IRS Generally Does a Good Job When Abating Civil Penalties--And Has Made Recent Improvements

In response to a congressional request, GAO evaluated the Internal Revenue Service's (IRS) administration of the penalty abatement process by reviewing a random sample of abatements that were granted by IRS in six districts during fiscal year 1981.

Based on its sample, GAO estimated that 92 percent of the abatements granted in these districts were appropriate and concluded that IRS did a good job when abating civil penalties. However, it noted that IRS could improve its performance with regard to analyzing abatement requests in which the taxpayers claimed reasonable cause for failing to pay enough taxes or file required tax information. GAO determined that 26 percent of this type of abatement was incorrect. GAO found that IRS should provide clearer guidance for employees to use in considering abatements based on reasonable cause. In addition, IRS needs to: (1) improve its penalty abatement training; (2) provide for management review of penalty abatement decisions; and (3) distribute its guidelines on reasonable cause to employees who make such decisions.