A new report from the Treasury Inspector General for Tax Administration found that multiple IRS managers were subjected to salary calculation errors at the agency due to confusion surrounding its pay rules.
The March 29 report details how the complexities of the IRS pay system for managers led to overpayments of $4.2 million to approximately 600 employees, while another 900 managers were shortchanged $2.7 million between 2006 and 2015.
Related: Read the report
Investigators said the breakdowns occurred in the agency's IRS Payband System, which determines performance-based pay for managers and is separate from the General Schedule.
The system provides certain raises for employees promoted to manager positions — such as 10 percent of base pay for a permanent position or 8 percent for a temporary position — but if an employee has previous managerial experience or returns to a GS-level salary job, things start to get complicated.
"For example, employees who are promoted to a similar position to one they previously held may be entitled to receive increases that exceed the 10 percent and 8 percent increases generally paid for permanent and temporary positions," the report said.
"In addition, there are specific rules for setting pay when managers move out of the management pay system. These rules depend specifically on whether the position the manager is receiving is a promotion, a demotion, or a return to the position they occupied prior to receiving a temporary promotion."
The report noted that the guidance for determining pay levels was 70 pages long and was so complex that some improper payments were not detected for years.
"The procedures for setting pay require the application of cumbersome and oftentimes confusing rules that vary depending on, among other things, the nature of the promotion, the salary history of the employee and the management position the employee will be occupying," the report said.
"Additionally, there are complex procedures to follow for temporary promotions that are made permanent and for moving back into the GS pay system when temporary promotions end."
Investigators also found that while IRS officials had tried to institute training efforts for the pay system, individual offices had not received the training and began developing different interpretations of the rules.
IRS officials recognized the problem and began applying additional review processes in 2013 as well as auditing potential cases of overpayment, which is ongoing.
But while the agency moves to correct the record, employees who were overpaid now find themselves in debt to the IRS.
"The employees we interviewed stated that they were unaware of any overpayment until notified by the IRS and did not understand how the pay calculations were made," the report said of employees who now owed $5,000 or more due to the improper salary payments.
"Several expressed frustration and confusion, with some employees stating that they had delayed retirement, experienced medical issues, contacted their member of Congress, or turned down recent offers to enter management due to the salary issues they encountered."
The report offered two recommendations: To address the improper payments identified and develop a risk analysis of the payment system while looking for areas to simplify it.
The IRS agreed with both recommendations and detailed their ongoing plans to apply them.
