Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, April 19, 1990 TAG: 9004190778
SECTION: NATIONAL/INTERNATIONAL PAGE: A11 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
"IRS currently has no way of determining whether the extension was actually requested," the General Accounting Office said in a report to IRS Commissioner Fred Goldberg.
The IRS estimates that 6 million couples and individuals who were unable to meet this week's deadline for filing income-tax returns submitted a Form 4868 to get an automatic four-month extension. They were required to submit with the form a check for estimated taxes owed.
By filing Form 4868, taxpayers avoid a failure-to-file penalty that is 5 percent of tax due for each month or part of a month that a return is late. The maximum penalty is 25 percent.
In a report on IRS policies for forgiving, or abating, penalties, the GAO found that the tax agency is not nearly so forgiving as raw statistics indicate. In fact, it said, 29 percent of the abatements of the most common penalties in 1988 were necessary to correct IRS errors in assessments.
One of the major causes of such errors, the report said, was that in many cases, the IRS had no record of taxpayers' application for a delayed filing deadline, "although many of them later produced a copy of the application that they purportedly submitted on time."
Because the IRS has no way of determining whether such a taxpayer actually filed for an extension, the GAO said, "as a matter of policy it records these as assessment errors."
In such cases, the failure-to-file penalty could be wiped out.
Such an adjustment is one of only several types of computer-generated changes to taxpayer accounts that the IRS records as penalty abatements. In another example, the agency could penalize a taxpayer for late payment, then discover a credit on the taxpayer's account that would prompt a reduction in penalty.
"These adjustments may overstate the number of abatements by almost 80 percent and their dollar value by almost 40 percent," the GAO said.
The study concentrated on the two most common penalties imposed by the IRS. The penalty for failure to pay taxes on time was imposed on 8.4 million taxpayers in 1988; the penalty for failure to file a return was imposed 2.9 million times that year.
The IRS reported it forgave 2.5 million of those 11.3 million penalties, or 22 percent. However, the GAO found that 80 percent of the abatements actually were computer adjustments worth about $954 million.
"The remaining 500,000 abatements, worth about $1 billion, were taxpayer-requested abatements which required IRS personnel to make a decision regarding whether to reverse, or `forgive' the penalty assessment, on the basis of information supplied by taxpayers," the report said.
It said the IRS agreed with its recommendation that the computer-generated adjustments not be reported as abatements.
by CNB