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IRS makes many penalty errors - in taxpayers' favor.

The Government Accounting Office found the IRS makes too many errors in the way it handles the penalties for negligence and substantial understatements--enough errors to take the bite out of these penalties, which are meant to promote taxpayer compliance.

One-third of the cases reviewed had errors, and 85% of these were in the taxpayers' favor. Since the cases were not complex and examiners had fairly clear rules to follow, the GAO found the high error rate disconcerting. In almost 75% of the cases in which penalties should have been assessed, they were not, even though the taxpayer either had not shown up at the audit or was unable to back up deducted expenses--two situation in which the revenue service staff must assess a penalty.

Furthermore, the IRS's internal control system had let over 60% of the mistakes go through.
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Author:Wagenbrenner, Anne
Publication:Journal of Accountancy
Date:Nov 1, 1991
Previous Article:GAO supports payroll tax simplification.
Next Article:Overall audit rate down, but corporate rate up.

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