Tax Administration:

IRS Preparer Penalty Data Inaccurate and Misleading

GGD-90-92: Published: Aug 15, 1990. Publicly Released: Aug 15, 1990.

Additional Materials:

Contact:

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

 

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

Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) administration of the return preparer penalty program to determine whether IRS imposed preparer penalties appropriately and consistently.

GAO found that IRS preparer penalty statistics did not accurately reflect preparer noncompliance because IRS: (1) procedures allowed multiple penalties to be abated in one transaction; (2) excluded nonmaster file assessments from preparer penalty statistics and did not accurately account for preparer penalty activity; (3) could not differentiate between different types of penalties; and (4) entered miscoded or erroneous data into its master files.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Effective January 1, 1992, IRS provided for input of the number of penalties contained in a transaction as reflected on the adjustment document.

    Recommendation: To ensure that master file statistics more accurately reflect preparer penalty activity, the Commissioner of Internal Revenue should create an indicator to identify the number of penalties included in each transaction.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: Currently, IRS cannot expand the master file database. Tax System Modernization, a long-range project, will allow input of an increased number of preparer penalty adjustments. In the meantime, automation of manual system data will only occur if priorities and resources permit it.

    Recommendation: To ensure that master file statistics more accurately reflect preparer penalty activity, the Commissioner of Internal Revenue should identify and establish means to include assessments made on the manual system with the master file statistics.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS agreed and its Data Services Office assigned different reference numbers for IRC 6694(a) and 6694(b). The changes were implemented on July 1, 1991, and starting with the fourth quarter data released in November, the differentiation will be made. Note that this is not cumulative, but will be from this quarter on.

    Recommendation: To ensure that master file statistics more accurately reflect preparer penalty activity, the Commissioner of Internal Revenue should establish means to differentiate between preparer penalty activity as defined in Internal Revenue Code (IRC) sections 6694(a) and 6694(b).

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: IRS issued a memorandum to the field recommending managerial review of adjustment documents after terminal input of preparer penalty assessment or abatement actions. Internal Revenue Manual 48(13)2 was revised in March 1992 to include a review of the adjustment document file to ensure that the correct penalty number is used for assessment/abatement of the preparer penalty.

    Recommendation: To ensure that master file statistics more accurately reflect preparer penalty activity, the Commissioner of Internal Revenue should evaluate the feasibility of developing methods to identify and correct miscoded or erroneously entered data, and exclude these assessments and abatements from IRS-reported statistics.

    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