MONEY Ask the Expert

How To Tap Your IRA When You Really Need the Money

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Robert A. Di Ieso, Jr.

Q: I am 52 and recently lost my job. I have a fairly large IRA. I was thinking of taking a “rule 72(t)” distribution for income and shifting some of those IRA assets to my Roth IRA, paying the tax now while I’m unemployed and most likely at a lower tax rate. What do you think of this strategy? – Mark, Ft. Lauderdale, FL

A: It’s a workable strategy, but it’s one that’s very complex and may cost you a big chunk of your retirement savings, says Ed Slott, a CPA and founder of IRAhelp.com.

Because your IRA is meant to provide income in retirement, the IRS strongly encourages you to save it for that by imposing a 10% withdrawal penalty (on top of income taxes) if you tap the money before you reach age 59 ½. There are several exceptions that allow you to avoid the penalty, such as incurring steep medical bills, paying for higher education or a down payment on a first home. (Unemployment is not included.)

The exception that you’re considering is known as rule 72(t), after the IRS section code that spells it out, and anyone can use this strategy to avoid the 10% penalty if you follow the requirements precisely. You must take the money out on a specific schedule in regular increments and stick with that payment schedule for five years, or until you reach age 59 ½, whichever is longer. Deviate from this program, and you’ll have to pay the penalty on all money withdrawn from the IRA, plus interest. (The formal, less catchy name of this strategy is the Substantially Equal Periodic Payment, or SEPP, rule.)

The IRS gives you three different methods to calculate your payment amount: required minimum distribution, fixed amortization and fixed annuitization. Several sites, including 72t.net, Dinkytown and CalcXML, offer tools if you want to run scenarios. Generally, the amortization method will gives you the highest income, says Slott. But it’s a good idea to consult a tax professional to see which one is best for you.

If you do use the 72(t) method, and want to shift some of your traditional IRA assets to a Roth, consider first dividing your current account into two—that way, you can convert only a portion of the money. But you must do so before you set up the 72(t) plan. If you later decide that you no longer need the distributions, you can’t contribute 72(t) income into another IRA or put it into a Roth. Your best option would be to save it in a taxable fund. “Then the money will be there if you need it down the road,” says Slott.

Does it make sense to take 72(t) distributions? Only as a last resort. It is true that you’ll pay less in income tax while you’re unemployed. But at age 52, you’ll be taking distributions for seven and a half years, which is a long time to commit to the payout plan. If you get a job during that period, the income from the 72(t) distribution could push you into a higher tax bracket. Slott suggests checking into a home equity loan—or even taking some money out of your IRA up front and paying the 10% penalty, rather than withdrawing the bulk of the account. “Your retirement money is the result of years of saving,” says Slott. “If you take out big chunks now, you might not have enough lifetime to replace it.”

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

TIME Companies

Companies Should Think Twice Before Making Blatant Tax Dodges

Call it inversion reversion. Or, don’t bite the hand that feeds you. After considering a tax-avoidance strategy by which it would buy a United Kingdom based company and move there to lower its tax bill, Walgreens is staying put in Chicago. But America’s biggest drug store chain is still going ahead and exercising an option to buy the 55% of the U.K.’s Alliance Boots that it doesn’t already own for $15 billion.

The combined company will be called Walgreens Alliance Boots and have 11,000 stores in 10 countries, plus a pharmaceutical wholesale and distribution network.

In remaining true to its Midwestern roots, Walgreens is eschewing the latest trend in corporate tax avoidance, known as inversion. Earlier this year companies including AbbVie and Mylan, have announced mergers with European based companies and intend redomicile there—that is, more their legal residence while pretty much staying put— because the tax rates are lower than the 35% corporate statutory rate in the U.S. Although the effective tax rate that most U.S. companies actually pay is much lower, the opportunity to replant a corporate flag in, say, Ireland, where the economy sucks but the corporate tax rate is 12.5%, has been too much to resist.

The corporate migration to foreign shores has been gaining momentum, led by pharmaceutical and medical companies. In addition to AbbVie and Mylan, Salix, Horizon Pharma and Medtronic have acquired firms in the UK, the Netherlands, and Ireland. Pfizer tried to buy the U.K.’s AstraZenica but was rebuffed. For the American multinational RX firms in particular, the lure of not repatriating foreign earnings, which would be taxed at U.S. rates, is powerful. By moving to Ireland, say, companies pay a territorial tax rate—that is, they are taxed only on domestic profits. The U.S. taxes corporations on their worldwide profits, which is one reason why many American multinational hold substantial profits overseas. According to the Congressional Research Service, a Pfizer inversion would have cost the U.S. $1.4 billion in lost tax revenues annually.

Walgreens said that it had given the inversion strategy careful consideration, as some of its stockholders had demanded. But in a statement, CEO Greg Wasson said the company concluded “it was not in the best long-term interest of our shareholders to attempt to re-domicile outside the U.S.” (Translation: the lawyers said no.) But Walgreens also acknowledged that as a U.S. company that derives almost all of its sales from U.S. consumers—not to mention from reimbursement from Medicaid and other government programs—it felt a patriotic tug, too.

U.S. Treasury Department Secretary Jacob J. Lew has been howling about corporations’ lack of “economic patriotism” and talking up retroactive legislation that can effectively undo some of the deals that have already taken place. Earlier this year, Treasury suggested changing the rules that govern such transactions. Currently, a company can take advantage of the tax benefits of an inversion deal only if the original U.S. stockholders own less than 80% of the new overseas company. Treasury wants to lower that threshold to 50% to make the deals less attractive. It also proposed denying tax benefits if the new entity is “primarily managed and controlled in the United States” regardless of the new shareholding distribution.

This is the second time in the last two decades that Treasury has led the charge to stem inversion schemes. In the 1990s and 2000s, companies such as Ingersoll-Rand, Tyco, the PXRE Group, Foster Wheeler, Nabors Industries, and Coopers Industries blew town to replant themselves in other nations, some in those great manufacturing centers known as Bermuda or the Cayman Islands. Congress put a halt to that naked tax dodging with the American Jobs Creation Act of 2004.

There is no disagreement among Democrats and Republicans that the corporate tax code needs to be overhauled to make it less complex and to impose tax rates that are competitive with other countries. “We want our tax code to have incentives for investing in the United States and disincentives for taking business out of the United States,” Lew said at a CNBC conference this week. That, however, will take another act of Congress, a body more inclined to do nothing. That would not describe America’s dealmakers and tax lawyers who continue to demonstrate that they have no aversion to inversion whatever.

TIME controversy

Emails: Former IRS Official Lois Lerner Called Republicans ‘Crazies’ and ‘—holes’

Former IRS Director Lois Lerner Testifies To A House Oversight Committee On IRS Targeting Scandal
Former Internal Revenue Service official Lois Lerner exercises her Fifth Amendment right not to speak about the IRS targeting investigation before the House Oversight and Government Reform Committee during a hearing in the Rayburn House Office Building on March 5, 2014 in Washington. Chip Somodevilla—Getty Images

House Ways and Means Chairman Dave Camp released new emails from former IRS official Lois Lerner as part of investigation examining potential criminal wrongdoing

Lois Lerner, the former Internal Revenue Service official at the center of a scandal involving that agency’s targeting of conservative groups, called Republicans “crazies” and “assholes,” according to emails released Wednesday.

Lerner’s messages were released by House Ways and Means Chairman Dave Camp as part of an investigation looking into possible criminal wrongdoing at the IRS. The emails released by Camp’s committee were redacted to use the language “—holes,” but a Camp spokesperson confirmed the original emails read “assholes.” Lerner resigned from her post overseeing tax-exempt groups last September.

In work emails exchanged November 2012 with an unidentified person, Lerner knocks the “whacko wing” of the Republican Party and conservative radio shows. Camp said in a statement that he hopes the released emails urge the Justice Department to “aggressively pursue this case” and appoint a special counsel. In May 2013, Lerner acknowledged that the IRS chose groups with “tea party” in their name for additional review in determining their tax-exempt status as social welfare groups.

A spokesman for Rep. Sandy Levin (D-Mich.), the ranking Democrat on the House Ways and Means Committee, did not respond to a request for comment.

 

TIME Campaign Finance

IRS to Rubber-Stamp Tax-Exempt Status for Most Charities After Scandal

Internal Revenue Service Commissioner John Koskinen testifies during a hearing before the Government Operations Subcommittee of the House Oversight and Government Reform Committee July 9, 2014 on Capitol Hill in Washington, D.C.
Internal Revenue Service Commissioner John Koskinen testifies during a hearing before the Government Operations Subcommittee of the House Oversight and Government Reform Committee July 9, 2014 on Capitol Hill in Washington, D.C. Alex Wong—Getty Images

IRS head touts "efficiencies," but some groups fear fraud

Amid ongoing controversy over its scrutiny of nonprofits, the Internal Revenue Service has decided it will no longer screen approximately 80% of the organizations seeking tax-exempt charitable status each year, a change that will ease the creation of small charities while doing away with a review intended to counter fraud and prevent political and other noncharitable groups from misusing the tax code.

As of July 1, any group that pays a $400 fee and declares on a three-page online form that it has annual income of less than $50,000, total assets of less than $250,000 and is in compliance with the tax-code requirements of a charity will automatically be allowed to accept donations that are tax-deductible for the donors. Previously the groups had to fill out a detailed 26-page form, submit multiple supporting documents and provide a narrative description of their intended activities.

In an interview with TIME, IRS commissioner John Koskinen said the change would result in “efficiencies [that] will translate into a faster and better review” of bigger nonprofits, while clearing a 66,000-application backlog that has resulted in yearlong waits for groups seeking to start a charity. He said the new short form comes with 20 pages of instructions that make clear the requirements and limitations of being a charitable organization. Koskinen said that on the new short form, “people certify that they’ve gone through the instructions” under penalty of perjury.

The IRS rejected the idea of the new Form 1023-EZ in 2012, but using an expedited process this year, adopted the new procedure on the recommendation of a small team composed largely of frontline workers from the scandal-plagued division of exempt organizations, according to the IRS.

Some charitable groups worry the IRS has opened the door to abuse of tax-exempt status that will undermine the credibility of legitimate nonprofits, which are allowed to accept deductible donations under section 501(c)(3) of the tax code. “The Form 1023-EZ will increase opportunity for fraud,” said Alissa Hecht Gardenswartz, president of the National Association of State Charity Officials, and will make it harder “to protect charitable assets from fraud and abuse and to ensure that charitable assets are used for the purposes represented to the public.”

Others worry that charities, nominally barred from political activity, will come to serve the same purpose as the powerful nonprofit organizations known as 501(c)(4)s, whose donations cannot be deducted from taxes. This could give an added tax benefit to donors who have recently funneled hundreds of millions of dollars into independent political campaign spending. “What we’ll see is the so-called dark political money that flowed into the (c)(4) world is going to begin to flow into the (c)(3) world,” says Marcus Owens, who was the director of the exempt-organizations division at the IRS from 1990 to 2000, and is now in private practice at the law firm of Caplin & Drysdale.

The change will result in approximately 40,000 to 50,000 fewer (c)(3) applications for the exempt-organizations division to review each year, Koskinen says. The division, whose main office is in Cincinnati, has been at the center of the IRS scandal over alleged political scrutiny of right-wing 501(c)(4) groups under then-head Lois Lerner. That scandal centers on shortcuts the office developed to identify (c)(4) groups for further screening, including screens for groups with the names that suggested an association with the Tea Party movement.

The current legal interpretation of tax regulations allows so-called (c)(4)s to engage in political activities as long as they don’t spend more than 50% of their money on politics. In the 2010 Citizens United ruling by the Supreme Court, those same groups earned the ability to buy campaign ads in federal elections, and tax laws allowed them to conceal the identity of their donors. Since the ruling, the number of applications to become a (c)(4) has doubled, to around 1,000 per year, Koskinen says. In the 2012 campaign, (c)(4)s spent approximately $300 million dollars on politics, according to the Center for Responsive Politics.

Much of that money was spent attempting to motivate voters by advertising positions on specific issues that divide candidates. Owens, the former IRS official, says such activity can be cast under the mission of a (c)(3) devoted to educational, religious or other permitted activities, opening the possibility of deductible dark money. “The candidate links to the issue, and then the tax-exempt organization’s job is to find the voters and make sure they know the message and hear it loud and clear up to election day,” says Owens. “That’s what the (c)(4)s were doing, but that kind of activity could be just as easily in a (c)(3), but it would have the added advantage of having tax deductibility attached to it,” Owens says.

Democratic defenders of the IRS and the exempt-organizations office say both have been deprived of resources, as the overall IRS budget was cut by nearly $950 million, or around 7.8%, from 2010 to 2013, according to the nonpartisan Government Accountability Office. In an April 2014 report, the GAO found the cuts had been offset through savings and efficiencies, and by reducing, delaying or eliminating services. Koskinen says budget cuts didn’t play a role in the change in charity rules. “Obviously we are resource-constrained everywhere across the agency,” he says, but “we would want to do this anyway.”

While charity groups agree the old process for receiving tax-exempt status was too cumbersome, they and others worry that now organizations with no true charitable purpose will seek to become charities. “It’s easier to get tax-exempt status under 1023-EZ than it is to get a library card,” says Tim Delaney, president and CEO of the Council of Nonprofits. As a result, Delaney says, bad actors “will be able to operate in the name of the charity, and the IRS will never be the wiser because they’re not looking at the underlying documentation.”

Koskinen says such worries are overblown. “There’s a faith that if someone has been forced to do more paperwork they’re going to be less nefarious,” he says. He says that to prevent potential abuse, the IRS will take samples of applications to see what percentage are being filled out incorrectly, and will monitor the number of applications to see if it spikes suspiciously as a result of the new rules.

Owens says the IRS may not be able to differentiate between truly small charities and those that knowingly plan to grow beyond $50,000 in annual income. “I haven’t seen any mechanism where the IRS would be legally able to go after an organization that applied within the EZ process but then fortune shined on them,” Owens says. He also says that because of outdated software, the IRS won’t be able to track active charities back from its master file to their originating documents. An IRS official speaking on background acknowledged the software problem.

Charities complain that the change was made with little consultation from their representative lobbying organizations. The IRS sped its enactment this year by routing the change through the White House’s Office of Management and Budget for public comment under the Paperwork Reduction Act, rather than through the normal public-comment process at the IRS, nonprofit officials contend. “I just wish the IRS had used a more inclusive process from the beginning,” says Delaney of the Council of Nonprofits.

The IRS studied a simplified tax-exempt form in 2012 but rejected the idea. The group that looked at the idea, made up of outside lawyers and experts in tax-exempt organizations, said that filling out the longer form forced groups to better understand the requirements of being a charity. The group said it “may also be easier to embezzle from a small charity,” so they should be subject to more, not less, oversight.

TIME Department of Justice

Ted Cruz: Holder Must Appoint IRS Special Prosecutor or Expect to Be Impeached

Eric Holder
Attorney General Eric Holder testifying on Capitol Hill in Washington, Jan. 29, 2014. J. Scott Applewhite—AP

Sen. Ted Cruz (R-Texas) added that the Justice Department is “the most partisan” in its history.

Attorney General Eric Holder must appoint a special prosecutor to investigate IRS targeting of conservative groups or expect to face impeachment proceedings, Sen. Ted Cruz (R-Texas) said on the chamber floor Thursday.

“When an Attorney General mocks the rule of law, when an Attorney General corrupts the Department of Justice by conducting a nakedly partisan investigation to cover up political wrongdoing that conduct by any reasonable measure constitutes high crimes and misdemeanors,” said Cruz. “Attorney General Eric Holder has the opportunity to do the right thing. He could appoint a special prosecutor with meaningful independence who is not a major Obama donor.”

The donor Cruz is referring to is Justice Department prosecutor Barbara Bosserman, who has given $6,750 to the Democratic Party and President Obama over the past ten years, according to the Washington Post. Bosserman has been chosen to lead the Justice Department probe into the IRS.

Cruz and other conservatives are dismayed that the Justice Department has yet to indict anyone 13 months after the IRS admitted that it targeted nonprofit political advocacy groups with the terms “tea party” or “patriot” in their names from 2010 to 2012.

Finance Committee Chairman Sen. Ron Wyden (D—Ore.) took to the floor after Cruz’s speech to object to the call for a special prosecutor, saying that there have been five IRS investigations either concluded or ongoing and another could add “significant cost” to the taxpayer. He also said the call was “premature” given that his committee’s report, conducted with Sen. Orrin Hatch (R-Utah) and his staff, is “almost finished.”

The House of Representatives has impeached only one cabinet official in its history, Secretary of War William Belknap in 1876. He was acquitted in his Senate trial.

TIME IRS

IRS Commissioner on Email Scandal : ‘Nobody’s Hiding Anything’

The agency head also hinted at the idea that emails from Lois Lerner, the former head of the agency's tax-exempt status department, might be retrievable

+ READ ARTICLE

IRS Commissioner John Koskinen defended his office’s conduct in the scandal over the tax agency’s alleged targeting of conservative groups Monday, after it admitted losing a trove of emails at the center of a congressional probe.

The IRS said that more than two years worth of e-mails disappeared as a consequence of a hard drive crashing in 2011. When asked by a CNN reporter about the missing emails and the crashed hard drive, Koskinen said: “I spent three weeks trying to restore it back in 2011, we’ve got 24,000 mails from that period so nobody’s hiding anything.”

Koskinen has been at the center of a House Ways and Means Committee investigation into how and why the Internal Revenue Service applied additional scrutiny on applications for tax-exempt status of political action groups. Last week, the IRS informed congressional investigators that it could not recover two years of emails from Lois Lerner, the former head of the agency’s tax-exempt status department.

Lerner was directly involved in questioning the tax-exempt status of conservative political groups applying for tax-exempt status, documents showed. The House Ways and Means Committee has urged prosecutors to pursue criminal charges against Lerner, who has repeatedly refused to testify on Fifth Amendment grounds. But evidence suggests that liberal groups were also targeted by IRS investigators, and a congressional probe has so far failed to show a connection to the White House.

Koskinen suggested on Monday that many of Lerner’s emails might still be retrievable from other computers within the IRS. “Even though her hard drive crashed, didn’t mean that their hard drive crashed so they have those emails.”

The IRS claim that it had lost the electronic correspondence sparked outrage among congressional investigators, as they were hoping that the emails would shed light on whether anyone outside the tax agency was involved in the alleged targeting of conservative groups. “We are simply not going to accept the IRS claim that these documents are not recoverable,” said House Ways and Means Chairman Dave Camp.

Koskinen agreed Monday to testify to two House committees about the e-mails.

 

TIME Congress

Lerner’s Lost Emails: Republicans Press Obama Administration on Tea Party Scrutiny

Internal Revenue Service official Lois Lerner refuses to answer questions as the House Oversight Committee holds a hearing to investigate the extra scrutiny the IRS gave Tea Party and other conservative groups that applied for tax-exempt status, on Capitol Hill in Washington, D.C., on May 22, 2013.
Internal Revenue Service official Lois Lerner refuses to answer questions as the House Oversight Committee holds a hearing to investigate the extra scrutiny the IRS gave Tea Party and other conservative groups that applied for tax-exempt status, on Capitol Hill in Washington, D.C., on May 22, 2013. J. Scott Applewhite—AP

"We are simply not going to accept the IRS claim that these documents are not recoverable," says House Ways and Means Chairman Dave Camp

On June 13, 2011, a colleague of former IRS official Lois Lerner sent out a blast email of the sort familiar to many office workers: “Lois’ hard drive has crashed on her computer and will be without email,” the message read, according to documents released last week by the IRS. But if computer crashes are common in the modern workplace, this particular one is getting the attention of Congressional investigators looking into Lerner’s role in alleged politically motivated scrutiny of right-wing political organizations by the IRS.

That’s because in an age where every teenager is taught that sent emails live forever somewhere in the electronic ether, Lerner’s hard-drive crash apparently managed to obliterate all record of her written electronic communications from Jan. 1, 2009, to April 2011 with anyone outside the IRS. That fact, reported Friday by the IRS to Congress, has infuriated Republicans in the Senate and House.

“Today’s admission by the IRS that they cannot produce Lois Lerner’s emails is an outrageous impediment to our investigation,” the Senate Finance Committee’s top Republican Orrin Hatch said in a statement released Friday. “Even more egregious is the fact we are learning about this a full year after our initial request to provide the Committee with any and all documents relating to our investigation,” Hatch said.

Now Hatch and his GOP counterpart in the House, Ways and Means Chairman Dave Camp, are demanding even more digging for emails on the Administration’s part. On Monday, Camp wrote President Obama to request any emails Lerner sent to anyone at the White House during the period covered by her hard-drive crash; and he similarly requested any emails she sent to Treasury, Justice, the EPA, the Federal Election Commission and the Occupational Safety & Health Administration.

In the normal course of government business it would be unusual for a midlevel bureaucrat at the IRS would be in touch with the executive office of the President. But then in the normal course of business it would be unusual for a hard-drive crash to wipe all records of emails ever sent from the computer, anywhere.

The IRS explained the developments in its Friday letter to Congress by saying that before 2013 the agency’s policy was to daily back up emails on tapes that were saved for six months and then over-written. Josh Earnest, the incoming White House press secretary, on Monday called speculation of foul play “indicative of the kinds of conspiracy that are propagated around this story.”

Democrats say the GOP’s attempt to find a political motivation in the IRS’s handling of applications for non-profit status from right wing groups is itself a politically motivated enterprise by Republicans seeking to rile up their base ahead of midterm elections. The Democrats point to a May 2013 email from the head of investigations for the IRS inspector general’s office to colleagues finding “there was no indication” that the slow down in processing Tea Party non-profit applications “was politically motivated.”

Republicans are having none of it. Wrote Camp to Obama on Monday: “We are simply not going to accept the IRS claim that these documents are not recoverable. We will demand the President live up to his promise to work “hand in hand” with Congress to get the facts. He can do so by quickly ordering his White House and key agencies to immediately conduct an exhaustive search for all Lois Lerner emails. There needs to be an immediate investigation and forensic audit by an independent special investigator.”

— With additional reporting by Zeke Miller / Washington

TIME

80 Years of Federal Revenue in One Chart

What’s the federal government’s largest source of income? Individual American citizens.

Income taxes—including taxes that are automatically withheld from paychecks—accounted for 47 percent of all federal revenue in 2013.

Payroll taxes, which are paid by employees and employers and are earmarked mostly for Social Security and Medicare, accounted for the second largest piece of the pie, at 34 percent. Workers and employers each contribute 6.2 percent of the employee’s wages for Social Security, and 1.45 percent of the wages for Medicare.

Corporate taxes—a 15-35 percent marginal tax rate on a company’s profits—were the third largest source of federal revenue, at about 10 percent.

 

FY2013

According to the graph below, the tax landscape for individuals has stayed relatively steady as a percentage of total federal revenue since 1944, typically sitting in the mid 40’s, and sometimes dipping down into the thirties. Income taxes reached their highest percentage (50 percent) as a piece of the overall pie in 2000 and 2001.

But the tax landscape was a lot different before World War II. In 1934, the earliest year with complete data from the White House Office of Management and Budget, individual income taxes accounted for 14 percent of the tax pie, while payroll taxes accounted for 1 percent, corporate taxes 12 percent, excise taxes 46 percent, and other taxes 27 percent.

FY1934Revenue

Income taxes were a small piece of the pie in 1934, because the tax—enacted into law in 1913 by the 16th amendment—predominantly applied to high income earners, and exemptions were high.

During WWII, exemptions were reduced and tax rates were increased to help fund the war. Coupled with overall increases in income, income taxes as a percentage of government revenue sharply increased.

According to records from the IRS, the biggest increase came in 1943-1944. Personal exemptions decreased from $1,200 to $1,000 for married couples, tax rates for the lowest earning bracket (<$2,000) rose from 19 to 23 percent, and tax rates for the highest earning bracket (>200,000), rose from 88 to 94 percent.

Although U.S. income taxes have increased, they are about average as a percentage of GDP when compared to other OECD countries.

While income taxes rose as a percentage of federal revenue from 1943-1944, corporate income taxes did the opposite, shrinking from 40 percent of the overall pie, down to 34 percent.

Also unlike income taxes, which have stayed relatively steady as a percentage of federal revenue since 1944, corporate taxes have shrunk, reaching their lowest levels as a percentage of the tax pie—6 percent—in 1983.

In comparison to other OECD countries, U.S. corporate taxes as a percent of tax revenue (2.3 percent) fall below average (3 percent).

This article was written for TIME by Kiran Dhillon of FindTheBest.

TIME Taxes

IRS Gave $1 Million in Bonuses to Employees Who Didn’t Pay Taxes

The IRS paid $1 million in bonuses to employees who owed back taxes and another $1.8 million in bonuses to workers facing disciplinary problems

The federal agency in charge of tax collection has been awarding bonuses to employees who have not been paying their taxes on time, according to a new report by J. Russell George, the Treasury inspector general for tax administration.

The report reveals that the Internal Revenue Service gave a total of $1 million in bonuses to 1,150 workers who owed back taxes between October 201o and December 2012. The IRS paid out an additional $1.8 million in bonuses to workers facing other kinds of disciplinary problems over the same period, including improper use of government credit cards, drug use, threats of violence and unemployment-benefits fraud, according to the Associated Press.

George said the bonuses don’t violate federal rules but are inconsistent with the agency’s mission to enforce tax regulations. “These awards are designed to recognize and reward IRS employees for a job well done, and that is appropriate, because the IRS should encourage good performance,” George said in a press release. “However, while not prohibited, providing awards to employees who have been disciplined for failing to pay federal taxes appears to create a conflict with the IRS’s charge of ensuring the integrity of the system of tax administration.”

Despite the apparent contradiction highlighted by bonus program, the employees of the Treasury Department, which includes the IRS, still have better tax compliance than other federal agencies. Just 1.1% of Treasury workers owed back taxes in 2011, compared with 3.2% of federal workers overall, the AP reports. The tax-delinquency rate for the general public was 8.2% that year.

TIME

Don’t Forget to Do Your Taxes

Congress Focuses On IRS Delay In Disclosing Groups' Scrutiny
The Internal Revenue Service (IRS) building stands in Washington, D.C., U.S., May 15, 2013. Bloomberg/Getty Images

You have until midnight to get your taxes done.

It’s Tax Day! As of the end of last week, the IRS had received nearly 100 million returns, or about three-quarters of all the returns it expects to get this season. So if you haven’t filed yet, you’re in the minority. Still if you have procrastinated and are owed a refund, it won’t hurt to file late. Tax payers are only hit with penalties if you owe the government money.

It is still a smart idea to file for an extension; about 12 million taxpayers have requested extensions. The average refund is $2,792, up 1% from last year. Here are a few tips, tricks, and useful articles for the longest day of the year at the IRS:

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Make the Most of Tax Write-Offs

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