Tax Administration:

Erroneous Penalties for Failure to File Returns or Pay Taxes Can Be Reduced

GGD-90-80: Published: Apr 13, 1990. Publicly Released: Apr 13, 1990.

Additional Materials:

Contact:

Jennie S. Stathis
(202) 512-5407
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

GAO reviewed Internal Revenue Service (IRS) tax penalty assessments, abatements, and statistics.

GAO found that: (1) IRS correctly granted 91 percent of abatements; (2) 29 percent of abatements were needed to correct IRS assessment errors; (3) erroneous assessments were primarily caused by IRS processing errors; (4) IRS needed better documentation on abatement decisions; (5) strengthened IRS internal controls would reduce the number of erroneous assessments; and (6) IRS could better explain and categorize penalty abatement statistics to differentiate between penalty adjustments and reasonable-cause abatements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS clarified the code and edit instructions in the Internal Revenue Manual for returns containing Form 8023, Corporate Qualified Stock Purchase Elections.

    Recommendation: The Commissioner of Internal Revenue should clarify in the Internal Revenue Manual the requirements for coding tax returns containing Form 8023--Corporate Qualified Stock Purchase Elections.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS has included reason codes on abatements so it can better determine whether abatement was due solely to a tax change or whether IRS took an action. Completion of computer programming required to disaggregate data is scheduled for late 1993. Appropriate charges are reflected in IRM 20, page (20)-31--Exhibit (20)100-3. These data are captured in the Penalty MIS system file.

    Recommendation: In order for IRS statistics to more accurately reflect IRS forgiveness of taxpayer noncompliance, IRS should isolate computer adjustments from the numbers and dollar value of abatements prior to publication for either internal or external use.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS developed standard abbreviations to summarize why failure-to-file penalties were adjusted, and examiners have been required to enter the abbreviations on adjustment documents since September 1990. The EQMS Reviewer's Guide (10/94) establishes quality review standards for proper consideration of penalties, including the documentation of abatement decisions.

    Recommendation: The Commissioner of Internal Revenue should improve internal controls over the abatement of the failure-to-file-and-pay penalties by requiring quality review to assess whether or not the abatement decisions were adequately documented by the examiner.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: Effective June 30, 1990, a paperless extension system was approved for use in tax year 1991. Required steps to change the system have been made and IRS issued a news release to the public. The paperless system will result in the automatic assessment of failure to file and pay penalties when the return is filed if the required amounts are not paid as of the due date of the return.

    Recommendation: The Commissioner of Internal Revenue should require IRS tax examiners to more fully document their penalty abatement decisions. At a minimum, the documentation should include the basis for the abatement, including the cause of any erroneous assessments.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: From September 21, 1990 on, indicators are entered on adjustment documents for all failures to file and pay penalty adjustments. This system of indicators is designed to allow IRS examiners to indicate the specific reasons for penalty adjustments. Since the indicators are standardized, documentation is consistent and readily understood. Use of these indicators increase the information available.

    Recommendation: The Commissioner of Internal Revenue should improve the internal controls over the assessment of the failure-to-file and failure-to-pay penalties by providing for the collection of information on the causes of erroneous penalty assessments from the abatement process and by providing this information to IRS managers responsible for correcting those problems.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

Explore the full database of GAO's Open Recommendations »

Sep 13, 2016

Sep 6, 2016

Jul 29, 2016

Jul 7, 2016

Jun 27, 2016

Jun 23, 2016

Apr 19, 2016

Apr 13, 2016

Apr 7, 2016

Mar 28, 2016

Looking for more? Browse all our products here