Tax Administration

Effectiveness of IRS' Return Preparer Penalty Program Is Questionable Gao ID: GGD-91-12 January 7, 1991

Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) administration of its return preparer penalty program, focusing on whether IRS: (1) opened preparer penalty cases when warranted; (2) imposed return preparer penalties appropriately and consistently; and (3) followed requirements to refer penalized preparers to the Department of the Treasury's Director of Practice or local district directors for possible disciplinary action.

GAO found that: (1) IRS generally made correct penalty determinations but did not always open cases that warranted preparer penalties, which hindered exposure of problem preparers; (2) most examiners and group managers did not open more preparer penalty cases because the low penalties did not justify the time and effort required to assess them; (3) difficulty in distinguishing between penalties for intentional disregard of the rules and for willful understatement, differing IRS district policies, and differing interpretations of the Internal Revenue Code (IRC) caused inconsistent penalty assessment among district offices; (4) legislative changes enacted in 1989 revised penalty provisions, but still did not clearly distinguish among the penalties; and (5) IRS did not make required referrals of penalized preparers to Treasury's Director of Practice due to a lack of familiarity with the referral process, unclear guidance, and poor internal controls.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Team: Phone:


The Justia Government Accountability Office site republishes public reports retrieved from the U.S. GAO These reports should not be considered official, and do not necessarily reflect the views of Justia.