Findings

Congress finds the following: (1)The Internal Revenue Manual requires all Internal Revenue Service employees, and contract employees, to file their Federal tax returns on time and pay any Federal tax debt. (2)The Treasury Inspector General for Tax Administration reports that as of June 14, 2012, 691 of the 13,591 Internal Revenue Service contractor employees reviewed by the Treasury Inspector General for Tax Administration had $5.4 million in Federal tax debt. (3)Of the 691 contractor employees, 352 were not currently on a payment plan to resolve their tax debt. (4)The Treasury Inspector General for Tax Administration also found that while the Internal Revenue Service reviews employee tax compliance every year, the Internal Revenue Service only reviews contract employee tax compliance only once every five years or if the contract employee has had longer than a two-year break in service.

Tax Compliance by Internal Revenue Service employees and contractors

(a)

In general

Subchapter A of chapter 80 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

7811.

Tax Compliance by Internal Revenue Service employees and contractors

(a)

Employee and contractor tax compliance audits

Not later than 1 year after the date of the enactment of this section, and annually thereafter, the Treasury Inspector General for Tax Administration shall conduct annual audits of employees and service contractors of the Internal Revenue Service to determine tax compliance with the following acts and omissions punishable under paragraphs (8) and (9) of section 1203(b) of the Internal Revenue Service Restructuring and Reform Act of 1998: (1)willful failure to file any return of tax required under the Internal Revenue Code of 1986 on or before the date prescribed therefor (including any extensions), unless such failure is due to reasonable cause and not to willful neglect, and (2)willful understatement of Federal tax liability, unless such understatement is due to reasonable cause and not to willful neglect. (b)

Penalty

(1)

Internal Revenue Service employees

See section 1203 of the Internal Revenue Service Restructuring and Reform Act of 1998 for provisions relating to personnel actions against employees of the Internal Revenue Service in case of misconduct. (2)

Service contractor

If there is a final administrative or judicial determination that a service contractor committed an act or omission described in subsection (a), then— (A)in the case of contracts entered into after the date of the enactment of this section, the employment or contract relationship (as the case may be) with the service contractor, and any individual providing services to the service contractor determined in such determination to have committed such act or omission, shall be terminated, and (B)the contractor shall be debarred for not less than 5 years, as determined by the Secretary. (c)

Limitation on contract authority

The Internal Revenue Service may not enter into a contract after the date of the enactment of this section for services unless the contract contains a clause under which the service contractor agrees to be subject to this section. (d)

Service contractor

For purposes of this section, the term service contractor means any contractor providing services to the Internal Revenue Service, including any agent of such contractor and any subcontractor of such contractor providing such services, and any employee or intern of any such contractor or subcontractor providing such services.

(b)

Clerical amendment

The table of sections for subchapter A of chapter 80 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

Sec. 7811. Tax Compliance by Internal Revenue Service employees and contractors.

(c)

Effective date

The amendments made by this section shall apply with respect to audits conducted after the date of the enactment of this Act.