IRS Should Evaluate Penalties and Develop a Plan to Focus Its Efforts – GAO Recommends

The (GAO) Government Accountability Office recommends that the IRS needs to create a plan to comprehensively evaluate the administration of civil tax penalties and their impact on voluntary compliance.

The GAO suggested that the IRS’s Office of Service-wide Penalties should collect information to evaluate penalties and penalty administration, and to determine the effectiveness of the penalties in promoting voluntary compliance.

Civil tax penalties are an important tool for encouraging compliance with tax laws. It is important that the IRS administers penalties properly and determines the effectiveness of penalties in encouraging compliance. In response to a congressional request, GAO determined (1) whether IRS is evaluating penalties in a manner that supports sound penalty administration and voluntary compliance and, if not, how IRS may be able to do so, and (2) whether IRS’s guidance for a new penalty for failure to disclose reportable transactions was issued in a timely manner and was useful to affected parties, and whether and how IRS has assessed the penalty. GAO reviewed IRS documents and guidance, and interviewed IRS officials and tax practitioners.

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