The IRS has recently sent letters to more than 525,000 current and former federal employees claiming they owe back taxes. The letters started flowing last month and urgently warn recipients as to their outstanding tax obligations. Tax experts caution that these unpaid tax liabilities could provide the basis for the dismissal of a federal worker under the new proposed regulations on employee suitability.
Contents and tone of the IRS letters
The IRS letters start with a bang as “Urgent: You have an outstanding tax issue,” immediately gains attention. Unlike the usual IRS notices, which specify the amount owed, tax year, and deadlines, these specific letters Laked in LT36 notices, merely inform the recipient they are in arrears on some tax obligation without giving details. Letters induce to lead by example as government employees by timely addressing outstanding balances. They include a QR code directing taxpayers to log into their IRS online accounts where they can view the detailed information about their tax status and payments owed. They do not specify the consequences explicitly but mention that the IRS will follow up if the issue is not resolved.
Connection to proposed federal employee suitability rule
It is within the same collection letters’ timing of release that the Office of Personnel Management (OPM) proposed a new rule making it easy to fire federal workers failing to meet “suitability criteria.” Those include generally applicable legal obligations, such as timely filing tax returns. Tax attorneys and employment experts clearly see a nexus: their salaries may become the excuse to fire them if the suitability rule comes into effect.
In deed, as Debra D’Agostino, federal employment lawyer, noted such unpaid taxes as ground dismissal as per the new directive by agency heads. Jessica Marine, a tax attorney who has worked with many federal clients receiving the letters, warned that the administration could legally remove numerous employees for non-compliance with tax obligations through this method.
Implication for federal workers
None of the past legislative attempts, however, was successful in allowing unpaid tax to be sole grounds for termination of federal employment. However, under the present circumstances, the IRS letters are privately an added source of pressure and fear to many employees who are already engaging or may have had unresolved issues with the IRS. Retrospective timing and tone suggest these letters may be part of a much larger administrative initiative toward tightening the control of the federal workforce, possible downsizing.
Tax specialists recommend that recipients of the LT36 notices take the warnings seriously, checking their IRS accounts and making arrangements for the timely payment of any outstanding taxes or negotiating a payment plan with the IRS. Leaving the notices hung out to dry will only lead to escalated adverse collection actions, such as levies and garnishments, thus putting job security in jeopardy.
Broader context: Federal employees and tax compliance
Data from the Treasury Inspector General for Tax Administration shows an increase in the number of federal employees behind on taxes, from just under 4% in 2015 to nearly 5% in 2021. While this rate is lower than the general taxpayer population (8-9%), it represents a significant portion of government staff. Some departments, like the Postal Service and Veterans Affairs, have higher incidences of non-filing or unpaid taxes. Most employees with unpaid taxes have reported an income of less than $100,000 annually.
What recipients should do
It is necessary to give prompt responses to IRS letters as tax advisors emphasized. Taxpayers should:
- Check their tax situation through the IRS online account using the QR code provided.
- Pay any tax owed promptly or make payment plans, if unable to pay all upfront, with the IRS.
- Obtain further assistance from a tax professional or attorney if they do not understand the amounts owed or have disagreements regarding it.
- Do not ignore this notice so as to prevent enforcement actions, such as levies.
Lack of official clarification
No official pronouncement about using these letters for employee dismissal has currently been made by either the IRS or the Office of Personnel Management. The information given is very scanty from the IRS concerning the content of the letter and explanation of consequences, which has led to some worst fears by the recipients while initially assuming these notices could be scams.
The IRS is reaching over half a million current and former federal employees living under the cloud of back taxes at almost the exact time that the administration is moving toward ever stricter standards for employee conduct. If federal employees are still concerned about the letters’ alarming tone versus the proposed suitability rules, it is because the letters cause concern regarding job security in relation to tax compliance. Recipients of such notices should act quickly to resolve any tax issues to safeguard federal employment and avoid potential dismissal under new regulatory frameworks.
Indeed, this development represents a significant intersection of tax enforcement with federal employment policy and requires clarification, reasonableness, and due process concerning how such compliance issues are resolved.
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