Treasury Inspector General for Tax Administration
October 14, 2009
Contact: Li-Yun Chien
The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its review of the Internal Revenue Service's (IRS) use of accuracy-related penalties.
Accuracy-related penalties generally are assessed by the IRS when taxpayers submit incomplete or incorrect information on their tax returns. TIGTA's report concluded that, despite numerous layers of management controls to guide the penalty-setting process, the IRS is missing opportunities to use penalties to better promote accurate reporting among sole proprietors.
TIGTA analyzed a sample of sole proprietor examinations that were closed in Fiscal Year 2007 and found that, in almost 24 percent of the cases, IRS procedures were not followed in recommending accuracy-related penalties for assessment. According to the report, examiners were either too lenient and did not recommend penalties that were warranted or had not properly documented case files to indicate that penalties were considered. TIGTA found no documentation of managerial involvement in over 60 percent of the cases reviewed in detail, despite an Internal Revenue Manual requirement for manager involvement in such cases.
"Because accuracy-related penalties were not always applied when warranted, taxpayers could perceive inequities in the examination process if some taxpayers are penalized while others are spared penalties that should have been assessed," commented J. Russell George, the Treasury Inspector General for Tax Administration.
TIGTA recommended that first-line managers in the IRS's Small Business/Self-Employed Division provide more-specific written feedback to examiners on the quality of their penalty determinations and that mid-level managers monitor and assess the written feedback given by first-line managers. IRS officials agreed with TIGTA's recommendations and plan to implement corrective actions.
To view the report, including the scope, methodology, and full IRS response, go to: https://www.treasury.gov/tigta/auditreports/2009reports/200930124fr.pdf.
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