(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 con-
tractor employees reviewed by the Treasury Inspec-
tor 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 re-
views contract employee tax compliance only once 
every five years or if the contract employee has had 
longer than a two-year break in service. 
SEC. 3. 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: 
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‘‘SEC. 7811. TAX COMPLIANCE BY INTERNAL REVENUE 
SERVICE EMPLOYEES AND CONTRACTORS. 
‘‘(a) EMPLOYEE
AND CONTRACTOR TAX COMPLI-
ANCE 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 contrac-
tors of the Internal Revenue Service to determine tax com-
pliance 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 re-
quired 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 li-
ability, unless such understatement is due to reason-
able cause and not to willful neglect. 
‘‘(b) PENALTY.— 
‘‘(1) INTERNAL
REVENUE
SERVICE
EMPLOY-
EES.—See section 1203 of the Internal Revenue 
Service Restructuring and Reform Act of 1998 for 
provisions relating to personnel actions against em-
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ployees of the Internal Revenue Service in case of 
misconduct. 
‘‘(2) SERVICE CONTRACTOR.—If there is a final 
administrative or judicial determination that a serv-
ice contractor committed an act or omission de-
scribed 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 Sec-
retary. 
‘‘(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 serv-
ice 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, includ-
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ing any agent of such contractor and any subcontractor 
of such contractor providing such services, and any em-
ployee 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 fol-
lowing new item: 
‘‘Sec. 7811. Tax Compliance by Internal Revenue Service employees and con-
tractors.’’. 
(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. 
Æ 
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