IRS Administration of Penalties Imposed on Tax Return Preparers

GGD-83-6: Published: Jan 6, 1983. Publicly Released: Jan 6, 1983.

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In response to a congressional request, GAO reported on the Internal Revenue Service's (IRS) administration of the tax return preparer penalties authorized by the 1976 Tax Reform Act.

For a variety of reasons, IRS administration of conduct-related penalties has been uneven, and administration of the penalty for willful misconduct also has been hampered by inadequate guidelines. The lack of specific guidelines, together with minimal documentation in case files, has limited IRS ability to assess the effectiveness of its efforts to detect and deter preparers who willfully understate their clients' tax liabilities. Through program action cases IRS has sought to assess multiple penalties against preparers who have committed multiple violations, but budget constraints have limited the effectiveness of this program. Better management information is needed, because IRS has not sought to specifically identify the size of the problem preparer group, nor has it collected the data needed to determine the effectiveness of its administration of the penalty provisions. In particular, IRS lacks data on the extent to which penalties have been assessed against the same preparers over the course of several years.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should identify additional means to better ensure that examiners take tax law complexity into account when making penalty assertion decisions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should publish guidelines better defining the circumstances under which the willful misconduct penalty ought to be asserted.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should reassess certain IRS compliance approaches and take corrective actions as appropriate. In this regard, he should specifically: (1) determine whether a sizeable group of preparers exists who are not identifying themselves on returns they prepare and have not been detected by the IRS current compliance program; and (2) reevaluate the IRS current nationwide approach to detecting paid preparers who negotiate taxpayers' refund checks.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should identify and implement the least costly means of collecting needed management information on the preparer population and on preparer penalties, and ensure that the data collected include information on preparers who commit multiple violations over the course of several years.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should specify that all penalty case files contain information on the type of penalty assessed, the basis for the penalty action, the dollar amounts involved, especially in terms of understated tax liabilities, and the results of supervisory and quality control reviews.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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