IRS Executives Incorrectly Classified Their Travel as Nontaxable

Some Internal Revenue Service executives have incorrectly classified their travel as non-taxable, even though the IRS has written guidance and procedures to inform the agency’s senior executives and managers when their overnight long-term travel reimbursements are subject to employment taxes, according to a new government report.

The report, publicly released Tuesday by the Treasury Inspector General for Tax Administration, followed up on a previous TIGTA report from last July  in which TIGTA reported the IRS spent $9 million on executive travel in fiscal year 2011 and FY 2012 combined and that a small number of IRS executives had extremely high travel expenses compared to other executives. The report came in the midst of congressional inquiries into the expenses incurred by the IRS at some lavish training conferences. For some of the conferences, IRS officials had produced training videos parodying shows like Star Trek and Gilligan’s Island.

The new TIGTA report found that the IRS has now established adequate guidance defining the circumstances in which travel is taxable.  However, while the IRS has instituted a quarterly review process to identify potential long-term taxable travel, the criteria used could be improved, according to TIGTA, and the IRS has not documented the procedures for conducting the travel reviews.

For the new report, TIGTA reviewed the travel records for a sample of 31 executives and found that the tax classification of nine executives appeared to be incorrect based on their travel patterns and the IRS’s validation that the travel was taxable.  In addition, TIGTA identified three executives for whom the tax classification was untimely.

“Without an effective periodic assessment and management review of the executives’ travel activities, the IRS cannot ensure that its executives’ travel reimbursements are properly classified,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA recommended that the IRS Chief Financial Officer modify and document procedures for conducting periodic reviews to determine whether employees and managers accurately determine and report the taxability of long-term travel.  Furthermore, the IRS’s CFO should issue an annual reminder to IRS employees of the policies and procedures related to long-term taxable travel status.

IRS management agreed with TIGTA’s recommendations and stated that they plan to take appropriate corrective actions.

“The IRS CFO will annually, in December, issue a reminder to employees re-emphasizing existing long-term taxable travel procedures and reminding travelers and managers of their responsibility to accurately determine whether their travel may be taxable,” wrote IRS CFO Pamela LaRue in response to the report.