Gregory Korte

USA TODAY

WASHINGTON — The Internal Revenue Service handed out $2.8 million in bonuses to employees with disciplinary issues — including more than $1 million to employees who didn't pay their federal taxes, a watchdog report says.

The report by the Treasury Inspector General for Tax Administration said 1,146 IRS employees received bonuses within a year of substantiated federal tax compliance problems.

The bonuses weren't just monetary. Employees with tax problems received a total of 10,582 hours of paid time off — valued at about $250,000 — and 69 received permanent raises through a step increase, the report said. The report looked at bonuses in 2011 and 2012.

Employees' tax problems included "willful understatement of tax liabilities over multiple tax years, late payment of tax liabilities, and underreporting of income," the report said.

"We take seriously our unique role as this nation's tax administrator, and we will strive to implement a policy that protects the integrity of the tax administration system and the reputation of the service," IRS chief Human Capital Officer David Krieg said in a written response to the audit.

The IRS said it has instituted a policy to take conduct into account when handing out bonuses to senior executives. Making that policy apply to all of the agency's workers would require negotiations with the National Treasury Employees Union.

NTEU President Colleen Kelley said the union would review any proposed changes to its contract for the "relatively small number of employees who may have had some overlap between a performance award review period and a conduct issue."

In fiscal year 2012, the agency awarded bonuses of $86.3 million in cash and almost 490,000 hours of time off. About 69% of the agency's 98,000 employees received some kind of bonus.

The IRS suspended most bonuses last year in a cost-savings move to avoid furloughs but restored them in fiscal year 2014.

Non-payment of taxes by federal employees is a government-wide problem. The IRS says 311,536 federal employees were tax delinquents in 2011, owing a total of $3.5 billion.

Bills have been introduced in the House and Senate to fire federal employees with seriously delinquent taxes. The House bill, sponsored by Rep. Jason Chaffetz, R-Utah, failed to clear a procedural hurdle; the Senate bill by Sen. Tom Coburn is in committee.

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