Is The IRS Equipped to Collect $875 Million in Back Taxes From Charity and Labor Groups?

According to a report released this week by the Treasury Inspector General for Tax Administration (TIGTA), almost 65,000 tax-exempt organizations owe close to $875 million in back taxes to the federal government. Underlying this gross negligence in tax abuse is the fact that the IRS has seen a reduction in key enforcement personnel: a slashing of about 3,000 positions since 2010 equaling a $850 million reduction in budget.

TIGTA is reporting that 69% of the $875 million tax debt is comprised of payroll taxes, penalties and interest. Of the organizations that owe back taxes, almost 1,200 owe more than $100,000 each, and at least nine organizations owe back taxes stretching back to 2004 or earlier.

While these tax-exempt organizations do not have to pay income taxes, they are required under federal law to pay payroll taxes. In the U.S., failure to pay payroll taxes can result in a felony or criminal misdemeanor offense.

TIGTA analyzed 52 officers from a group of 25 of the worst offending organizations and found that at least 22 officers were engaging in unlawful activity. The abusive officers had committed offenses such as voluntarily not filing Form 1040, underreporting their wages, and collecting Form W-2 wages from other tax-exempt organizations.

In response to this gross negligence, TIGTA has presented several recommendations to the IRS including allowing the Exempt Organizations division to convene with the Treasury Department in the hopes of creating a new legislation that would bolster the IRS’s ability to punish payroll tax malfeasance. The IRS agreed with the recommendation, but added that 17 cases had already been closed while four organizations had already paid in full.

This case highlights the strain that recent budget cuts have had on certain governmental organizations. Just think of what our nation could do with the almost $1 billion it is owed. Healthcare and education programs need some thoughtful and progressive overhauling: if only we had the money.