The IRS was in damage control mode Tuesday after an audit revealed that it paid bonuses to employees who were in trouble over tax issues themselves.

More than $2.8 million, plus thousands of hours of paid time-off, were doled out over two years to employees who had recently been disciplined for various types of misconduct, according to an audit report. About $1 million of that money was given as bonuses to 1,100 employees who were in trouble over tax related issues.

The tax problems include willful understatement of tax liabilities, late payments and under-reporting of income, according to the report issued by the Treasury Inspector General for Tax Administration.

The report says that providing awards to employees who fail to pay taxes "appears to create a conflict with the IRS's charge of ensuring the integrity of the system of tax administration."

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Although federal regulations do not require the IRS to consider tax compliance of employees when issuing bonuses, the agency says it will change the policy, as per the audit's suggestion.

"We strive to protect the integrity of the tax system, and we recognize the need for proper personnel policies," the agency said in a statement.

Over the past four years, the IRS says it has not issued awards to any executives who were subject to disciplinary action. It is now considering extending that policy to all employees.

The audit report found that the IRS did reduce overall spending on bonuses, fully complying with new federal guidance issued in fiscal year 2011.