The Treasury Inspector General for Tax Administration (TIGTA) released a report showing that, despite rules saying the IRS shall terminate any employee making willful violations of tax law, the service none the less retained 61 percent of these workers. Section 1203 of the IRS Restructuring and Reform Act of 1998 (RRA 98) states that the IRS shall terminate the employment of any IRS employee if there is a final determination that the employee committed certain acts of misconduct, including willful violations of tax law, but the IRS Commissioner can mitigate cases to a lesser penalty.

Over the past 10 years, according to TIGTA, the IRS Commissioner has made ample use of this ability: from Oct. 1 2003 to Sept. 30, 2013, the IRS said 1,580 employees who were found to be willfully violating tax law. Some of these violations included willful overstatement of expenses, claiming the First-Time Homebuyer Tax Credit without buying a home, and repeated failure to file required Federal tax returns timely.Of these, 620 employees, or 39 percent, were fired, resigned or retired. The remaining 960 employees, or 61 percent, however, were instead subject to lesser penalties like suspensions, reprimands or counseling. TIGTA also noted that there didn't seem to be that much consistency in which employees were let go and which were retained, saying in some employees with similar violations received different discipline, and the reasoning given by the commissioner for the decision was not always clear. 

TIGTA recommended that the IRS Commissioner amend existing policy on how Section 1203 cases are handled to include a requirement to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties to something less than termination.

In its response, the IRS agreed with TIGTA’s recommendation, noting it plans to review existing procedures to document the analysis of evidence and the basis for its decisions, and will consult with its General Legal Services on potential improvements to the transparency of the mitigation process while not interfering with the Commissioner’s authority. In addition, the IRS has subsequently advised TIGTA that it has begun to document the analysis of evidence and the basis for the decision on whether or not to mitigate penalties for 1203 cases to something less than termination.