Tax Administration

Every year, the Internal Revenue Service (IRS) abates tens of billions of dollars in tax, penalty, and interest assessments. That is, IRS reduces these assessments on taxpayers' accounts. Abatements are important because they can correct tax, penalty, and interest amounts that have been overassessed because of errors by IRS or taxpayers. IRS has not developed comprehensive information on the number and amount of various types of past abatements. This report discusses, for individual and business tax returns, (1) the number and the amount of various types of tax, penalty, and interest abatements made during fiscal years 1995 through 1998 and (2) selected characteristics of the abatements, such as the tax years of abated assessments, taxpayers' use of paid tax preparers, and IRS' actions, such as audit or collection efforts, before abating assessments.

GAO noted that: (1) GAO's analysis of IRS records on individual and business abatements in FY 1995 through FY 1998 showed that the number and amount of abatements of tax, penalty, and interest assessments stayed fairly constant; (2) each year, IRS abated, on average, about 10 million assessments worth about $30 billion; (3) to illustrate the types of analysis GAO did on individual and business abatements, for just the individual taxpayers, IRS abated 7.1 million assessments in FY 1998--2.5 million tax, 2.4 million penalty, and 2.2 million interest assessments; (4) these abatements totalled about $7.8 billion--$5.5 billion in tax, $1.5 billion in penalty, and $0.8 billion in interest assessments; (5) for the 2.4 million penalty abatements, 1.4 million were failure-to-pay penalties; (6) of the $1.5 billion in penalty abatements, $676 million were miscellaneous civil tax penalties; (7) a variety of characteristics were associated with the abatements for individuals and businesses during fiscal years 1995-1998; and (8) the 7.1 million individual abatements in FY 1998 were associated with the following characteristics: (a) about 80 percent of the 7.1 million abatements (as well as the abated amounts) involved individuals who predominantly reported nonbusiness income, such as wages, rather than business income from self-employment; (b) the 7.1 million abatements were associated with 4.3 million filed returns; (c) of these returns, 52 percent were joint returns and 54 percent used a paid preparer; (d) of the 7.1 million abatements, about 19 percent were associated with a tax return with an additional assessment after the one originally reported and about 78 percent were associated with a previous collection action; and (e) of the 7.1 million abatements, 64 percent involved assessments for tax years after 1995, while 9 percent involved assessments for tax years before 1992.