Treasury Inspector General for Tax Administration
April 2, 2009
Contact: Robert Sperling
The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its latest report on the Failure to Pay (FTP) tax penalty. Congress established the FTP tax penalty to encourage taxpayers to pay their Federal income taxes on time and authorized the Internal Revenue Service (IRS) to charge this penalty on tax accounts when taxes are not paid when due.
TIGTA found that the IRS does not consistently assess the FTP penalty on all taxpayers with past due taxes. As a result, hundreds of millions of dollars in interest revenue owed to the Federal Government is lost every year, and taxpayers are not treated equitably.
According to the report, Congress established the FTP penalty to encourage taxpayers to pay their taxes on time and authorized the IRS to charge this penalty on tax accounts when taxes are not paid when due. TIGTA found that in most cases the IRS is accruing rather than assessing this penalty, therefore interest is not consistently assessed on the penalty.
"By not acting on previously reported recommendations, the IRS is forgoing a minimum of $171 million annually in lost revenue," commented J. Russell George, the Treasury Inspector General for Tax Administration. "This program, as implemented by the IRS, results in some taxpayers paying interest on the penalty while most others do not. Some of the affected taxpayers are the very ones the IRS is trying to minimize tax burden on, such as disaster victims and combat zone veterans."
The report is a follow up to TIGTA's March 2005 report, Procedures Regarding the Failure to Pay Tax Penalty Result in Inconsistent Treatment of Taxpayers and Hundreds of Millions of Dollars in Lost Revenue (Reference Number 2005-30-052). The IRS committed to make programming changes that would cause accrued FTP tax penalties to be assessed on a periodic basis and ensure that taxpayers were informed that interest was being charged on the FTP tax penalties until they are fully paid.
According to the new report, the computer programming change made by the IRS in response to TIGTA's 2005 audit had minimal effect. As a result, the IRS continues to lose hundreds of millions of dollars in interest annually because the penalties accrue instead of being assessed.
TIGTA recommended that the IRS develop and follow consistent procedures for assessing accrued FTP tax penalties on a regular basis on all balance-due accounts where such an assessment is not prohibited by statute. In addition, TIGTA recommended that the IRS work with the Treasury Department to seek congressional clarification of whether it needs to notify taxpayers each time FTP tax penalties are assessed and interest is charged on the penalties. The IRS partially agreed with TIGTA's recommendations.
"Implementing these recommendations equitably should encourage delinquent taxpayers to pay what they owe or face regularly assessed interest on their FTP penalties until their debt is settled," commented J. Russell George.
To view the report, including the scope, methodology, and full IRS response: https://www.treasury.gov/tigta/auditreports/2009reports/200930052fr.html.
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