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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.

And 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.

In a response, IRS chief Human Capital Officer David Krieg said the agency was working to develop a policy to take conduct into account when handing out bonuses.

"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," Krieg said.

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 in order to avoid furloughs, but restored them in fiscal year 2014.

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