The US tax system depends on the belief that everyone is complying and enforcement is uniform. A recent Treasury Inspector General for Tax Administration report directly cuts against that assumption. According to TIGTA, more than 571,000 current and retired federal employees owed about $6.3 billion in unpaid taxes in fiscal year 2024—up $1.5 billion from fiscal year 2021.
That’s a hefty sum, but the bigger worry is how it could affect the tax system overall.
Federal employees aren’t ordinary taxpayers. In theory, they should be held to a higher standard because their salaries are paid by other taxpayers. When people inside the government fall behind on their taxes—or neglect to file completely—the IRS’s expectations of compliance start to sound like “rules for thee.”
TIGTA found about 50,000 current federal civilian employees who failed to file for two or more years, and 122 taxpayers with eight or more unfiled returns who hadn’t been referred for criminal investigation until the Treasury Inspector General’s office got involved.
But the policy solution to this noncompliance should be narrowly tailored. TIGTA recommends allowing limited sharing of delinquency information with federal agencies to hold employees accountable. That makes some sense, though it comes with risks. Section 6103 taxpayer privacy rules shouldn’t be casually weakened.
Federal employees could instead be required to certify annually that they have filed required returns and are either current on taxes or in a valid payment arrangement. For those who can’t make that certification, there should be a cure period.
Congress doesn’t need to choose between taxpayer privacy and federal workforce accountability, but Section 6103 should remain a shield for taxpayer privacy, not a smokescreen for noncompliance. A voluntary tax system can’t survive the perception that compliance is optional for insiders and mandatory for everyone else.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed employee retention credit extension requests, the Amex VAT case in France, and more.
Insights
Nonprofits Need to Brace for Planned Tax Reporting Revisions
Much is uncertain about the IRS’s plans to revise tax-exempt organizations’ reporting requirements, but nonprofits meanwhile should conduct internal reviews on Form 990 compliance and stay informed, Levene Legal’s Allie Levene says.
Orsted Ruling Impacts UK Infrastructure Tax Advisers, Investors
The UK Supreme Court’s ruling on tax relief for preparatory construction costs is likely to affect how companies appraise and price projects, say Stewarts practitioners.
French Supreme Court Puts Contract at Center of Amex VAT Case
In the Amex case, France’s Supreme Court has reaffirmed the central role of the contract when identifying the recipient of services for VAT purposes in complex intragroup structures, Grant Thornton practitioners explain.
Easier ERC Extension Requests Won’t Resolve Taxpayer Dilemmas
The IRS’s new method for extending the time to administratively resolve employee retention credit disputes is good news for taxpayers, but litigation in federal court may still be a better option for some, Taft’s Holland King says.
Looming Global Minimal Tax Deadlines Require Clarity and Urgency
As businesses finalize their first forms to comply with global minimum tax rules, the OECD must move fast to clarify its filing expectations, exchange assumptions, and whether transitional relief will be available, Business at OECD’s Christian Kaeser says.
US Sanctions Crack Open Door for Energy Investment in Venezuela
There’s a narrow window for multinational investors to enter one of the world’s most resource-rich—though legally complex—energy markets, say Nelson Mullins practitioners.
IRS’s Smooth Filing Season on Paper Hides Operational Weaknesses
The IRS’s filing season review should include early feedback from tax pros, who can best spot unresolved notices, delayed refunds, confusing correspondence, and authentication barriers, writes the National Association of Tax Professionals’ Misty Erickson.
Five Questions With Nixon Peabody Partner Nicholas Gerlach
Bloomberg Tax Insights & Commentary is featuring a recurring questionnaire of prominent tax professionals who are willing to share their thoughts about their work and the practice of tax these days. Today we feature Nicholas Gerlach, a partner in Nixon Peabody’s corporate practice group and a member of the firm’s tax team.
Technically Speaking
The IRS should publish specific guidance to make claiming the adoption tax credit faster and easier, Andrew Leahey argues in his latest Technically Speaking column. Congress made the credit partially refundable starting in 2025 to help families absorb the myriad costs associated with adoption, but an IRS crackdown on fraud could end up causing delays for taxpayers who may need the credit the most.
“Fraud prevention and timely relief don’t need to be competing goals,” Andrew writes. But the agency needs the right staff, training, and systems to parse out fraudulent claims from legitimate ones and minimize claim times, he adds. Read More
News Roundup
OECD Announces Relief for Global Minimum Tax Return Filing
The OECD will release guidance on Monday providing relief for companies that are concerned about late-filing penalties because the countries are experiencing a lag in implementation and technical issues.
IRS Offers Conservation Easement Deal to Bring Down Big Backlog
The IRS is offering a new settlement to taxpayers who took illegitimate conservation easement deductions, a type of tax scheme the agency has battled for more than a decade.
EU Court Sides with Stellantis in Key VAT Transfer Pricing Case
IRS Weighs Firing Key Fraud Investigator Over His Own Tax Return
The agent, Brian Visalli, has denied any intent to cheat the government. He contends his punishment is retaliation for his whistleblower complaints about mismanagement and inefficiency within the agency.
Tax Management Memorandum
How Will AI Shock Retirement Plans and Their Fiduciaries?
The current effects of AI on retirement plans are operational, fiduciary, and uneven across plan types, says Hall Benefits’ Samuel W. Krause in the first of a two-part article.
AI’s Long-Term Effects for Retirement Plans, Fiduciaries Unknown
AI changes work itself: who stays employed longer, who exits earlier, which employers can spread costs and governance through pooling, and which collectively bargained industries see their contribution base strengthened or weakened, says Hall Benefits’ Samuel Krause in the second of a two-part article.
Career Moves
Charles Russell Speechlys Brings Rampulla on as Partner in Milan
Paolo Rampulla joined Charles Russell Speechlys as a partner in its corporate tax practice in Milan, the firm announced Wednesday.
EisnerAmper Adds Raymond Werth as Corporate Tax Partner in NY
Raymond Werth joined EisnerAmper as a corporate tax partner in New York, the firm announced Thursday.
Payne Hicks Beach Appoints Tax Lawyer Flora Hussey as Partner
Flora Hussey joined Payne Hicks Beach as a partner in its private client team, the firm announced Thursday.
Ashfords Adds Trusts and Estates Attorney Emma Harris as Partner
Emma Harris joined Ashfords as a partner in its trusts and estates practice in London, the firm announced Friday.
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