Tax Administration: IRS Preparer Penalty Data Inaccurate and Misleading
GGD-90-92
Published: Aug 15, 1990. Publicly Released: Aug 15, 1990.
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Highlights
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.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | 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. |
Closed – Implemented
Effective January 1, 1992, IRS provided for input of the number of penalties contained in a transaction as reflected on the adjustment document.
|
| Internal Revenue Service | 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. |
Closed – Implemented
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.
|
| Internal Revenue Service | 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). |
Closed – Implemented
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.
|
| Internal Revenue Service | 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. |
Closed – Implemented
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.
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AccountantsData integrityFines (penalties)Income taxesNoncomplianceStatistical dataTax administrationTax lawRegulatory noncomplianceData errors