Tax Administration

Each year from 1995 through 1998, the Internal Revenue Service (IRS) abated about $30 billion in tax, penalty, and interest assessments in the tax accounts of individuals and businesses. Abatements reduce assessments and can occur for various reasons, from correcting errors made by IRS and taxpayers to providing relief from penalties when taxpayers have reasonable cause for failing to comply with tax requirements. The process for making abatements is important for ensuring the equitable treatment of taxpayers across IRS' 10 service centers and 33 district offices. This report describes (1) IRS' process for making abatements from initiation through final review in selected IRS locations--the Kansas City Service Center, the Fresno Service Center, the Kansas City District Office, and the Northern California District Office--and (2) IRS' efforts to improve the abatement process.

GAO noted that: (1) an abatement may be initiated by a request from a taxpayer or by IRS; (2) once initiated, IRS' abatement process depends on the type, complexity, and source of the assessment being abated; (3) according to IRS officials, these factors determine the IRS work group, such as those that audit tax returns or answer taxpayer inquiries, that makes the abatement decision; (4) the work group, in combination with the type and complexity of the assessment being abated, influence the type and grade level of staff making abatement decisions, the criteria and supervisory review used to guide decisions, and the quality review done after the decisions are made; (5) IRS does not have quantitative data on details of the abatement process; (6) an abatement is just one type of adjustment that IRS can make to taxpayer accounts; (7) for example, IRS staff also adjust accounts to reflect the dates and amounts of various types of assessments and payments; (8) although it has data on the number and amount of abatements, IRS cannot extract any quantitative data about the abatement process from data on all types of adjustments; (9) determining the costs and benefits of collecting data on just the abatement process is beyond the scope of this report; (10) IRS' recent efforts to improve the abatement process have generally involved task forces that have been studying various IRS concerns, including, for example, the administration of penalties and treatment of taxpayers; (11) although the studies have not focused on abatements, they have produced some proposals that would affect the abatement process, such as the documentation required to support abatements; (12) during 1993-1994, concerns about the inventory of tax debts prompted IRS to study abatements at its 10 service centers; (13) this study identified 259 problems and referred 158 to various IRS work groups for analysis and implementation of any needed changes; and (14) IRS never formally released a final study.