House Bill 3475

Testimony was given concerning provisions of H.R. 3475 which pertain to estimated tax penalties assessed on individual taxpayers and the repeal of alcohol stamp requirements. Individuals are required to make payments totaling at least 80 percent of their estimated tax in quarterly payments for income that is not subject to withholding. A significant number of taxpayers incur penalties for not making adequate or timely payments. Taxpayers use Form 2210 to calculate the penalty on the amount of the underpayment or to request that the Internal Revenue Service (IRS) abate the penalty on the basis of one of four exceptions. If qualifying taxpayers do not return the form, they must pay the full amount of the penalty as computed by IRS. GAO has reported that taxpayers found the exceptions, the form, and related instructions so confusing that they preferred to pay the penalty, rather than try to determine if they met one of the exceptions. H.R. 3475 will simplify the exceptions to the estimated tax penalty and will allow estimated tax penalties to be abated for reasonable cause. GAO found that IRS guidelines do not describe the kinds of information needed to support an abatement for reasonable cause; too many penalties are being inappropriately abated; and some taxpayers are being treated inconsistently. GAO found that the portion of the bill which would repeal the requirement for approved closure devices to be used on distilled spirits containers would fully implement a GAO recommendation. In a previous report, GAO stated that the strip stamps no longer serve the purpose of signifying that the tax on the spirits was paid or that the spirits were lawfully bottled.