IRS Moves Out to Reverse Agreement on Bonus Payments

The IRS is moving forward with its attempt to nullify its earlier agreement with a union to pay about $70 million in bonus payments.

As noted in an article earlier this week, the Internal Revenue Service has done an about face on paying employee bonuses totaling about $70 million to bargaining unit employees after having earlier agreed with the National Treasury Employees Union (NTEU) to pay out the money.

The agency has been in the political spotlight in recent weeks as a result of events such as these: Allegations actions by the agency were political and helping the current administration by targeting conservative political groups, posting Social Security Numbers for some taxpayers on the internet, spending millions on numerous conferences for employees that were reportedly lavish in decorum, employees taking the 5th amendment while testifying before Congress, political appointees revealing little information and coming across as arrogant or at least uninformed when testifying in Congress and, more recently, for having agreed to pay about $70 million in bonuses to employees.

The agency has apparently already decided to cancel bonuses for managers. It cannot make a unilateral decision to cancel the bonus payments for employees as it agreed to do so in writing with the union. (Author Bob Gilson recently highlighted the awards section of the IRS-NTEU agreement in this article explaining how the agency wandered into the mess in which it is currently wading.)

Despite an earlier position statement that the IRS is “under a legal obligation to comply with its collective bargaining agreement, which specifies the terms by which awards are paid to bargaining-unit employees,” it is now starting the process to try to the agreement to pay the bonuses. In a memo distributed earlier this week (reprinted below), NTEU National President Colleen Kelly wrote that the IRS  is “insisting that we move forward immediately and at an expedited pace.” The agency has, according to the union, contacted  “the next arbitrator on the midterm med-arb panel and asked for hearing dates this month.”

What is Med-Arb?

For those who work outside the often arcane world of the federal labor relations program, the term “med-arb” is probably meaningless. The term is a short version of “mediation-arbitration”—a process under which a person mutually selected by the agency and the union tries to work out a settlement to a dispute acceptable to both parties (mediation). In order to make the authority and opinions of the mediator more significant, and to force a quicker agreement, the person also serves as an arbitrator as well as a mediator. The arbitrator can issue a decision to resolve the dispute if the mediation effort fails.

In other words, it is a system designed to try to work out a resolution to a work related problem. In this instance, the IRS and NTEU have a process established in their labor contract regarding the resolution of conflicts and the agency is invoking this process with regard to the awards process.

What is the Likely Outcome?

In the union’s memo below, the conclusion is that “there is a real possibility that the IRS will refuse to pay the awards due this year…”

The longer term result may be different. If an arbitrator’s award is issued, that is not necessarily the end of the case as the decision can be appealed on limited grounds and it may be possible for NTEU to fashion an unfair labor practice (ULP) allegation against the Internal Revenue Service for having reneged on its agreement. In anticipation of this chain of events, Bob Gilson noted in his recent article: “[I]f IRS were to renege on the deal, the FLRA (Federal Labor Relations Authority) would certainly find them guilty of an unfair labor practice and seek a court order to enforce its view, if IRS tried to play hardball.  Based on past FLRA decisions, IRS would likely end up paying the awards retroactively with interest at some future date.”

The union obviously wants to get the money into the hands of bargaining unit employees and is working to do that.

The agency probably has more complex objectives. Even if its team of legal and labor relations experts thinks the agency may eventually lose the case before a third party, it can certainly delay a final decision and delay making the payments. We do not know why the agency originally agreed to a contract provision that it is now willing to spend a considerable amount of money contesting. The most likely reason for contesting its previous agreement is that it is now in the spotlight.  Actions taken by the agency are being scrutinized carefully in the press and in Congress. Congress is threatening to cut its budget.  The agency is probably trying to survive the political firestorm and, more importantly, preserve and increase its budget.

As noted in an article this week: “The House Appropriations subcommittee with IRS jurisdiction cleared a spending measure gutting the tax-collecting agency’s budget next year by 24 percent in fiscal 2014.”  That 24 percent is much larger than the $70 million that would be paid out in bonus payments to IRS employees. The reduced budget for the agency would still amount to about $9 billion per year.  So, by trying to reverse its previous agreement to pay the bonus money, the agency is trying to gain favor in Congress and in the press and receive more money to spend in the long run.

To the public which occasionally hears snippets of the on-going drama from news broadcasts, it likely appears to be “politics as usual” between people who are deciding how to preserve power and authority and to obtain more money from the public purse—whether the figures in dispute are “only” $70 million or  many billions of dollars to be spent per year. What adds to the interest of the public and results in the agency being a news headline in national news is that the IRS is the agency often described as the “most feared” by Americans because of its power to take money and to destroy a person’s financial life.

Here is a reproduction of the recent information distributed by the union:


NPAA Bargaining Update

TO: IRS Chapter Presidents

RE: NPAA Bargaining Update

As you know, management notified us months ago that it was withdrawing from its commitment to distribute 1.75% of total bargaining unit salaries in performance awards each year. Even though that commitment is in the contract, the law permits an agency to propose a change at any time when the contract provision involves how much of the budget will be devoted to a particular program. We agreed to talk with management about this, and even had some very informal side conversations about what would be possible. I was beginning to feel optimistic about retaining the awards money despite the sequestration. After sending us formal notice management never pushed for a formal meeting to begin the bargaining.

That all changed yesterday when it notified us that now it is insisting that we move forward immediately and at an expedited pace. Simultaneous with the notice to us, management contacted the next arbitrator on the midterm med-arb panel and asked for hearing dates this month. We have already contacted the bargaining team members I appointed months ago to deal with this issue and they will all be available for the hearing.

The bottom line is that there is a real possibility that the IRS will refuse to pay the awards due this year, which I believe to be tragic. Unit employees have earned those awards already and there is no reason to take the money from them retroactively, as opposed to doing something about future years. I will keep you informed of any updates, and we will respond to any action taken as appropriate.

Colleen M. Kelley
National President

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47