-....- _ -.. .__-_ .._.-.... ...-.-- .._.-.- IJrrit,e:tl ---..“l---l. -l.l- “-“,“.l-. States~---(;t?nt*ral _.X-.-_~ Accounting Office -~ GAO Iiep( wt, t,c)the Assistant Cornrni ssioner (,Exarnin;zt,ion), Inkrnal Revenue Service -- ---. “-~.- St”~~lAwlt)t’r 1!I!10 -INFORMATION RETURNS Administration of Selected Filing Penalty Casks at Austin Service Center @ II111111 ll 142539 _.-_ .._ ..__ ---_ ._-.~- _--_.-.- _-.._-. --...-.-~- ^_._ - ~. I/ United States GAO General Accounting Office Washington, DG. 20548 General Government Division B-240349 September 28,199O David G. Blattner Assistant Commissioner (Examination) Internal Revenue Service Dear Mr. Blattner: In February 1989, we initiated a review of the Internal Revenue Ser- vice’s (IRS) administration of the information return filing penalty which is to be assessed when a return is filed late, not filed on magnetic media when required, or filed in an improper format. The objective of this effort was to evaluate whether IRS is assessing and abating the penalty in accordance with the Internal Revenue Code (Code) and IRS’ assess- ment and abatement criteria. During 1988, IRS assessed 39,669 information return filing penalties against 27,986 filers. Abatements were granted to 22,829 filers for 36,261 penalties during the same time period. The dollar value of the assessments and abatements was $1.1 billion and $ .99 billion respectively. As a part of our review, we analyzed 295 information return filing pen- alty assessment and abatement case files from the Austin Service Center. While the results of our review are directly applicable only to the case files we analyzed, the results provide insights into problems facing the Austin Service Center and potentially other IRS service cen- ters in administering the information return filing penalty. We briefed IRSNational Office and Austin Service Center program officials on April 17, 1990, regarding the results of our case file review. These officials said our information was useful in assessing program operations. There- fore, we have summarized the information provided to these officials in this report for your use as IRS makes anticipated changes to the informa- tion returns filing civil penalty program to increase its efficiency and effectiveness. In general, we found that while the vast majority of the computer-gener- Results in Brief ated penalty assessments we reviewed at the Austin Service Center were appropriate based on IRS’ assessment and abatement criteria, in the cases we reviewed problems frequently occurred when IRS staff manu- Y ally assessed the penalty or made penalty abatements. Over half of the 68 manual assessments we reviewed were erroneous according to IRS’ guidelines, including 26 cases where the penalty was not warranted and Page 1 GAO/GGIM@99 Austin Service Center Filing Penalties E240349 , another 10 where other errors were made, such as, miscalculation of the penalty amount. IRSalso erroneously granted abatements to some taxpayers, while other taxpayers needlessly paid a penalty because they failed to request an abatement that they were entitled to. Specifically, of the 221 abatements we reviewed, more than half were erroneous including 67 where no abatement should have been granted for the taxpayer. On the other hand, 78 percent of the unabated penalty assessments had an abatement request that was either erroneously denied or could have been abated if taxpayers had requested this action; instead, most of them paid the penalty. The Omnibus Budget Reconciliation Act of 1989 modified the informa- tion returns filing penalty. Changes included varying the penalty rate to reflect different degrees of lateness and establishing a consistent abate- ment criteria for all types of information returns. While these events do not specifically address the issues covered in our review, actions taken by an IRStask force established to implement the 1989 Act provide IRS with an opportunity to improve the efficiency and effectiveness of the Information Returns Program, including the penalty administration problems we identified. Payors of wages, interest, dividends, and certain other types of income Background are required to file information returns annually with IRS to report these payments. Over one billion information returns are filed each year reporting income paid exceeding $500 billion dollars. In the Information Returns Program (IRP), IRS computers match income reported as paid on information returns against income tax returns to identify taxpayers who have potentially underreported their income or who have poten- tially failed to file. Timely, accurate, and properly formatted informa- tion returns are critical to the success of this program. Information Return Filing To support the IRP, Congress has enacted information return civil penal- Penalty ties, including a $50 per return filing penalty that can be assessed if the return is late, not filed on magnetic-media if required, or not filed in the proper format. Under the Code, for tax year 1988, the penalty could be abated on returns reporting interest and dividend income if the payor Page 2 GAO/GGD99-99 Austin Service Center Piling Penalties B-240249 could demonstrate due diligence. For all other information returns the abatement standard was reasonable cause.’ While the information return filing penalty can be assessed against returns filed on magnetic-media as well as on paper, in 1988 due to com- puter processing problems, IRS did not assess any penalties against mag- netic-media returns. All of the reported penalties were assessed against paper returns which represented less than 10 percent of the total returns filed. The vast majority of information return penalties are computer-gener- ated at IRS service centers; the penalty can also be assessed manually by IRS service center tax examiners. The reverse is true for abatements. While the penalty can be computer abated, most abatements are done manually by examiners. Recent Legislative Actions In December 1989, Congress passed the Omnibus Budget Reconciliation Act of 1989. This act included changes to information return penalties. Changes included making the penalty rate time sensitive to reflect varying degrees of late filing and making all filing penalties on informa- tion returns subject to the reasonable cause abatement criteria. The Commissioner has appointed a task force to guide the implementation of the civil penalty reforms contained in the 1989 act. We reviewed IRS’ administration of the information return civil filing Objectives, Scope,and penalty assessed against late filed returns, returns not filed on magnetic Methodology media when required, or returns not filed in the proper format. Our objective was to determine whether penalty assessments and abate- ments were appropriate based on the Code and IRS assessment and abatement criteria. To meet our objective, we had originally planned to analyze information return penalty case files at three IRS Service Centers. Subsequently how- ever, the 1989 IRS Commissioner’s Civil Penalty Task Force report pro- posed changes to the Information Returns Program; also, the Omnibus ‘The due diligence standard requires that the filer take steps that a reasonable and prudent person would take to meet the filing requirements. These steps include such items as having systems ln place to provide IRS with timely, correct, and properly formatted returns. The reasonable cause standard allows for forgiveness of non-compliant behavior for good reasons, such as factors beyond the filers control, such as loss of records in a fire. Due diligence is a more stringent standard than reasonable cause. Page 2 GAO/GGD90-99 Austin Service Center Filing Penalties B240249 , Budget Reconciliation Act of 1989 revised the information return pen- alty. To provide IRS with the information we had obtained from our case file review as soon as possible for consideration as changes are contem- plated to the Information Returns Program, including civil penalties, we terminated our work after completing a review of 295 of 8,631 fiscal year 1988 penalty case files from the Austin Service Center. These cases were randomly selected and included cases for 180 penalty assessments from the Individual Master File (IMF) and Business Master File (BMF) and 115 penalty abatements from the BMF made during fiscal year 1988 at the Austin Service Center, Austin, Texas, We selected fiscal year 1988 because it included returns for tax year 1986--the first tax year for which the filing penalty we examined was assessed on all types of returns subject to the penalty. We selected our sample to assure we reviewed cases reflecting all three penalty conditions (late filing, failure to file on magnetic media, and failure to file in the proper format.) We selected the Austin Service Center because, according to IRS data, it had more information return penalty assessments and abatements in fiscal year 1988 than any of the other nine IRS Service Centers. Since we terminated our work after doing only a limited number of cases which we did not attempt to estimate to the total universe of cases, our results reflect only the actual penalty decisions we analyzed. They cannot be generalized either to other cases from the Austin Service Center or cases from other service centers. Our review was done in accordance with generally accepted government auditing standards. We did the work from February 1989 through April 1990. Additional infor- mation on our methodology is contained in appendix I. Profile data on the filers we reviewed are contained in appendix II. Over half of the manual penalty actions-both assessments and abate- Manual Assessments ments-that we reviewed were erroneous in some fashion. In the cases and Abatements we analyzed, IRS examiners at the Austin Service Center demonstrated Problematic for difficulties both in determining when a penalty should be assessed and in appropriately applying the abatement criteria. Exarniners at the Austin Service Center For assessments, the penalty was not warranted in 38 percent (26 cases) Y of the 68 manually assessed penalties we reviewed. For example, in 6 of the 26 cases where we determined a penalty was not warranted, the filer had obtained a waiver from the requirement to file on magnetic Page 4 GAO/GGD-90-99 Austin Service Center Filing Penalties B240949 media but was still assessed a penalty for not filing on magnetic media for the paper returns submitted. Penalty assessments were warranted in 15 percent of the cases we received (10 cases) but were erroneous due to some other error. For example, in 6 of the 10 cases, the amount of the penalty was incorrectly calculated. The amount was incorrect in several instances because the examiner miscounted the number of documents that should have been penalized. Additional information on the assessment decisions we reviewed is provided in appendixes III and IV. Our findings related to abatements were similar. Based on IRS require- ments for an abatement, no abatement was warranted in 67 of the 221 cases (30 percent) we analyzed. For example, in several instances an abatement was granted due to hardship without the filer demonstrating the hardship criteria had been met. More troubling, 45 of these 67 cases had been reviewed and approved by supervisors, but the errors were not discovered. In an additional 51 cases (23 percent), information in the cases file indi- cated that an abatement was warranted but not for the reasons cited by the examiner. For example, an abatement was granted based on the filer’s statement that the returns had been timely filed and therefore the penalty was not justified. In fact, the returns were late filed and a late filing penalty was warranted, but because it was a first time filer, the filer was eligible for an abatement under IRS criteria. Additional infor- mation on the abatements we reviewed is provided in appendixes V, VI, and VII. We found that erroneous abatement decisions by IRS examiners were also frequently missed by IRS internal controls-specifically supervisory reviews. Forty-five or 67 percent of the abatements we determined were not warranted, had been managerially reviewed and the error was still present. The percentage was 66 for cases where an abatement was war- ranted but other errors were also present. See appendix VIII for more detailed information. For the 74 assessments in our sample that had not been abated, we determined that in 20 percent (15 cases) the abatement was erroneously denied. In addition, we determined that 58 percent (43 cases) could have been abated had the filer requested such an action. Most of these filers were either filing for the first time or had been historically compliant. Page 6 GAO/GGD99-99 Austin Service Center Filing Penalties 5240349 Both of these conditions are grounds for an abatement, based on IRScri- teria. In 81 percent of these cases the filer paid the penalty. See appen- dixes IX and X for additional information. To rectify perceived problems in the administration of the information Recent Changes Will returns filing penalty, the Omnibus Budget Reconciliation Act of 1989 Not Correct Problems revised the penalty to make the provisions of the penalty consistent across all types of information returns. However, these changes will not rectify the assessment and abatement problems we noted. For example, many abatements were erroneously granted when IRS examiners did not follow IRS’established abatement criteria in abating a penalty and super- visors in reviewing the examiners work did not identify and correct the problems. Even though the Act established reasonable cause as the abatement criteria for all types of information returns, such changes will not ensure that examiners will follow the reasonable cause criteria set forth in the Internal Revenue Manual or that supervisors’ reviews will ensure that decisions are correct. The failure of IRSsupervisors to discover the errors in most of the 67 erroneous abatement cases we reviewed suggests the need to address internal controls to better assure successful implementation of the new criteria. The same is true for changes made in the act to magnetic media filing thresholds. Under the act, all types of information returns must now be filed on magnetic media if the filer files more than 250 returns. Previ- ously, the threshold was 50 for interest and dividend returns and 250 for all other types. Making the filing threshold consistent, while perhaps eliminating some confusion for filers and examiners, will not assure that the examiners obtain the documentation necessary to demonstrate hard- ship under IRS requirements, before providing a hardship abatement for not filing on magnetic media. While the scope of our review was limited and our results are directly Conclusions applicable only to the case files we analyzed, the results provide insights into problems facing the Austin Service Center and, potentially, other IRS Service Centers in administering the information return filing pen- alty. Whether our findings are symptoms of service-wide problems remains a key question for IRS as it develops guidance for implementing the legislative changes and considers modifications to IRS’ processing procedures and internal controls to increase the efficiency and effective- ness of the program. Page 6 GAO/GGD90-99 Austin Service Center FUing Penalties B-240249 We appreciate the assistance provided by your staff, particularly those at the Austin Service Center, on this effort. Major contributors to this report are listed in appendix XI. Please contact me on 272-7904 if you have any questions concerning the report. Sincerely yours, Paul L. Posner Associate Director, Tax Policy and Administration Issues Page 7 GAO/GGD-SOQS Austin Service Center Nling Penalties Contents Letter Appendix I Methodology Appendix II Profile of Filers in Sample Penalty Cases Appendix III GAO Evaluation of AssessmentDecisions by Assessment Method Appendix IV 16 ReasonsWhy AssessmentsWere Erroneous Appendix V GAO Evaluation of Abatement Decisions Appendix VI 18 Criteria Cited by IRS for Abatement Decisions Page 0 GAO/GGD-99-99 Austin Service Center Filing Penalties Appendix VII 19 Examples of IRS Cited Abatement Criteria 19 Situations Where GAO DeemedIRS Abatement Not Warranted Appendix VIII 20 Supervisory Review of Penalty Abatement Cases Appendix IX GAO Evaluation of Unabated Assessment Cases Appendix X Comparison of SelectedFiler Characteristics in Abated and Unabated Penalty Cases Appendix XI 23 Major Contributors to This Report Pyle9 GAO/GGJ%90-99 Austin Service Center FSling Penalties Content43 Tables Table 1.1: Austin Service Center Universe and GAO 12 Sample of Information Return Civil Penalties Assessed and Abated in Fiscal Year 1988 Table IX. 1: Cases Which Had Not Been Abated 21 Table 1X.2: Cases That Should Have or Could Have Been 21 Abateda Abbreviations BMF Business Master File IMF Individual Master File IRP Information Returns Program IRS Internal Revenue Service Page 10 GAO/GGD-90-99 Austin Service Center Filing Penalties Page 11 GAO/GGMtO-99 Austin Service Center Filing Penalties Appendix I Methodology Our sampling universe was derived from IRS’Business Master File (BMF) and Individual Master File (IMF) Non-Return Civil Penalties Extracts for fiscal year 1988. Table 1.1 displays the sample strata which include each of the three penalty conditions and their related universes. Table 1.1:Austin Service Center Universe and GAO Sample of InformatIon Return Universe Sample Civil Penalties Assessed and Abated in Penelty conditton ASSessed Abated Assessed Abated’ Fiscal Year 1988 Late filina 2.962 1.565 100 50 Failure to file on magnetic media 1,261 1,360 60 50 Filing in improper format 998 385 20 15 Total 5.221 3.310 180 115 *Abetement sample ceses selected from BMF only. Assessment sample and universe counts combine IMF and BMF cases. Since we terminated our work before completing a representative sample, our results are applicable only to the actual penalty decisions we analyzed. They cannot be generalized either to other cases from the Austin Service Center or cases from other service centers. While we selected cases separately from the assessment and abatement universes, we analyzed each sample case in its entirety. By reviewing both the assessment and then the related abatement case files, we obtained a better understanding of both decisions. Accordingly, we eval- uated 295 assessment decisions-180 from the assessment universe and all 116 from the abatement universe. For abatements, we evaluated 221 abatement decisions-116 from the abatement universe and 106 of the 180 from the assessment sample where the penalty had been abated at the time of our review. We excluded from the universes penalties assessed and abated against paper submissions of Forms W-2 (Wage and Earnings Statement) for failure to file on magnetic media. In these cases, IRSerroneously assessed duplicate penalties against filers who had submitted both paper docu- ments and a proper magnetic media submission. This resulted in over 21,000 penalties totaIIing about $870 milhon. When IRS discovered the erroneous penalty assessment, IRSused the computer to abate the pen- alty, even though a penalty on some submissions may have been appro- priate because another penalty condition could have existed. Because the penalties were assess4 by computer and abated en masse by com- puter, we believe that detailed examination of those cases would have yielded little or no insight into IRS’penalty administration. P8ge 12 GAO/GG~ Austin Service center Filing Pen&h We collected selected data from each penalty case for analysis and dis- cussed questioned cases with Austin Service Center officials. We examined applicable laws, Internal Revenue Code sections and Internal Revenue Manuals for information return abatement criteria and processing and review procedures. We also interviewed Center and Headquarters officials regarding the information return civil penalties program, including interpretations of criteria, changes in returns processing, guidance and training provided to tax examiners, and reviews of the tax examiners’ abatement decisions. Page 13 GAO/GGD99-99 Austin Service Center FNng Penalties Appendix II Profile of Filers in SamplePenalty Cases ’ , Assessed Abated Profile characteristic Cases Percent Cases Percent hype of returns _filed ..- ...___-._ 1099 MISC 189 64 127 57 i 099 INT 50 17 46 21 1099 DIV .----~ 23 8 21 10 iO98 - -. ..^ -. .~.~... . 9 3 6 3 Others -...- _-.- .--- ____ 24 8 21 9 TotaG 295 100 221 100 Number of returns payor required to file i io io .-_- -..----.-----.--__ 40 14 29 13 i ;. to i5 89 30 51 23 26 to 50 30 10 17 8 51 to25d’ . . .-. ~-_-~ 47 16 42 19 over i50- ..__.__..... ._ ..- ~~~~~~~ -..-. ---- ____-- 89 30 82 37 Totals 295 100 221 100 Amount of penalty $50a .._ -.. -~. --.---. 24 8 13 6 $100 to $500 .---- 28 IO 26 12 $550 to $1,250 98 33 57 25 $1,300 and over 145 49 125 57 Totals 295 100 221 100 Month delinquent returns filed b b AfGil 93 62 b b May-July 35 23 b b August-December 22 15 Totals 150c 100 Filer historically compliant _-_____.--- -__ Yes . first time filer ___--- 94 32 60 27 Yes - previous filer with no penalties ___- 175 59 143 65 No - .filer .f.xeviously assessed penalty 20 7 13 -_6 Cannot determine ------- 6 2 5 2 Totals 295 100 221 100 ‘The penalty amount is always a multiple of $50 because that is the rate per return. bThis characteristic does not pertain to abatements. Y COnly 150 of the 295 assessments decisions we reviewed pertained to a late filing penalty condition Page 14 GAO/GGD90-99 Austin Service Center Filing Penalties Ppe ~~~E-vduation of AssessmentDecisionsby kssessmentMethod Method of assessment Total Computer Manual GAO evaluation Cases Percent Cases Percent Cases Percent Assessment appropriatea 237 80 205 90 32 47 Assessment erroneousb Penalty not warranted 45 15 19 9 26 38 Penalty warranted, but some error present 13 5 3 1 10 15 Totals 295 100 227 100 68 100 BAppropriate means that the penalty was warranted according to IRS guidelines and the law and all aspects of the assessment were correct. bAll but seven of the erroneous assessments were abated. Page 16 GAO/GGD-QQ-99 Austiu Service Center Filing Penalties Appendix IV R&eons Why AssessmentsWereErroneous * Assessment method Explanation --~ --.--.- Total Computer Manual Aaaeclsmenta not warranted per IRS guidelines Filer corrected bad format within 30 days 9 0 9 Amended _““... ._...--- returns .__.---.. incorrectly assessed for lateness -.---.--.-~ 8 1 7 IRS incorrectly prepared Form lo96 caused penalty8 8 7 1 Filer -. had _.__waiver/extension -- -.- .._.__.____...-.- 5 5 0 Transcription error .. _._..-_.____ in.-__-_~-- - -...___- number of returns filed in Optical Character Reader edit 5 5 0 Penalty incorrectly assessed on liquidation dividends 3 0 3 Wrong filer assessed 3 0 3 Duplicate assessed 2 0 2 Filer uncertain; no requirement to file 1 0 1 Federal ._-.- .._____ --.-.-... assessedb agency ..-.--_. --._-.__---. 1 1 0 Subtotal 45 19 26 Assessments warranted, but some error present Penalty ..^. __._.amount incorrect _-._.__- .-- .___- - 7 1 6 Multiple penalties; - _.._late . ..._-._-...-._ .___ penalty unwarranted - .---_..-_.-.-_- 5 2 3 Wrong __.._ ._--.-reference codeC ..___-_-.__- -.. ..---.--- ----~_ 1 0 1 Subtotal 13 3 10 Tot&r 58 22 36 aForm 1096 is the return transmittal document which the filer usually prepares to accompany the return when filed with IRS. bFederal agencies are not subject to penalty assessment. ‘Penalty was assessed for late filing; should have been for not filing on magnetic media. Page 16 GAO/GGD-99-99 Austin Service Center Filing Penakie~ Appendix V GAO Evdwtion of Abatement Decisions Abatements’ (UO l valuaUon Casesb Percent Abatement appropriate0 103 47 Abatement Erroneous Abatement not warranted 67 30 Abatement warranted, but some error presentd 51 23 Total 221 100 @AlIpenalty abatements were manually processed. “Excludes aeven partial abatements that we believe could have or should have been fully abated “Appropriate means that the abatement was warranted according to IRS guidelines, and all aspects of the abatement were correct. +lhio category includes cases such as where the filer was entitled to an abatement but not for reason the examiner cited. Page 17 GAO/GGDfM%J Austin Service Center F’iling Penalties Appendix VI Criteria Cited by IRS for Abatement Decisioti I Number of penalty cases - GAO evaluation of abatement Warranted but some error Abatement criteria cited in case file Total Not warranted’ presentb Appropriate First time/one time filer 28 4 5 19 Errofieous assessment 28 2 1 25 Hardship to file on magnetic media 18 IO 2 6 Amended returns/bad .- ^_-..._-- format corrections 18 5 5 8 Taxpayer filed timely 15 5 10 0 Late due to reliance on third party 12 7 5 0 Inco;re&/$Timelyhp from IRS 10 4 2 4 Pap& ._returns _ under~--tolerance 10 2 0 8 No_specific _ .._.criterion _.I_-.- -.-.. .statedC ---_.. 9 7 2 0 Did not expect to file >threshold 8 3 0 5 Form 1096 missing/incorrect -- 7 3 3 1 Unable to obtain records ._.._.-.~to report 7 2 3 2 Filed &thin number/time tolerance 7 1 1 5 Taxpayer . . . ..,. filed on .magnetic __-...._ ._~ ----..- media 7 2 0 5 Major problems with computer system 5 1 2 2 piI& bankrupt/liquidated 5 0 4 1 lizards ^__ -. of ..-. litigation ._. -.-.---_appeals ..__-.. ..- 4 2 0 2 Forms not required - . . -.-..-_--- to be filed ...-.--_____-- 4 0 0 4 Filer geographically remote 3 2 0 1 Death or serious illness - 3 0 1 2 FDIC/FSLIC takeover -__- 3 0 1 2 Ot_ herd - . - 10 5 4 1 Total 221 67 51 102 ‘Evidence in case file did not justify an abatement based on cited criteria ?r any other criteria. See appendix VII for examples of situations where GAO deemed the abatemeflt to be not warranted. bThis category includes cases such as where the filer was entitled to an abatement but not for the reason the examiner cited. ‘In these cases, the examiner granted an abatement but did not document the IRS criteria under which the abatement was granted. dThese included various criteria cited no more than two times Page 18 GAO/GGD!WBB Austin Service Center Filing Penalties Appendix VII Ekxmples of Situations Where GAO Deemed IRSAbawment Not WarraMed Hardship to file on magnetic media- Case file showed that the filer sub- IRS - _ Cited Abatement mitted two cost estimates-one above and one below IRS’ dollar Uiteria threshold for economic hardship to file on magnetic media. Late due to reliance on a third party-The third party cited by the filer was an employee of the filer which according to IRScriteria does not qualify as a third party. No specific abatement criteria cited-Tax examiner did not document what criteria the filer satisfied for the abatement and the case file con- tained no evidence that the filer provided sufficient justification why they thought an abatement was justified for any IRS approved reason. Taxpayer filed timely-Taxpayer submitted a copy of a signed, dated transmittal document which supported his claim for having timely filed. However, IRS files contained another signed and dated transmittal docu- ment from the taxpayer for the same information returns which showed the taxpayer had filed late and the transmittal was stamped showing late receipt. IRS accepted the taxpayer’s explanation and granted the abatement without reconciling these conflicting documents. Page 19 GAO/GGD-9089 Austin Service Center Fillug Penalties Appendix VIII Supervisory Review of Penalty 4 I Abatement Cases GAO evaluation of abatement using IRS’ guidelines Warranted but some error Total Not warranted presentb Appropriat# Managerial review conducted’ ---..-_.---_-_“_- Cases Percent Cases Percent Cases Percent Cases Percent Yes 145 66 45 67 34 66 66 64 No 46 21 9 13 11 22 26 25 kJot&licable ._--.-..-.- -..-_______ 30 13 13 20 6 12 11 11 Total 221 100 67 100 51 100 103 100 ‘These reviews are the responsibility of the tax examiner’s supervisor, and for the cases in our sample were required on all abatements over $500. The threshold for required review has since been raised to $2,600. We were unable to do this type of analysis for assessments as most assessments we reviewed were computer assessed. Computer assessments are not subject to managerial review. Manual assess- ments are subject to managerial review only on a sample basis, bThis category includes cases such as where the filer was entitled to an abatement but not for the reason the examiner cited. CAppropriate means that the abatement was warranted according to IRS guidelines, and all aspects of the abatement were correct. Page 20 GAO/GGLMO-99 Austin Service Center Filing Penalties Appendix IX GAO Evaluation of UnabatedAssessmentCases Table 1X.1: Cases Which Had Not Been Abated Assessments OAO evaluation Cases” Percent Penalty appropriately should not have been abatedb 16 22 Should have been abated i.e., filer’s request for abatement was erroneously denied 15 20 Could have been abated if requested by filer 43 58 Total 74 100 ‘Includes seven partial abatements that we believe should have or could have been fully abated. bCase file contained no evidence showing that abatement was warranted. Table 1X.2: Case8 That Should Have or Could Have Been Abated@ Should have Could ,“::: Applicable criteria Total been abated abatedb Filed within number/time tolerances 24 5 19 First time filer 23 1 22 Erroneous assessments 7 7 0 Death/illness of responsible party 2 2 0 Paoer returns under tolerance 2 0 2 Totals 58 15 43 %cludes seven partial abatements GAO believes should have been or could have been fully abated. blncludes penalties not abated because the filers did not respond in writing to the penalty notices or did not ask for abatement; however, the filers met abatement criteria that IRS could determine without contacting filers. Page 21 GAO/GGD-99-99 Austin !Service Center Filhg Penalties Appendix X Comparisonof !3electedF’iler Characteristicsin I Abated and Unabated Penalty Cases Abated Unabated Filer characterlstlc -_-.- ..-.. _--~--.. Cases Percent Cases Percent Number of returns filed --.-- 1 to10 xI_-..-_______.___. -___. 29 13 11 15 11 to25 .-.__ “.“_l~_.- _..-...-.__ -__-._ 51 23 38 51 26 _----to 50..-..-.-_ --..- -.- 17 8 13 18 51 to250 ._-.-__.. - ..-- .._. “-_.” ._._ -.-- .-...--- 42 19 5 7 Over -- ___. 250 - -......-- --- -_-- 82 37 7 9 Total 221 100 74 100 Filer- ____ __.... historically - ---.___.-.compliant Yes - first time filer 60 27 34 46 --- Yes _ previous ---. --1 ----. filer with - . - no penalties 143 65 32 43 No. filer -_~---__- previously assessed -. penalty 13 6 7 10 Cannot -.__-_ determine ~-- ..-- 5 2 1 1 Total 221 100 74 100 Type -._.-_-of -.._.. response -._~-. to assessment . notice Written response -..-.-- ..--_..._ -- -. 213 96 21 28 No.._. _-- response I_-..-.-_ -_-__.-.-- ..-. --.-- 7 3 53 72 Cannot -.- determine .._.... -.. ..-.----- ..-- 1 1 0 0 Total 221 100 74 100 Payment .___-- of- penaltya _“._~ .__.__.- ... --..-_-. Yes _.__ -. . -..-~~ ~- .~-.-.- _____ 19 9 60 81 No 202 91 14 19 Total 221 100 74 100 aPayments were refunded when penalties were abated. Page 22 GAO/GGD90-99 Austin Service Center F’iling Penaltim Appendix XI Major Contributors to This Report Lynda Willis, Assistant Director, Tax Policy and General Government Administration Issues Division, Washington, Charlie Daniel, Assignment Manager D.C. Ron Berteotti, Assistant Regional Manager Dallas Regional Office Louis G. Tutt, Deputy Project Manager Gordon A. Socher, Evaluator Sandra Ham, Evaluator Cheryl R. Amos, Evaluator Tom Wolters, Project Manager Kansas City Regional Office (262897) Page 23 GAO/GGD-9@99 Austin Service Center Filing Penalties _ __ . . ..-. _.“.-- ..~ .._. ..-...-..-. .l_.“-l.._ ““““.1‘-_ ” l.ll.ll.-~“.~,.l,l,.“.l^_l .I--_ -.-.- - .-,- ---_--~-.~--1-------- --.--- -.---- The first. five copies of each GAO report are irev. Addit,ioual copies are $2 teach. Ordtvs should be sent, to the following address, acorn- pauit~d by a check or money order made out to the Superint,t-lnd~,nt. of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. I J.S. General Accoun tiug Office I’.(). Box 6015 G:Gthersburg, MD 20877 Ordt~rs may also be placed by calling (202) 27563241.
Information Returns: Administration of Selected Filing Penalty Cases at Austin Service Center
Published by the Government Accountability Office on 1990-09-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)