WASHINGTON — Citing budget cuts, the Internal Revenue Service is canceling this year's employee bonuses for managers and is working to cancel bonuses for union workers, the agency announced Tuesday.

Acting IRS head Danny Werfel told workers in an email that he is canceling the bonuses because of automatic spending cuts enacted this year. The agency was scheduled to spend nearly $98 million on employee bonuses this year – $76 million for union workers; $19.3 million for nonunion workers, including managers; and $2.5 million for executives.

The bonuses, which were made public in June, riled members of Congress who were already scrutinizing the IRS for improperly targeting conservative political groups when they applied for tax-exempt status.

Werfel, however, did not mention the controversy in his message to employees.

"Given the unprecedented budget situation and consistent with government-wide policy, I do not believe there should be performance awards this year for IRS employees, managers or executives," Werfel said in a statement. "Previously, the IRS determined that, consistent with government-wide guidance, non-bargaining unit employees and managers would not receive awards. I have now instructed our senior leadership team to determine options we can take to eliminate awards for bargaining unit and senior executives as well."

The National Treasury Employees Union said it believes the bonuses are legally required under its collective bargaining agreement

The agreement calls for the IRS to set aside 1.75 percent of union salaries for bonuses, but there is a clause that could enable the IRS to renegotiate. The vast majority of bonuses are based on performance, according to the contract. The agency has more than 90,000 employees.

"NTEU has had a negotiated performance awards program at the IRS for decades, pursuant to the law and regulations which specifically direct agencies to implement such merit-based incentive programs," the union's president, Colleen M. Kelley, said in a statement. "It is NTEU's position that the awards are legally required as part of the collective bargaining agreement between NTEU and the IRS. NTEU is in bargaining with the IRS over this issue and intends to fully pursue the bargaining process to the end."

The IRS has been under intense scrutiny since the agency revealed in May that agents had improperly scrutinized tea party and other conservative political groups. Since then, the IRS has shared documents with Congress that show some liberal groups may have been targeted as well.

The agency has also been criticized for lavish spending on employee conferences and the potential employee bonuses.

Werfel, however, said, "This is not a reflection of the quality or performance of the work done by the IRS workforce, but rather an unfortunate byproduct of the difficult budgetary situation we find ourselves in."

A House Republican spending bill would cut IRS funding by 24 percent for the budget year that starts Oct. 1. It would also prohibit funding for employee bonuses and awards until the bonus program is reviewed.

"An acknowledgement that all bonuses might be inappropriate is welcome," said Sen. Chuck Grassley, R-Iowa, who first publicized the potential for employee bonuses at the agency.

"But it shouldn't take a media firestorm and congressional outrage for the IRS to act within its budgetary constraints," Grassley said. "The IRS still could give bonuses to union members and senior executives, according to today's announcement. Rejecting the White House's mandate to stop bonuses across the board would be a slap in the face to taxpayers."

In April, the White House budget office ordered agencies to cancel discretionary bonuses because of automatic spending cuts. The directive was written by Werfel, a former budget official who has since been appointed as acting head of the IRS.

If the IRS is successful in canceling union bonuses, the agency will also cancel two scheduled furlough days for workers, Werfel said.

Earlier this year, the agency announced five furlough days in which the entire agency shuts down because of budget cuts. The agency has already imposed three furlough days.

Kelley, the union president, said the IRS doesn't need to cancel bonuses to cancel the furlough days.

"The IRS should examine all parts of its budget and operations before eliminating incentive awards for high-performing frontline employees," Kelley said. "IRS employees are dedicated and hard-working professionals who perform important and difficult work for our country. Employees have already earned these awards. The awards that are due are based on employee performance evaluations for work already performed beginning in 2012."

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