucket compared to the $768 billion the IRS collected in employment taxes last year, it still contributes to the dreaded tax gap, and as Inspector General George so correctly points out, "Federal agencies should be held to the same filing and paying standards as all American taxpayers."
But the Agencies Cannot be Punished: Ready to have your goat gotten? Under a 1978 Comptroller General's decision, the IRS is barred from collecting interest and penalties from tax delinquent federal agencies. In fact, the IRS' own policies prevent it from taking any punitive enforcement actions against federal agencies with delinquent tax accounts.
In contrast, private businesses that owe back taxes or fail to "timely file or pay" their employment taxes face the threat of paying penalties and interest, tax liens, seizure of property and other equally unpleasant consequences.
IRS is Working on It: Inspector General George's report did show that a special IRS office created in 2007 specifically to work with the federal agencies in resolving tax delinquencies had succeeded in clearing up almost $197 million in delinquent taxes cases from 2008 to 2011.
But More Can be Done: However, the report recommended that the IRS do more, such as sending "formal" letters to tax delinquent federal agencies and asking Congress to pass legislation giving the tax agency actual authority to demand payment of back employment taxes from federal agencies.
The IRS agreed with the recommendations.