Tax Administration: IRS' Abatement of Assessments in Fiscal Years 1995-98
(Letter Report, 06/04/99, GAO/GGD-99-77).

Pursuant to a congressional request, GAO provided information on the
Internal Revenue Service's (IRS) past abatements of tax assessments,
focusing on: (1) the number and amount of various types of tax, penalty,
and interest abatements made during fiscal years (FY) 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 actions--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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-99-77
     TITLE:  Tax Administration: IRS' Abatement of Assessments in
	     Fiscal Years 1995-98
      DATE:  06/04/99
   SUBJECT:  Tax administration
	     Taxpayers
	     Fines (penalties)
	     Tax nonpayment
	     Interest
	     Tax returns
	     Income taxes
	     Statistical data
	     Underpayments

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TAX ADMINISTRATION 
IRS' Abatement of Assessments in Fiscal Years
1995-98

United States General Accounting OfficeGAO Report to the Joint
Committee on Taxation

June 1999

GAO/GGD-99-77

United StatesGeneral Accounting Office Washington, D.C.  20548

General Government Division

B-280532

Page 1 GAO/GGD-99-77 IRS' Abatement of Assessments

GAO

June 4, 1999 The Honorable Bill ArcherChairman The Honorable
William V. Roth, Jr.Vice Chairman Joint Committee on Taxation Each
year, the Internal Revenue Service (IRS) abates tens of billions
ofdollars in tax, penalty, and interest assessments.

1 That is, IRS reduces

these assessments on taxpayers' accounts. Abatements are
importantbecause they can correct tax, penalty, and interest
amounts that have been

overassessed due to errors by IRS or taxpayers. For some types
ofabatements, however, the assessments are correct, but IRS abates
them for various other reasons. For example, penalties are abated
for taxpayerswho can prove they had reasonably relied on written
advice from IRS.

Because IRS has not developed comprehensive information on the
numberand amount of various types of past abatements, you asked us
to provide such information, which might help the Committee
fulfill a requirement inthe IRS Restructuring and Reform Act of
1998 that it report on the administration of penalty and interest
assessments by July 22, 1999. On thebasis of your February 2,
1999, request, our objectives were to determine for individual and
business tax returns (1) the number and amount ofvarious 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 actions--beforeabating assessments.

2

Our analysis of IRS records on individual and business abatements
in fiscalyears 1995 through 1998 showed that the number and amount
of abatements of tax, penalty, and interest assessments stayed
fairlyconstant. Each year, IRS abated, on average, about 10
million assessments worth about $30 billion. (See tables in app.
I; unless noted otherwise,

1Taxpayers essentially assess themselves when they voluntarily
report the amount of taxes owed on a

tax return. IRS may assess additional taxes owed, as well as
penalty and interest amounts, as a resultof an enforcement
program, such as auditing tax returns that appear to have
misreported income,

deductions, credits, exemptions, or other tax issues. 2As also
requested in this letter, we are developing a separate report on
IRS' basic abatement processes and any IRS efforts to improve
these processes.

Results

B-280532

Page 2 GAO/GGD-99-77 IRS' Abatement of Assessments tables in the
appendixes include abatements of tax, penalty, and
interestassessments.) To illustrate the types of analysis we did
on individual and businessabatements, for just the individual
taxpayers, IRS abated 7.1 million assessments in fiscal year
19983--2.5 million tax, 2.4 million penalty, and2.2 million
interest assessments. These abatements totaled about $7.8 billion-
-$5.5 billion in tax, $1.5 billion in penalty, and $0.8 billion
ininterest assessments.

4 For the 2.4 million penalty abatements, 1.4 million

were failure-to-pay penalties. Of the $1.5 billion in penalty
abatements,$676 million were miscellaneous civil tax penalties.

5

A variety of characteristics were associated with the abatements
forindividuals and businesses during fiscal years 1995-98. For
example, the 7.1 million individual abatements in fiscal year 1998
were associated with thefollowing characteristics:

*  About 80 percent of the 7.1 million abatements (as well as the
abatedamounts) involved individuals who predominantly reported
nonbusiness

income, such as wages, rather than business income from self-
employment.

*  The 7.1 million abatements were associated with 4.3 million
filed returns.Of these returns, 52 percent were joint returns and
54 percent used a paid

preparer.*   Of the 7.1 million abatements, about 19 percent were
associated with a taxreturn with an additional assessment after
the one originally reported and

about 78 percent were associated with a previous collection
action.*   Of the 7.1 million abatements, 64 percent involved
assessments for taxyears after 1995, while 9 percent involved
assessments for tax years before

1992. Appendixes II and III provide detailed information for all 4
years on thenumber and amount of abatements for individual and
business returns. Appendixes IV and V provide information about
the characteristics ofabatements for individual and business
returns during fiscal years 1995

3It is important to recognize that an individual taxpayer could
receive multiple abatements in a fiscal

year, such as when an abated tax assessment also leads to abated
penalty and interest assessments. 4IRS data extracts that we used
did not allow us to link specific abatements to related
assessments. As a result, we could not determine how much of the
various types of assessments had been abated. 5These miscellaneous
penalties include the trust fund penalty that applies when a
business does not properly deposit its employment taxes. IRS is to
assess the penalty against all responsible individualsassociated
with that business until these taxes are deposited.

B-280532 Page 3 GAO/GGD-99-77 IRS' Abatement of Assessments
through 1998. Appendixes VI and VII provide information
aboutabatements on tax returns associated with one of two IRS
activities-- creating substitute returns for nonfilers and making
additionalassessments.

Section 6404 of the Internal Revenue Code (IRC) authorizes IRS to
abatean assessment under certain conditions.  For example, IRS can
abate an erroneous assessment, which can be caused by either IRS
or the taxpayer.IRS does not have automated data available on the
root causes of these errors. Some examples of errors follow.

*  A taxpayer made an error on the original return, such as
underreporting adeduction, and filed an amended return. If IRS
verified the correctness of

the amended return, it would abate the overassessed portion of
theoriginal tax reported.

*  In an audit, IRS did not find adequate support for certain
deductions andultimately assessed additional taxes. Afterward, the
taxpayer challenged

this assessment by providing documentation to support the
deductions.6 IfIRS found the documentation valid, IRS would abate
the overassessment.

*  IRS might assess taxes on the basis of evidence that IRS had
receivedabout income paid to an individual who had not filed an
income tax return.

IRS would then notify the taxpayer of the assessment. If the
taxpayer thenfiled a return with a lower tax liability and IRS
confirmed this new liability, IRS would abate any overassessment.
In addition, IRS can abate unnecessary assessments of the correct
amountin special situations.  That is, IRS has made the assessment
multiple times, knowing that any unnecessary assessments will
eventually be abated.  Inthese situations, IRS knows that a tax is
owed from among multiple taxpayers.  IRS would assess each of
these taxpayers and then abate anyunnecessary assessments after
the tax is paid.

IRS also abates correct assessments for other reasons. For
example, IRSabates certain penalties when a taxpayer provides a
reasonable cause (such as a nonfinancial hardship, or incorrect
IRS written advice) for notmeeting a tax responsibility, such as
paying an assessment. Or, a taxpayer
6Before IRS assesses additional taxes that an audit recommends, a
taxpayer can dispute the

recommended assessment through IRS' Office of Appeals. Also, upon
receiving notice of a proposedassessment, a taxpayer has 90 days
(150 days if outside the United States) to file a petition with
the Tax

Court for a redetermination of the proposed adjustment.  Some
taxpayers, for whatever reasons,bypass these options, which result
in the recommended taxes being assessed, along with any related
penalty and interest amounts.

Background

B-280532

Page 4 GAO/GGD-99-77 IRS' Abatement of Assessments can claim a
deduction by carrying back net operating losses incurred inother
tax years to reduce the liability for a previous tax year. And IRS
may abate an assessment for unpaid taxes that involved the correct
amount butwas made after the time period allowed for assessing
additional tax liabilities. Regardless of the reason, when IRS
abates a tax or penalty assessment, itscomputers generally abate
any other associated penalty and interest assessments. IRS records
data on abatements (as well as other tax activity,such as
assessments and payments) in a taxpayer's account on IRS'
masterfile. IRS maintains both an individual and a business
masterfile. For both objectives, we requested data extracts from
IRS' individual andbusiness masterfiles to identify the abatements
received during fiscal years 1995 through 1998 by individuals and
businesses. These IRS data identifiedthe number and dollar amounts
for each type of tax, penalty, or interest abatement. The data
included specific characteristics about eachabatement, such as the
type and year of the tax return, the income level and filing
status of the taxpayer, the taxpayer's use of a paid preparer,
andthe IRS actions taken on the tax return that had an assessment
abated, such as an audit or collection action. The masterfile data
extracts we received had 43 million abatementtransactions that
totaled $120 billion for the 4 fiscal years. Using the results of
our various analyses, we created a series of tables on the
numberand amount of abatements as well as the characteristics
associated with the abatements. The tables for these 4 fiscal
years are provided inappendixes I through VII to this report.

7

We did not attempt to verify the reliability of the masterfile
data. However,we talked to IRS National Office officials on data
abnormalities we found. To the extent that these abnormalities
affected our analyses, we identifiedthem in footnotes to the
tables in this report. Further, IRS' data extracts did not allow
us to link specific abatements to the related assessments
invarious years. As a result, we could not determine how much of
the various types of assessments had been abated, particularly by
year. Nor

7We also did limited analyses on transactions that we did not
include in our abatement totals but that

reduced the taxes owed. In general, these transactions forgave or
eliminated an unpaid tax amounteven though the assessment was
correct. These transactions included eliminating a tax debt
because

the statutory period (generally 10 years) for collecting the debt
had expired or because the taxpayerhad gone through bankruptcy.
Our analyses of these "other" transactions are separate from our
abatement analyses and are reported in app. VIII.

Scope andMethodology

B-280532

Page 5 GAO/GGD-99-77 IRS' Abatement of Assessments could we
analyze why an assessment was abated or whether theabatement was
valid. We performed our audit at IRS headquarters in Washington,
D.C., and IRS'Kansas City Service Center. Our work was done
between January and May 1999 in accordance with generally accepted
government auditingstandards.

We requested comments on a draft of this report from the
Commissionerof Internal Revenue. On May 21, 1999, we received
written comments from IRS' Chief Operations Officer. (See app.
IX.) IRS' letter indicated an agreement with our draft report. The
letter saidthat the statistical tables in our report were
consistent with IRS' abatement data. Further, the letter commented
that the report provides goodinformation on aspects of abatements.

We are sending copies of this report to Representative Charles B.
Rangel,Ranking Minority Member, House Committee on Ways and Means,
and Senator Daniel P. Moynihan, Ranking Minority Member, Senate
Committeeon Finance. We are also sending copies to the Honorable
Jacob Lew, Director, Office of Management and Budget; the
Honorable Robert E.Rubin, Secretary of the Treasury; the Honorable
Charles O. Rossotti, Commissioner of Internal Revenue; and other
interested parties. We willalso send copies to those who request
them.

The major contributors to this report are listed in appendix X. If
you oryour staff have any questions concerning this report, please
contact me or Tom Short, Assistant Director, on (202) 512-9110.

Cornelia M. AshbyAssociate Director, Tax Policy and

Administration Issues

Agency Comments

Page 6 GAO/GGD-99-77 IRS' Abatement of Assessments

Contents

1Letter 16Appendix I Overview ofAbatements of Tax,

Penalty, and InterestAssessments on Individual andBusiness Returns

18Appendix II Abatements of Tax,Penalty, and Interest

Assessments onIndividual Returns

23Appendix III Abatements of Tax,Penalty, and Interest

Assessments onBusiness Returns

29Appendix IV Abatements of Penaltyand Interest

Assessments onIndividual and Business Tax Returns

Contents

Page 7 GAO/GGD-99-77 IRS' Abatement of Assessments Appendix
VAbatements of Tax Assessments onIndividual and Business Tax
Returns

72

77Appendix VI AbatementsAssociated With Tax,

Penalty, and InterestAssessments on Substitute for Returns

79Appendix VII Abatements of Tax,Penalty, and Interest

AssessmentsAssociated With Tax on Original Return

84Appendix VIII Other Types ofAbatements

Associated WithUnpaid Assessments on Individual andBusiness Tax
Returns

Appendix IXComments From the Internal RevenueService

86

Contents

Page 8 GAO/GGD-99-77 IRS' Abatement of Assessments Appendix XMajor
Contributors to This Report

87

Table I.1: Number and Amount of Abatements by FiscalYear of
Abatement-Individual and Business Tax

Returns

16

Table I.2: Number and Amount of Abatements by Type ofReturn and
Fiscal Year of Abatement-Individual and

Business Tax Returns

16

Table I.3: Number of Returns and Taxpayers ReceivingAbatements by
Fiscal Year of Abatement-Individual

and Business Tax Returns

17

Table II.1: Number and Amount of Abatements by FiscalYear of
Abatement-Individual Tax Returns 18 Table II.2: Number and Amount
of Abatements by IncomeLevel and Fiscal Year of Abatement-
Individual Tax

Returns

18

Table II.3: Number of Abatements by Tax Year and FiscalYear of
Abatement-Individual Tax Returns 19 Table II.4: Amount of
Abatements by Tax Year and FiscalYear of Abatement-Individual Tax
Returns 19 Table II.5: Distribution of Returns With Abatements
byFiling Status and Fiscal Year of Abatement-Individual

Tax Returns

20

Table II.6: Distribution of Returns With Abatements bySelected
Characteristic and Fiscal Year of Abatement-

Individual Tax Returns

20

Table II.7: Distribution of Abatements on ReturnsAssociated With
Selected IRS Activity by Fiscal Year of

Abatement-Individual Tax Returns

21

Table II.8: Distribution of Amount of Abatements onReturns
Associated With Selected IRS Activity by

Fiscal Year of Abatement-Individual Tax Returns

22

Table III.1: Number and Amount of Abatements by FiscalYear of
Abatement-Business Tax Returns 23 Table III.2: Number and Amount
of Abatements by FiscalYear of Abatement-Corporate Income Tax
Returns 23

Tables

Table III.3: Number and Amount of Abatements by FiscalYear of
Abatement-Employment Tax Returns 24

Contents

Page 9 GAO/GGD-99-77 IRS' Abatement of Assessments

Table III.4: Number and Amount of Abatements by FiscalYear of
Abatement-Other Business Tax Returns 24 Table III.5: Number and
Amount of Abatements by AssetSize and Fiscal Year of Abatement-
Corporate Income

Tax Returns

25

Table III.6: Number of Abatements by Tax Year andFiscal Year of
Abatement-Business Tax Returns 26 Table III.7: Amount of
Abatements by Tax Year and FiscalYear of Abatement-Business Tax
Returns 26 Table III.8: Distribution of Abatements on Returns
WithSelected IRS Activity by Fiscal Year of Abatement-

Business Tax Returns

27

Table III.9: Distribution of Amounts of Abatements onReturns With
Selected IRS Activity by Fiscal Year of

Abatement-Business Tax Returns

28

Table IV.1: Number and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Individual

and Business Tax Returns

29

Table IV.2: Amount and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Individual

and Business Tax Returns

30

Table IV.3: Percent of Penalty and Interest AbatementsComputed
Manually and by Computer by Fiscal Year of

Abatement--Individual and Business Tax Returns

31

Table IV.4: Percent of Amount of Penalty and InterestAbatements
Computed Manually and by Computer by

Fiscal Year of Abatement--Individual and BusinessTax Returns

32

Table IV.5: Number and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Individual

Tax Returns

33

Table IV.6: Amount and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Individual

Tax Returns

34

Table IV.7: Percent of Penalty and Interest AbatementsComputed
Manually and by Computer by Fiscal Year of

Abatement--Individual Tax Returns

35

Table IV.8: Percent of Amount of Penalty and InterestAbatements
Computed Manually and by Computer by

Fiscal Year of Abatement--Individual Tax Returns

36

Table IV.9: Number and Amount of Penalty Abatementsby Income Level
and by Fiscal Year of Abatement--

Individual Tax Returns

37

Contents

Page 10 GAO/GGD-99-77 IRS' Abatement of Assessments

Table IV.10: Number and Amount of Interest Abatementsby Income
Level and by Fiscal Year of Abatement--

Individual Tax Returns

38

Table IV.11: Number of Penalty Abatements by Tax Yearand Fiscal
Year of Abatement--Individual Tax Returns 39 Table IV.12: Amount
of Penalty Abatements by Tax Yearand Fiscal Year of Abatement--
Individual Tax Returns 39 Table IV.13: Number of Interest
Abatements by Tax Yearand Fiscal Year of Abatement--Individual Tax
Returns 40 Table IV.14: Amount of Interest Abatements by Tax
Yearand Fiscal Year of Abatement--Individual Tax Returns 40 Table
IV.15: Distribution of Returns With Penalty andInterest Abatements
by Filing Status and Fiscal Year of

Abatement--Individual Tax Returns

41

Table IV.16: Distribution of Returns With Penalty andInterest
Abatements by Selected Characteristic and

Fiscal Year of Abatement--Individual Tax Returns

41

Table IV.17: Distribution of Returns With PenaltyAbatements by
Selected Characteristic and Fiscal Year

of Abatement--Individual Tax Returns

42

Table IV.18: Distribution of Returns With InterestAbatements by
Selected Characteristic and Fiscal Year

of Abatement--Individual Tax Returns

42

Table IV.19: Distribution of Returns With Failure to FilePenalty
Abatements by Selected Characteristic and

Fiscal Year of Abatement--Individual Tax Returns

43

Table IV.20: Distribution of Returns With EstimatedPayment Penalty
Abatements by Selected

Characteristic and Fiscal Year of Abatement--Individual Tax
Returns

43

Table IV.21: Distribution of Returns With Failure to PayPenalty
Abatements by Selected Characteristic and

Fiscal Year of Abatement--Individual Tax Returns

43

Table IV.22: Distribution of Number of Penalty andInterest
Abatements on Returns Associated With

Selected IRS Activity by Fiscal Year of Abatement--Individual Tax
Returns

44

Table IV.23: Distribution of Amount of Penalty andInterest
Abatements on Returns Associated With

Selected IRS Activity by Fiscal Year of Abatement--Individual Tax
Returns

45

Contents

Page 11 GAO/GGD-99-77 IRS' Abatement of Assessments

Table IV.24: Distribution of Number of PenaltyAbatements on
Returns Associated With Selected IRS

Activity by Fiscal Year of Abatement--Individual TaxReturns

46

Table IV.25: Distribution of Amount of PenaltyAbatements on
Returns Associated With Selected IRS

Activity by Fiscal Year of Abatement--Individual TaxReturns

47

Table IV.26: Distribution of Number of InterestAbatements on
Returns Associated With Selected IRS

Activity by Fiscal Year of Abatement--Individual TaxReturns

48

Table IV.27: Distribution of Amount of InterestAbatements on
Returns Associated With Selected IRS

Activity by Fiscal Year of Abatement--Individual TaxReturns

49

Table IV.28: Number and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Business

Tax Returns

50

Table IV.29: Amount and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement-Business Tax

Returns

51

Table IV.30: Percent of Penalty and Interest AbatementsComputed
Manually and by Computer by Fiscal Year of

Abatement--Business Tax Returns

52

Table IV.31: Percent of Amount of Penalty and InterestAbatements
Computed Manually and by Computer by

Fiscal Year of Abatement--Business Tax Returns

53

Table IV.32: Number and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Corporate

Income Tax Returns

54

Table IV.33: Amount and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Corporate

Income Tax Returns

55

Table IV.34: Number and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatements--

Employment Tax Returns

56

Table IV.35: Amount and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--

Employment Tax Returns

57

Table IV.36: Number and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement--Other

Business Tax Returns

58

Contents

Page 12 GAO/GGD-99-77 IRS' Abatement of Assessments

Table IV.37: Amount and Percent of Penalty and InterestAbatements
by Fiscal Year of Abatement-Other

Business Tax Returns

59

Table IV.38: Number and Amount of Penalty Abatementsby Asset Size
and Fiscal Year of Abatement--

Corporate Income Tax Returns

60

Table IV.39: Number and Amount of Interest Abatementsby Asset Size
and Fiscal Year of Abatement-Corporate

Income Tax Returns

61

Table IV.40: Number of Penalty Abatements by Tax Yearand Fiscal
Year of Abatement--Business Tax Returns 62 Table IV.41: Amount of
Penalty Abatements by Tax Yearand Fiscal Year of Abatement--
Business Tax Returns 62 Table IV.42: Number of Interest Abatements
by Tax Yearand Fiscal Year of Abatements--Business Tax Returns 63
Table IV.43: Amount of Interest Abatements by Tax Yearand Fiscal
Year of Abatement--Business Tax Returns 63 Table IV.44: Number of
Penalty Abatements by Tax Yearand Fiscal Year of Abatement--
Corporate Income Tax

Returns

64

Table IV.45: Amount of Penalty Abatements by Tax Yearand Fiscal
Year of Abatement--Corporate Income Tax

Returns

64

Table IV.46: Number of Interest Abatements by Tax Yearand Fiscal
Year of Abatement--Corporate Income Tax

Returns

65

Table IV.47: Amount of Interest Abatements by Tax Yearand Fiscal
Year of Abatement--Corporate Income Tax

Returns

65

Table IV.48: Number of Penalty Abatements by Tax Yearand Fiscal
Year of Abatement--Employment Tax

Returns

66

Table IV.49: Amount of Penalty Abatements by Tax Yearand Fiscal
Year of Abatement--Employment Tax

Returns

67

Table IV.50: Number of Interest Abatements by Tax Yearand Fiscal
Year of Abatement--Employment Tax

Returns

68

Table IV.51: Amount of Interest Abatements by Tax Yearand Fiscal
Year of Abatement--Employment Tax

Returns

69

Contents

Page 13 GAO/GGD-99-77 IRS' Abatement of Assessments

Table IV.52: Number of Penalty Abatements by Tax Yearand Fiscal
Year of Abatement--Other Business Tax

Returns

70

Table IV.53: Amount of Penalty Abatements by Tax Yearand Fiscal
Year of Abatement--Other Business Tax

Returns

70

Table IV.54: Number of Interest Abatements by Tax Yearand Fiscal
Year of Abatement--Other Business Tax

Returns

71

Table IV.55: Amount of Interest Abatements by Tax Yearand Fiscal
Year of Abatement--Other Business Tax

Returns

71

Table V.1: Number and Distribution of Tax Abatementsby Fiscal Year
of Abatement--Individual and Business

Tax Returns

72

Table V.2: Amount and Distribution of Tax Abatementsby Fiscal Year
of Abatement--Individual and Business

Tax Returns

72

Table V.3: Number and Amount of Tax Abatements byFiscal Year of
Abatement--Individual Tax Return 73 Table V.4: Number and Amount
of Tax Abatements byFiscal Year of Abatement--Business Tax Returns
73 Table V.5: Number and Amount of Tax Abatements byFiscal Year of
Abatement--Corporate Income Tax

Returns

74

Table V.6: Number and Amount of Non-Examination TaxAbatements by
Asset Size and Fiscal Year of

Abatement--Corporate Income Tax Returns

74

Table V.7: Number and Amount of Examination TaxAbatements by Asset
Size and Fiscal Year of

Abatement--Corporate Income Tax Returns

75

Table V.8: Number and Amount of Tax Abatements Dueto Net Operating
Loss Carryback by Asset Size and

Fiscal Year of Abatement--Corporate Income TaxReturns

76

Table VI.1: Number and Amount of AbatementsAssociated With
Assessments on Substitute for Returns

by Fiscal Year of Abatement-Individual and BusinessTax Returns

77

Table VI.2: Number and Amount of AbatementsAssociated With
Assessments on Substitute for Returns

by Fiscal Year of Abatement-Individual Tax Returns

77

Contents

Page 14 GAO/GGD-99-77 IRS' Abatement of Assessments

Table VI.3: Number of Abatements Associated WithAssessments on
Substitute for Returns by Tax Year and

Fiscal Year of Abatement-Individual Tax Returns

78

Table VI.4: Amount of Abatements Associated WithAssessments on
Substitute for Returns by Tax Year and

Fiscal Year of Abatement-Individual Tax Returns

78

Table VII.1: Number and Amount of AbatementsAssociated With Tax on
Original Return by Fiscal Year

of Abatement-Individual and Business Tax Returns

79

Table VII.2: Number and Amount of AbatementsAssociated With Tax on
Original Return by Fiscal Year

of Abatement-Individual Tax Returns

79

Table VII.3: Number and Amount of AbatementsAssociated With Tax on
Original Return by Income

Level and Fiscal Year of Abatement-Individual TaxReturns

80

Table VII.4: Number of Abatements Associated With Taxon Original
Return by Tax Year and Fiscal Year of

Abatement-Individual Tax Returns

81

Table VII.5: Amount of Abatements Associated With Taxon Original
Return by Tax Year and Fiscal Year of

Abatement-Individual Tax Returns

81

Table VII.6: Distribution of Returns With AbatementsAssociated
With Tax on Original Return by Filing

Status and Fiscal Year of Abatement-Individual TaxReturns

82

Table VII.7: Distribution of Returns With AbatementsAssociated
With Tax on Original Return by Selected

Characteristic and Fiscal Year of Abatement-IndividualTax Returns

82

Table VII.8: Distribution of Number of AbatementsAssociated With
Tax on Original Return by Selected

IRS Activity and Fiscal Year of Abatement-IndividualTax Returns

83

Table VII.9: Distribution of Amount of AbatementsAssociated With
Tax on Original Return by Selected

IRS Activity and Fiscal Year of Abatement-IndividualTax Returns

83

Table VIII.1: Number and Amount of Other Types ofAbatements
Associated With Unpaid Assessments-

Individual and Business Tax Returns

84

Contents

Page 15 GAO/GGD-99-77 IRS' Abatement of Assessments

Table VIII.2: Number and Amount of Other Types ofAbatements
Associated With Unpaid Assessments-

Individual Tax Returns

85

Table VIII.3: Number and Amount of Other Types ofAbatements
Associated With Unpaid Assessments-

Business Tax Returns

85

Abbreviations IRC Internal Revenue Code IRS Internal Revenue
Service

Appendix IOverview of Abatements of Tax, Penalty, and Interest
Assessments on Individual andBusiness Returns

Page 16 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Abatement type

Tax Penalty Interest Total Fiscal year of abatement Number Amount
Number Amount Number Amount Number Amount 1995 2,641,271 $20,820
4,386,838 $4,925 3,074,732 $2,647 10,102,841 $28,393 1996
2,443,001 22,489 4,390,416 6,009 3,216,721 3,195 10,050,138 31,692
1997 3,431,358 22,119 4,251,869 5,540 3,507,147 2,788 11,190,374
30,447 1998 3,098,672 22,240 4,705,481 4,795 3,532,125 2,137
11,336,278 29,172 Total 11,614,302 $87,668 17,734,604 $21,269
13,330,725 $10,767 42,679,631 $119,704

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Business
tax returns

include corporate income tax, various employment taxes, and other
types of returns on IRS' businessmaster file.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. Source: GAO compilation of IRS
data.

Dollars in Millions Fiscal year of abatement

1995 1996 1997 1998 TotalType of return Number Amount Number
Amount Number Amount Number Amount Number Amount

Individual incometax 5,559,952 $6,773 5,410,556 $6,848 6,840,701
$7,433 7,088,933 $7,676 24,900,142 $28,731 BusinessCorporate
income tax

430,927 $12,753 435,554 $15,325 430,671 $13,142 432,161 $12,649
1,729,313 $53,870Employment tax a 3,499,256 4,783 3,272,151 5,693
3,145,880 6,472 3,173,406 5,812 13,090,693 22,760

Estate tax and gift tax 26,838 536 30,170 590 33,940 730 37,942
711 128,890 2,568Excise tax

39,698 586 31,834 197 28,035 346 26,477 343 126,044 1,471Other
business tax b 546,170 2,962 869,873 3,039 711,147 2,323 577,359
1,980 2,704,549 10,303

Subtotal 4,542,889 $21,619 4,639,582 $24,844 4,349,673 $23,014
4,247,345 $21,496 17,779,489 $90,973 Total 10,102,841 $28,393
10,050,138 $31,692 11,190,374 $30,447 11,336,278 $29,172
42,679,631 $119,704

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Business
tax returns

include corporate income tax, various employment taxes, and other
types of returns on IRS' businessmaster file.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. aIncludes abatements on Form 940,
Employer's Annual Federal Unemployment Tax Return; Form

941, Employer's Quarterly Federal Tax Return; Form 942, Employer's
Quarterly Federal Return forHousehold Employees (for tax periods
prior to the requirement that these taxes be reported on

Schedule H of the employer's Form 1040); and Form 943, Employer's
Annual Tax Return forAgriculture Employees. bIncludes numerous
types of returns, such as partnerships, fiduciaries, and returns
used by taxpayers to report withholdings from revenues paid to
nonemployees. Source: GAO compilation of IRS data.

Table I.1: Number and Amount of Abatements by Fiscal Year of
Abatement-Individual and Business Tax Returns Table I.2: Number
and Amount of Abatements by Type of Return and Fiscal Year of
Abatement-Individual and Business TaxReturns

Appendix I Overview of Abatements of Tax, Penalty, and Interest
Assessments on Individual andBusiness Returns

Page 17 GAO/GGD-99-77 IRS' Abatement of Assessments

Dollars in Millions Number ofFiscal year of abatement Returns
Taxpayers Abatements Amount ofabatements Individuals1995 3,199,052
2,738,481 5,559,952 $6,773 1996 3,097,806 2,677,106 5,410,556
6,8481997 4,163,197 3,739,809 6,840,701 7,433 1998 4,333,950
3,881,536 7,088,933 7,676 Total-individuals 14,794,005 13,036,932
24,900,142 $28,731 Businesses1995 2,198,715 1,535,164 4,542,889
$21,619

1996 2,235,219 1,622,569 4,639,582 24,8441997 2,062,189 1,506,461
4,349,673 23,014 1998 1,994,723 1,454,992 4,247,345 21,496 Total-
businesses 8,490,846 6,119,186 17,779,489 $90,973 Notes:
Individual tax returns are Form 1040, Federal Individual Income
Tax Returns, including thosewith Schedule C, sole proprietor
business income and Schedule F, farm income. Business tax returns

include corporate income tax, various employment taxes, and other
types of returns on IRS' businessmaster file.

Amounts may not sum to totals because of rounding. Source: GAO
compilation of IRS data.

Table I.3: Number of Returns andTaxpayers Receiving Abatements by
Fiscal Year of Abatement-Individual andBusiness Tax Returns

Appendix IIAbatements of Tax, Penalty, and Interest Assessments on
Individual Returns

Page 18 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Abatement type

Tax Penalty Interest Total Fiscal year of abatement Number Amount
Number Amount Number Amount Number Amount 1995 1,906,198 $4,392
1,955,572 $1,454 1,698,182 $927 5,559,952 $6,7731996 1,794,074
4,699 1,898,792 1,330 1,717,690 820 5,410,556 6,848

1997 2,848,535 5,266 1,888,977 1,352 2,103,189 816 6,840,701
7,4331998 2,548,559 5,468 2,373,303 1,452 2,167,071 756 7,088,933
7,676 Total 9,097,366 $19,824 8,116,644 $5,588 7,686,132 $3,319
24,900,142 $28,731

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. Source: GAO compilation of IRS
data.

Dollars in Millions Fiscal year of abatement

1995 1996 1997 1998 TotalIncome level reported on original return
Number Amount Number Amount Number Amount Number Amount Number
Amount Individual nonbusiness 1040A TPI<$25,000 1,481,991 $1,492
1,591,084 $1,663 1,823,081 $1,904 1,672,770 $1,849 6,568,926
$6,908 Non1040A TPI<$25,000 458,750 213 465,754 115 520,143 155
556,092 149 2,000,739 633 TPI $25,000<$50,000 980,674 450 942,286
490 1,498,650 662 1,542,657 708 4,964,267 2,311 TPI
$50,000<$100,000 766,314 647 758,053 517 1,255,983 832 1,261,964
791 4,042,314 2,788 TPI $100,000 or more 640,105 1,929 575,294
2,124 594,952 2,253 678,185 2,403 2,488,536 8,710   Subtotal
4,327,834 $4,732 4,332,471 $4,911 5,692,809 $5,807 5,711,668
$5,900 20,064,782 $21,350 Individual businessa C-TGR < $25,000
213,312 $75 196,803 $83 226,007 $46 274,196 $140 910,318 $344 C-
TGR $25,000<$100,000 384,942 320 338,061 226 372,204 188 463,272
269 1,558,479 1,003 C-TGR $100,000 or more 295,709 697 262,473 687
253,573 558 316,995 612 1,128,750 2,554 F-TGR<$100,000 34,198 22
30,081 15 23,220 13 22,569 12 110,068 63 F-TGR $100,000 or more
43,220 86 37,281 103 29,780 90 27,690 70 137,971 350   Subtotal
971,381 $1,200 864,699 $1,113 904,784 $896 1,104,722 $1,104
3,845,586 $4,314 Income level not availableb 260,737 $841 213,386
$824 243,108 $730 272,543 $672 989,774 $3,067 Total 5,559,952
$6,773 5,410,556 $6,848 6,840,701 $7,433 7,088,933 $7,676
24,900,142 $28,731

Legend1040A = Nonbusiness returns filed by individuals.

TPI = Total positive income (income reported as a positive on tax
return tables)C-TGR = Form 1040 Schedule C (profit or loss from
business) total gross receipts F-TGR = Form 1040 Schedule F
(profit or loss from farming) total gross receipts Notes:
Individual tax returns are Form 1040, Federal Individual Income
Tax Returns, including thosewith Schedule C, sole proprietor
business income and Schedule F, farm income.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. aReturns with Schedules C or F may
be categorized as nonbusiness rather than business if the

reported primary source of income was wages, investments, and
other nonbusiness income. bIncome level was not always available
on certain penalties.

Source: GAO compilation of IRS data.

Table II.1: Number and Amount of Abatements by Fiscal Year of
Abatement-Individual Tax Returns Table II.2: Number and Amount of
Abatements by Income Level and Fiscal Year of Abatement-Individual
Tax Returns

Appendix II Abatements of Tax, Penalty, and Interest Assessments
on Individual Returns

Page 19 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement Tax year of return 1995 1996 1997 1998
Total Before 1980a 7,896 4,393 2,114 1,971 16,374 1980-84 144,898
75,544 47,387 39,141 306,970 1985-89 812,576 495,186 348,975
310,899 1,967,636 1990 384,622 227,516 163,028 132,451 907,617
1991 710,487 351,250 211,233 164,267 1,437,237 1992 754,631
749,391 407,611 240,113 2,151,746 1993 1,360,075 808,455 606,640
364,265 3,139,435 1994 1,383,326 1,362,464 633,248 470,812
3,849,850 1995 1,441 1,334,059 1,432,095 828,471 3,596,066 1996 b
2,298 2,985,836 2,028,495 5,016,629 1997 b b 2,534 2,505,464
2,507,998 1998 b b b 2,584 2,584 Total 5,559,952 5,410,556
6,840,701 7,088,933 24,900,142 Notes: Individual tax returns are
Form 1040, Federal Individual Income Tax Returns, including
thosewith Schedule C, sole proprietor business income and Schedule
F, farm income.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. aThe earliest tax year is 1962.

bDoes not apply.

Source: GAO compilation of IRS data.

Dollars in Millions Fiscal year of abatement Tax year of return
1995 1996 1997 1998 Total Before 1980a $119 $66 $37 $27 $249 1980-
84 604 349 335 197 1,4861985-89 1,699 1,327 842 630 4,498

1990 794 471 342 255 1,863 1991 1,131 770 408 330 2,639 1992 759
1,272 845 444 3,320 1993 993 944 1,277 898 4,1131994 672 986 796
1,044 3,499

1995 1 661 1,101 891 2,655 1996 b 1 1,449 1,356 2,805 1997 b b 1
1,604 1,605 1998 b b b 1 1Total $6,773 $6,848 $7,433 $7,676
$28,731

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Totals are
based on abatement amounts, not return amounts. Amounts may not
sum to totals because of rounding. aThe earliest tax year is 1962.

bDoes not apply.

Source: GAO compilation of IRS data.

Table II.3: Number of Abatements by TaxYear and Fiscal Year of
Abatement- Individual Tax Returns

Table II.4: Amount of Abatements by TaxYear and Fiscal Year of
Abatement- Individual Tax Returns

Appendix II Abatements of Tax, Penalty, and Interest Assessments
on Individual Returns

Page 20 GAO/GGD-99-77 IRS' Abatement of Assessments

Filing status Fiscal year of abatement Number ofreturns Single
Married, filingjointly Married, filingseparately Head ofhousehold
Widow(er) withdependent child Total 1995 3,199,052 a a a a a a1996
3,097,806

a a a a a a

1997 4,163,197 25.3% 54.5% 3.8% 16.4% 0.1% 100%1998 4,333,950 28.2
52.4 4.3 15.0 0.1 100

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.
Percentages may not sum to 100 because of rounding. aIRS was
unable to reconstruct the filing status data from its historical
files within the time frames of

our review. Source: GAO compilation of IRS data.

Selected characteristic Fiscal year ofabatement Number ofreturns
Primary taxpayerover age 65 Substitute forreturn prepared Paid
preparer onoriginal return Earned income credit onoriginal return

1995 3,199,052 10.9% 7.5% 57.5% 4.1%1996 3,097,806 10.8 8.7 55.8
4.6 1997 4,163,197 8.6 5.9 51.1 4.4 1998 4,333,950 8.9 4.4 53.9
5.2

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could occur
on returns with more than oneselected characteristic. Source: GAO
compilation of IRS data.

Table II.5: Distribution of Returns With Abatements by Filing
Status and Fiscal Year of Abatement-Individual Tax Returns Table
II.6: Distribution of Returns With Abatements by Selected
Characteristic and Fiscal Year of Abatement-Individual TaxReturns

Appendix II Abatements of Tax, Penalty, and Interest Assessments
on Individual Returns

Page 21 GAO/GGD-99-77 IRS' Abatement of Assessments

Selected IRS activitya Fiscal year ofabatement Number ofabatements
Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 5,559,952 9.7% 13.6% 25.8% 1.7% 76.7% 5.4% 0.2%1996 5,410,556
10.8 15.6 27.8 0.8 78.4 3.3 0.1

1997 6,840,701 8.7 10.8 20.6 0.2 75.0 1.8 0.11998 7,088,933 9.6
7.6 18.6 0.1 78.3 2.2 0.1

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.
Percentages should not be totaled because abatements could occur
on returns with more than oneselected IRS activity. aIRS activity
that occurred before the abatement. bIncludes audits that are
still open and audits closed with a change in tax assessments or
no change in tax assessments. cReturn prepared by IRS based on
third party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table II.7: Distribution of Abatements on Returns Associated With
Selected IRS Activity by Fiscal Year of Abatement-IndividualTax
Returns

Appendix II Abatements of Tax, Penalty, and Interest Assessments
on Individual Returns

Page 22 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Selected IRS activitya Fiscal year ofabatement Amount
ofabatements Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 $6,773 30.9% 14.8% 37.6% 5.1% 74.4% 14.4% 2.7%1996 $6,848
35.1 17.8 40.6 2.2 74.1 9.8 3.0

1997 $7,433 31.3 16.9 35.7 0.7 71.3 7.1 1.81998 $7,676 32.1 15.0
31.6 0.4 70.6 5.8 1.0

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.
Percentages should not be totaled because abatements could occur
on returns with more than oneselected IRS activity. aIRS activity
that occurred before the abatement. bIncludes audits that are
still open and audits closed with a change in tax assessments or
no change in tax assessments. cReturn prepared by IRS based on
third party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process- open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table II.8: Distribution of Amount of Abatements on Returns
Associated With Selected IRS Activity by Fiscal Year ofAbatement-
Individual Tax Returns

Appendix IIIAbatements of Tax, Penalty, and Interest Assessments
on Business Returns

Page 23 GAO/GGD-99-77 IRS' Abatement of Assessments Tables in this
appendix show information on the number and amount oftax, penalty,
and interest abatements for business tax returns. Tables on
corporate income tax, employment tax, and other business tax
returns,generally, are subsets of the table titled business tax
returns.

Dollars in Millions Abatement type

Tax Penalty Interest Total Fiscal year of abatement Number Amount
Number Amount Number Amount Number Amount 1995 735,073 $16,428
2,431,266 $3,471 1,376,550 $1,720 4,542,889 $21,619 1996 648,927
17,790 2,491,624 4,680 1,499,031 2,375 4,639,582 24,844 1997
582,823 16,853 2,362,892 4,188 1,403,958 1,972 4,349,673 23,014
1998 550,113 16,772 2,332,178 3,343 1,365,054 1,381 4,247,345
21,496 Total 2,516,936 $67,843 9,617,960 $15,682 5,644,593 $7,448
17,779,489 $90,973

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. Source: GAO compilation of IRS
data.

Dollars in Millions Abatement type

Tax Penalty Interest Total Fiscal year of abatement Number Amount
Number Amount Number Amount Number Amount 1995 176,869 $11,131
136,643 $379 117,415 $1,243 430,927 $12,753 1996 174,559 12,560
140,810 881 120,185 1,883 435,554 15,325 1997 175,228 11,501
137,183 342 118,260 1,299 430,671 13,142 1998 171,244 11,260
138,160 477 122,757 912 432,161 12,649 Total 697,900 $46,452
552,796 $2,079 478,617 $5,338 1,729,313 $53,870

Notes: Corporate returns include all Form 1120, Federal Corporate
Income Tax returns.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. Source: GAO compilation of IRS data

Table III.1: Number and Amount of Abatements by Fiscal Year of
Abatement-Business Tax Returns Table III.2: Number and Amount of
Abatements by Fiscal Year of Abatement-Corporate Income Tax
Returns

Appendix III Abatements of Tax, Penalty, and Interest Assessments
on Business Returns

Page 24 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Abatement type

Tax Penalty Interest Total Fiscal year of abatement Number Amount
Number Amount Number Amount Number Amount 1995 504,336 $2,794
1,910,252 $1,770 1,084,668 $219 3,499,256 $4,783 1996 389,604
3,014 1,822,060 2,381 1,060,487 298 3,272,151 5,693 1997 352,694
3,772 1,759,338 2,264 1,033,848 436 3,145,880 6,472 1998 326,281
4,082 1,786,956 1,491 1,060,169 239 3,173,406 5,812 Total
1,572,915 $13,662 7,278,606 $7,907 4,239,172 $1,192 13,090,693
$22,760

Notes: Includes abatements on Form 940, Employer's Annual Federal
Unemployment Tax Return;Form 941, Employer's Quarterly Federal Tax
Return; Form 942, Employer's Quarterly Federal Return

for Household Employees (for tax periods prior to the requirement
that these taxes be reported onSchedule H of the employer's Form
1040); and Form 943, Employer's Annual Tax Return for Agriculture
Employees. Totals are based on abatements, not returns. Amounts
may not sum to totals because of rounding. Source: GAO compilation
of IRS data.

Dollars in Millions Abatement type

Tax Penalty Interest Total Fiscal year of abatement Number Amount
Number Amount Number Amount Number Amount 1995 53,868 $2,504
384,371 $1,322 174,467 $258 612,706 $4,083 1996 84,764 2,216
528,754 1,417 318,359 193 931,877 3,826 1997 54,901 1,580 466,371
1,582 251,850 237 773,122 3,399 1998 52,588 1,430 407,062 1,374
182,128 230 641,778 3,035 Total 246,121 $7,729 1,786,558 $5,695
926,804 $918 2,959,483 $14,343

Notes: Includes numerous types of tax returns, such as estate,
gift, partnerships, fiduciaries, andreturns used by taxpayers to
report withholdings from revenues paid to nonemployees.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. Source: GAO compilation of IRS
data.

Table III.3: Number and Amount of Abatements by Fiscal Year of
Abatement-Employment Tax Returns Table III.4: Number and Amount of
Abatements by Fiscal Year of Abatement-Other Business Tax Returns

Appendix III Abatements of Tax, Penalty, and Interest Assessments
on Business Returns

Page 25 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 Total Asset size reported onbalance sheet
Number Amount Number Amount Number Amount Number Amount Number
Amount

Small corporation No balance sheeta 13,318 $1,061 14,394 $543
16,179 $392 16,175 $710 60,066 $2,706 Assets < $250,000 199,034
155 209,144 196 209,476 214 209,255 218 826,909 782 $250,000 < $1
million 100,653 234 104,849 286 102,841 306 104,050 320 412,393
1,145 $1 million < $5 million 56,867 384 57,639 458 55,639 549
56,289 563 226,434 1,955 $5 million < $10 million 14,551 216
11,126 240 10,479 266 10,878 315 47,034 1,036   Subtotal 384,423
$2,050 397,152 $1,722 394,614 $1,726 396,647 $2,127 1,572,836
$7,625 Large corporation $10 million < $50 million 12,446 $785
12,959 $794 12,705 $895 12,605 $937 50,715 $3,412 $50 million <
$100 million 3,333 533 3,498 489 3,322 480 3,193 611 13,346 2,113
$100 million < $250 million 3,427 773 3,476 841 3,231 971 3,366
883 13,500 3,468 $250 million or more 5,765 7,971 6,098 11,121
5,912 8,557 5,968 7,963 23,743 35,612   Subtotal 24,971 $10,061
26,031 $13,246 25,170 $10,903 25,132 $10,393 101,304 $44,604 Asset
size not availableb 21,533 $641 12,371 $357 10,887 $513 10,382
$129 55,173 $1,640 Total 430,927 $12,753 435,554 $15,325 430,671
$13,142 432,161 $12,649 1,729,313 $53,870

Notes: Corporate returns include all Form 1120, Federal Corporate
Income Tax returns.

We could not provide the asset size for businesses on noncorporate
business returns because theinformation is only available for
corporate income tax returns.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. a Taxpayer did not provide, or it
was missing.

bAsset size was not available on returns transferred from IRS'
historical files or non-master file and on special types of
assessments. Source: GAO compilation of IRS data.

Table III.5: Number and Amount of Abatements by Asset Size and
Fiscal Year of Abatement-Corporate Income Tax Returns

Appendix III Abatements of Tax, Penalty, and Interest Assessments
on Business Returns

Page 26 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement Tax year of return 1995 1996 1997 1998
Total Before 1980a 20,715 21,996 24,308 26,024 93,0431980-84
11,823 6,873 4,678 2,515 25,889

1985-89 119,722 72,276 51,808 35,396 279,202 1990 84,901 38,029
22,156 14,219 159,305 1991 345,527 90,237 39,297 21,689 496,750
1992 335,753 288,718 77,206 33,325 735,002 1993 591,763 365,124
268,941 73,296 1,299,124 1994 2,630,280 690,742 306,757 187,091
3,814,870 1995 402,405 2,603,722 652,783 294,065 3,952,975 1996 b
461,865 2,440,383 677,947 3,580,195 1997 b b 461,356 2,331,806
2,793,162 1998 b b b 549,972 549,972 Total 4,542,889 4,639,582
4,349,673 4,247,345 17,779,489

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. aEarliest tax year is 1961.

bDoes not apply.

Source: GAO compilation of IRS data.

Dollars in Millions Fiscal year of abatement Tax year of return
1995 1996 1997 1998 Total Before 1980a $1,098 $776 $1,099 $653
$3,6261980-84 1,975 1,450 1,578 736 5,740

1985-89 3,024 3,202 3,179 2,115 11,520 1990 2,574 2,426 1,151 436
6,588 1991 3,673 2,157 472 611 6,914 1992 2,146 3,957 1,147 564
7,814 1993 2,889 2,437 3,592 1,324 10,241 1994 3,202 2,371 2,437
3,372 11,381 1995 1,039 5,340 3,352 3,038 12,769 1996 b 728 4,647
3,751 9,126 1997 b b 360 4,024 4,384 1998 b b b 871 871 Total
$21,619 $24,844 $23,014 $21,496 $90,973

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

Totals are based on abatement amounts, not return amounts. Amounts
may not sum to totals because of rounding. aEarliest tax year is
1961.

bDoes not apply.

Source: GAO compilation of IRS data.

Table III.6: Number of Abatements by Tax Year and Fiscal Year of
Abatement-Business Tax Returns Table III.7: Amount of Abatements
by Tax Year and Fiscal Year of Abatement-Business Tax Returns

Appendix III Abatements of Tax, Penalty, and Interest Assessments
on Business Returns

Page 27 GAO/GGD-99-77 IRS' Abatement of Assessments

Selected IRS activitya Fiscal year ofabatement Number ofabatements
Auditindicator

b 6020bc Additional taxassessmentsd Offer-in-compromisee
Collectionf Litigationg Criminalinvestigationh

1995 4,542,889 3.4% 3.7% 9.8% 0.1% 78.6% 1.3% i1996 4,639,582 3.6
2.6 8.9 0.1 80.2 1.1

i

1997 4,349,673 3.7 3.1 8.0 f 81.4 1.0 i1998 4,247,345 3.7 3.6 5.9

f 81.6 1.1 i

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

Percentages should not be totaled because the abatement could have
been preceded by more thanone selected IRS activity. aIRS activity
that occurred before the abatement. bIncludes audits that are
still open and audits closed with a change in tax assessments or
no change in tax assessments. c6020b, a substitute for return
prepared by IRS for nonfilers of employment tax returns.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in a refunds to taxpayers and would
not be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. iLess than one-
tenth of 1 percent.

Source: GAO compilation of IRS data.

Table III.8: Distribution of Abatements on Returns With Selected
IRS Activity by Fiscal Year of Abatement-Business TaxReturns

Appendix III Abatements of Tax, Penalty, and Interest Assessments
on Business Returns

Page 28 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Selected IRS activitya Fiscal year ofabatement Amount
ofabatements Auditindicator

b 6020bc Additional taxassessmentsd Offer-in-compromisee
Collectionf Litigationg Criminalinvestigationh

1995 $21,619 60.7% 1.0% 35.9% 0.1% 47.1% 6.3% 0.4% 1996 $24,844
62.3 0.8 30.7 f 54.2 11.6 0.11997 $23,014 57.4 1.1 35.8

f 48.7 8.5 0.3

1998 $21,496 59.7 1.4 25.1 f 37.9 5.7 0.2

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

Percentages should not be totaled because the abatement could have
been preceded by more thanone selected IRS activity. aIRS activity
that occurred before the abatement. bIncludes audits that are
still open and audits closed with a change in tax assessments or
no change in tax assessments. c6020b, a substitute for return
prepared by IRS for nonfilers of employment tax returns.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in a refunds to taxpayers and would
not be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table III.9: Distribution of Amounts of Abatements on Returns With
Selected IRS Activity by Fiscal Year of Abatement-Business Tax
Returns

Appendix IVAbatements of Penalty and Interest Assessments on
Individual and Business TaxReturns

Page 29 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Average Penalty (IRC
section) Number Percent Number Percent Number Percent Number
Percent Number PercentFailure to file (6651(a)(1)) 825,233 18.8
822,298 18.7 835,604 19.7 821,156 17.5 826,073 18.6

Estimated tax (6654 and 6655) 278,063 6.3 261,128 5.9 244,436 5.7
244,042 5.2 256,917 5.8 Failure to make tax deposit (6656) 866,594
19.8 809,347 18.4 773,695 18.2 740,374 15.7 797,503 18.0Failure to
furnish taxpayer

identification number (6723) 504 a 432 a 237 a 101 a 319 aDaily
delinquency (6652(c)(2)(A))

b 39,644 0.9 39,829 0.9 38,905 0.9 58,106 1.2 44,121 1.0

Miscellaneous civil-trust fund(6672)c 229,630 5.2 187,250 4.3
222,502 5.2 255,453 5.4 223,709 5.0

Miscellaneous civil-other (6721(e)and others)d 86,833 2.0 81,081
1.8 61,747 1.5 71,880 1.5 75,385 1.7 Incomplete partnership
return(6698) 4,661 0.1 3,321 0.1 3,077 0.1 2,339

a 3,350 0.1

Failure to pay (6651(a) (2)-(3)) 1,991,945 45.4 2,138,238 48.7
2,034,711 47.9 2,475,955 52.6 2,160,212 48.7Bad check (6657)
13,170 0.3 13,331 0.3 13,766 0.3 20,024 0.4 15,073 0.3

Tip income (6652(b)) 2,569 0.1 3,113 0.1 2,562 0.1 1,729 a 2,493
0.1Fraud (6663) 1,593

a 1,166 a 1,012 a 837 a 1,152 a

Negligence (6662(c))e 46,399 1.1 29,882 0.7 19,615 0.5 13,485 0.3
27,345 0.6 Total penalty abatements 4,386,838 100.0 4,390,416
100.0 4,251,869 100.0 4,705,481 100.0 4,433,651 100.0 Interest
abatements 3,074,732 100.0 3,216,721 100.0 3,507,147 100.0
3,532,125 100.0 3,332,681 100.0 Total 7,461,570 100.0 7,607,137
100.0 7,759,016 100.0 8,237,606 100.0 7,766,332 100.0

Note: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Business
tax returns

include corporate income tax, various employment taxes, and other
types of returns on IRS' businessmaster file. aLess than one-tenth
of 1 percent. bFee accumulated by certain trusts and exempt
organizations for failure to file in a timely manner. cTrust fund
penalties are assessed against responsible individuals of a
business when they fail to pay IRS the taxes they withheld from
employees' earnings. dAbatements of penalties for intentional
disregard of the information return filing requirements (section

6721(e)) accounted for 54 percent of all other miscellaneous civil
penalty abatements over the 4years. The remaining 46 percent of
abatements were spread among numerous types of other

miscellaneous civil penalties. eNegligence includes any failure to
make a reasonable attempt to comply with the provisions of the

Code. Source: GAO compilation of IRS data.

Table IV.1: Number and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement--Individual and Business TaxReturns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 30 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 Average Penalty (IRC section) Amount Percent
Amount Percent Amount Percent Amount Percent Amount PercentFailure
to file (6651(a)(1)) $928 18.8 $1,278 21.3 $1,339 24.2 $1,363 28.4
$1,227 23.1

Estimated tax (6654 and 6655) 182 3.7 208 3.5 188 3.4 282 5.9 215
4.0 Failure to make tax deposit (6656) 1,831 37.2 2,493 41.5 2,182
39.4 1,343 28.0 1,962 36.9Failure to furnish taxpayer
identification

number (6723) a b a b a b a b a bDaily delinquency (6652(c)(2)(A))

c 55 1.1 58 1.0 55 1.0 110 2.3 70 1.3

Miscellaneous civil-trust fund (6672)d 722 14.7 635 10.6 668 12.1
621 13.0 662 12.4Miscellaneous civil-other (6721(e) and

others)e 631 12.8 607 10.1 590 10.7 596 12.4 606 11.4Incomplete
partnership return (6698) 125 2.5 67 1.1 22 0.4 7 0.2 55 1.0
Failure to pay (6651(a) (2)-(3)) 322 6.5 576 9.6 389 7.0 380 7.9
417 7.8 Bad check (6657) 2 b 2 b 4 0.1 10 0.2 5 0.1Tip income
(6652(b)) 1

b 1 b 1 b 1 b 1 b

Fraud (6663) 37 0.7 27 0.5 40 0.7 27 0.6 33 0.6Negligence
(6662(c))

f 89 1.8 57 0.9 62 1.1 56 1.2 66 1.2

Total penalty abatements $4,925 100.0 $6,009 100.0 $5,540 100.0
$4,795 100.0 $5,317 100.0 Interest abatements $2,647 100.0 $3,195
100.0 $2,788 100.0 $2,137 100.0 $2,692 100.0 Total $7,572 100.0
$9,204 100.0 $8,328 100.0 $6,932 100.0 $8,009 100.0

Note: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Business
tax returns

include corporate income tax, various employment taxes, and other
types of returns on IRS' businessmaster file. aLess than $1
million. bLess than one-tenth of 1 percent. cFee accumulated by
certain trusts and exempt organizations for failure to file in a
timely manner. dTrust fund penalties are assessed against
responsible individuals of a business when they fail to pay IRS
the taxes they withheld from employees' earnings. eAbatements of
penalties for intentional disregard of the information return
filing requirements (section

6721(e)) accounted for 78 percent of all other miscellaneous civil
penalty abatement amounts overthe 4 years. The remaining 22
percent of abatement amounts were spread among numerous types of

other miscellaneous civil penalties. fNegligence includes any
failure to make a reasonable attempt to comply with the provisions
of the

Code. Source: GAO compilation of IRS data.

Table IV.2: Amount and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement--Individual and Business TaxReturns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 31 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Penalty (IRC section)
Manual Computer Manual Computer Manual Computer Manual
ComputerFailure to file (6651(a)(1)) 55.3 44.7 53.3 46.7 51.5 48.5
48.8 51.2

Estimated tax (6654 and 6655) 87.1 12.9 84.8 15.2 83.2 16.8 82.0
18.0 Failure to make tax deposit (6656) 57.7 42.3 55.1 44.9 50.8
49.2 49.4 50.6Failure to furnish taxpayer identification number
(6723) 100.0 0 100.0 0 100.0 0 100.0 0

Daily delinquency (6652(c)(2)(A))a 100.0 0 100.0 0 100.0 0 100.0
0Miscellaneous civil-trust fund (6672)

b 100.0 0 100.0 0 100.0 0 100.0 0

Miscellaneous civil-other (6721(e) and others)c 100.0 0 100.0 0
100.0 0 100.0 0 Incomplete partnership return (6698) 0 100.0 0
100.0 0 100.0 0 100.0Failure to pay (6651(a) (2)-(3)) 15.4 84.6
12.4 87.6 12.1 87.9 13.9 86.1

Bad check (6657) 99.3 0.7 99.3 0.7 99.1 0.9 99.5 0.5Tip income
(6652(b)) 100.0 0 100.0 0 100.0 0 100.0 0 Fraud (6663) 100.0 0
100.0 0 100.0 0 100.0 0 Negligence (6662(c))d 100.0 0 100.0 0
100.0 0 100.0 0 Percent of total penalty abatements 43.9 56.1 39.3
60.7 38.4 61.6 36.8 63.2 Percent of interest abatements 4.9 95.1
2.7 97.3 1.3 98.7 4.2 95.8

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Business
tax returns

include corporate income tax, various employment taxes, and other
types of returns on IRS' businessmaster file.

IRS employees manually make decisions on abatements when taxpayers
establish that penaltyassessments are in error or they had
reasonable cause for being delinquent. IRS computers automatically
abate all or portions of penalty and interest assessments when IRS
reduces associatedtax or other penalty assessments or applies
timely payments to taxpayers' accounts. aFee accumulated by
certain trusts and exempt organizations for failure to file in a
timely manner.  bTrust fund penalties are assessed against
responsible individuals of a business when they fail to pay IRS
the taxes they withheld from employees' earnings. cAbatements of
penalties for intentional disregard of the information return
filing requirements (section

6721(e)) accounted for 54 percent of all other miscellaneous civil
penalty abatements over the 4years. The remaining 46 percent of
abatements were spread among numerous types of other

miscellaneous civil penalties. dNegligence includes any failure to
make a reasonable attempt to comply with the provisions of the

Code. Source: GAO compilation of IRS data.

Table IV.3: Percent of Penalty and Interest Abatements Computed
Manually and by Computer by Fiscal Year of Abatement--Individual
and Business Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 32 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Penalty (IRC section)
Manual Computer Manual Computer Manual Computer Manual
ComputerFailure to file (6651(a)(1)) 63.6 36.4 60.7 39.3 69.2 30.8
69.3 30.7

Estimated tax (6654 and 6655) 94.6 5.4 93.1 6.9 92.2 7.8 93.9 6.1
Failure to make tax deposit (6656) 83.7 16.3 84.9 15.1 77.7 22.3
72.0 28.0Failure to furnish taxpayer identification number (6723)
100.0 0 100.0 0 100.0 0 100.0 0

Daily delinquency (6652(c)(2)(A))a 100.0 0 100.0 0 100.0 0 100.0
0Miscellaneous civil-trust fund (6672)

b 100.0 0 100.0 0 100.0 0 100.0 0

Miscellaneous civil-other (6721(e) and others)c 100.0 0 100.0 0
100.0 0 100.0 0 Incomplete partnership return (6698) 0 100.0 0
100.0 0 100.0 0 100.0Failure to pay (6651(a) (2)-(3)) 39.2 60.8
56.0 44.0 40.7 59.3 39.8 60.2

Bad check (6657) 92.9 7.1 99.7 0.3 99.8 0.2 99.9 0.1Tip income
(6652(b)) 100.0 0 100.0 0 100.0 0 100.0 0 Fraud (6663) 100.0 0
100.0 0 100.0 0 100.0 0 Negligence (6662(c))d 100.0 0 100.0 0
100.0 0 100.0 0 Percent of total penalty abatement amounts 80.4
19.6 79.8 20.2 78.9 21.1 78.1 21.9 Percent of interest abatements
54.6 45.4 50.8 49.2 51.2 48.8 43.1 56.9

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Business
tax returns

include corporate income tax, various employment taxes, and other
types of returns on IRS' businessmaster file.

IRS employees manually make decisions on abatements when taxpayers
establish that penaltyassessments are in error or they had
reasonable cause for being delinquent. IRS computers automatically
abate all or portions of penalty and interest assessments when IRS
reduces associatedtax or other penalty assessments or applies
timely payments to taxpayers' accounts. aFee accumulated by
certain trusts and exempt organizations for failure to file in a
timely manner. .bTrust fund penalties are assessed against
responsible individuals of a business when they fail to pay IRS
the taxes they withheld from employees' earnings. cAbatements of
penalties for intentional disregard of the information return
filing requirements (section

6721(e)) accounted for 78 percent of all other miscellaneous civil
penalty abatement amounts overthe 4 years. The remaining 22
percent of abatement amounts were spread among numerous types of

other miscellaneous civil penalties. dNegligence includes any
failure to make a reasonable attempt to comply with the provisions
of the

Code. Source: GAO compilation of IRS data.

Table IV.4: Percent of Amount of Penalty and Interest Abatements
Computed Manually and by Computer by Fiscal Year ofAbatement--
Individual and Business Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 33 GAO/GGD-99-77 IRS' Abatement of Assessments Tables IV.5-
IV.27 show abatements of penalty and/or interest on individualtax
returns, including returns with Schedule C, business income, and
Schedule F, farm income.

Fiscal year of abatement 1995 1996 1997 1998 Average Penalty (IRC
section) Number Percent Number Percent Number Percent Number
Percent Number Percent Failure to file (6651(a)(1)) 436,914 22.3
446,479 23.5 443,776 23.5 445,699 18.8 443,217 21.8Estimated tax
(6654 and 6655) 251,326 12.9 232,023 12.2 212,444 11.2 207,312 8.7
225,776 11.1

Failure to make tax deposit (6656) a a a a a a a a a a Failure to
furnish taxpayeridentification number (6723) 504

a 432 a 237 a 101 a 319 a

Daily delinquency (6652(c)(2)(A))b a a a a a a a a a
aMiscellaneous civil-trust fund

(6672)c 229,630 11.7 187,250 9.9 222,502 11.8 255,453 10.8 223,709
11.0Miscellaneous civil-other (6662(d)- (h)) and others)d 23,015
1.2 18,666 1.0 18,273 1.0 23,853 1.0 20,952 1.0Incomplete
partnership return (6698) a a a a a a a a a aFailure to pay
(6651(a) (2)-(3)) 953,200 48.7 969,139 51.0 958,255 50.7 1,413,773
59.6 1,073,592 52.9 Bad check (6657) 11,133 0.6 11,354 0.6 10,887
0.6 11,359 0.5 11,183 0.6Tip income (6652(b)) 2,569 0.1 3,113 0.2
2,562 0.1 1,729 0.1 2,493 0.1 Fraud (6663) 1,367 0.1 907 a 795 a
749 a 955 a Negligence (6662(c))e 45,914 2.3 29,429 1.5 19,246 1.0
13,275 0.6 26,966 1.3 Total penalty abatements 1,955,572 100.0
1,898,792 100.0 1,888,977 100.0 2,373,303 100.0 2,029,161 100.0
Interest abatements 1,698,182 100.0 1,717,690 100.0 2,103,189
100.0 2,167,071 100.0 1,921,533 100.0 Total 3,653,754 100.0
3,616,482 100.0 3,992,166 100.0 4,540,374 100.0 3,950,694 100.0

Note: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

aDoes not apply. bFee accumulated by certain trusts and exempt
organizations for failure to file in a timely manner. cTrust fund
penalties are assessed against responsible individuals of a
business when they fail to pay IRS the taxes they withheld from
employees' earnings. dFrom fiscal year 1995 through 1998,
abatements of accuracy penalties (section 6662(d)-(h))

accounted for an average of 89 percent of other miscellaneous
civil penalty abatements. Theremaining abatements, averaging 11
percent, were spread over numerous types of other

miscellaneous civil penalties. eNegligence includes any failure to
make a reasonable attempt to comply with the provisions of the

Code. Source: GAO compilation of IRS data.

Table IV.5: Number and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 34 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 Average Penalty (IRC section) Amount Percent
Amount Percent Amount Percent Amount Percent Amount Percent
Failure to file (6651(a)(1)) $322 22.2 $365 27.5 $362 26.8 $507
34.9 $389 27.9Estimated tax (6654 and 6655) 106 7.3 86 6.5 84 6.2
97 6.7 93 6.7

Failure to make tax deposit (6656) a a a a a a a a a aFailure to
furnish taxpayer identification number (6723) b c b c b c b c b c
Daily delinquency (6652(c)(2)(A))d a a a a a a a a a
aMiscellaneous civil-trust fund (6672)

e 722 49.6 635 47.8 668 49.4 621 42.8 662 47.4

Miscellaneous civil-other (6662(d)-(h) andothers)f 66 4.5 54 4.1
46 3.4 55 3.8 55 4.0

Incomplete partnership return (6698) a a a a a a a a a a Failure
to pay (6651(a) (2)-(3)) 117 8.0 108 8.2 103 7.6 115 7.9 111
7.9Bad check (6657) 1 0.1 2 0.1 2 0.1 3 0.2 2 0.1

Tip income (6652(b)) 1 c 1 0.1 1 0.1 1 c 1 0.1Fraud (6663) 32 2.2
24 1.8 37 2.8 25 1.8 30 2.1 Negligence (6662(c))g 87 6.0 54 4.1 49
3.6 27 1.9 55 3.9 Total penalty abatements $1,454 100.0 $1,329
100.0 $1,353 100.0 $1,452 100.0 $1,397 100.0 Interest abatements
$927 100.0 $820 100.0 $816 100.0 $756 100.0 $830 100.0 Total
$2,382 100.0 $2,150 100.0 $2,168 100.0 $2,208 100.0 $2,227 100.0

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Amounts may not sum to totals because of rounding. aDoes not
apply.

bLess than $1 million. cLess than one-tenth of 1 percent. dFee
accumulated by certain trusts and exempt organizations for failure
to file in a timely manner. eTrust fund penalties are assessed
against responsible individuals of a business when they fail to
pay IRS the taxes they withheld from employees' earnings. fFrom
fiscal year 1995 through 1998, abatements of accuracy penalties
(section 6662(d)-(h))

accounted for an average of 78 percent of abatement amounts for
other miscellaneous civil penaltyabatements. The remaining
abatement amounts, averaging 22 percent, were spread over numerous

types of other miscellaneous civil penalties. eNegligence includes
any failure to make a reasonable attempt to comply with the
provisions of the

Code. Source: GAO compilation of IRS data.

Table IV.6: Amount and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 35 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Penalty (IRC section)
Manual Computer Manual Computer Manual Computer Manual
ComputerFailure to file (6651(a)(1)) 62.1 37.9 58.9 41.1 51.7 48.3
47.7 52.3

Estimated tax (6654 and 6655) 88.1 11.9 85.0 15.0 83.2 16.8 81.3
18.7 Failure to make tax deposit (6656) a a a a a a a aFailure to
furnish taxpayer identification number (6723) 100.0 0 100.0 0
100.0 0 100.0 0

Daily delinquency (6652(c)(2)(A))b a a a a a a a aMiscellaneous
civil-trust fund (6672)

c 100.0 0 100.0 0 100.0 0 100.0 0

Miscellaneous civil-other (6662(d)-(h) and others)d 100.0 0 100.0
0 100.0 0 100.0 0 Incomplete partnership return (6698) a a a a a a
a aFailure to pay (6651(a) (2)-(3)) 19.3 80.7 15.8 84.2 14.4 85.6
16.1 83.9

Bad check (6657) 100.0 0 100.0 0 100.0 0 100.0 0Tip income
(6652(b)) 100.0 0 100.0 0 100.0 0 100.0 0 Fraud (6663) 100.0 0
100.0 0 100.0 0 100.0 0 Negligence (6662(c))e 100.0 0 100.0 0
100.0 0 100.0 0 Percent of total penalty abatements 50.6 49.4 45.5
54.5 43.3 56.7 38.6 61.4 Percent of interest abatements 7.4 92.6
3.9 96.1 1.4 98.6 6.0 94.0

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

IRS employees manually make decisions on abatements when taxpayers
establish that penaltyassessments are in error or they had
reasonable cause for being delinquent. IRS computers automatically
abate all or portions of penalty and interest assessments when IRS
reduces associatedtax or other penalty assessments or applies
timely payments to taxpayers' accounts. aDoes not apply. bFee
accumulated by certain trusts and exempt organizations for failure
to file in a timely manner. cTrust fund penalties are assessed
against responsible individuals of a business when they fail to
pay IRS the taxes they withheld from employees' earnings. dFrom
fiscal year 1995 through 1998, abatements of accuracy penalties
(section 6662(d)-(h))

accounted for an average of 89 percent of other miscellaneous
civil penalty abatements. Theremaining abatements, averaging 11
percent, were spread over numerous types of other

miscellaneous civil penalties. eNegligence includes any failure to
make a reasonable attempt to comply with the provisions of the

Code. Source: GAO compilation of IRS data.

Table IV.7: Percent of Penalty and Interest Abatements Computed
Manually and by Computer by Fiscal Year of Abatement--Individual
Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 36 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Penalty (IRC section)
Manual Computer Manual Computer Manual Computer Manual
ComputerFailure to file (6651(a)(1)) 73.4 26.6 72.0 28.0 68.0 32.0
76.7 23.3

Estimated tax (6654 and 6655) 92.1 7.9 86.5 13.5 85.6 14.4 86.1
13.9 Failure to make tax deposit (6656) a a a a a a a aFailure to
furnish taxpayer identification number (6723) 100.0 0 100.0 0
100.0 0 100.0 0

Daily delinquency (6652(c)(2)(A))b 0 0 0 0 0 0 0 0Miscellaneous
civil-trust fund (6672)

c 100.0 0 100.0 0 100.0 0 100.0 0

Miscellaneous civil-other (6662(d)-(h) and others)d 100.0 0 100.0
0 100.0 0 100.0 0 Incomplete partnership return (6698) a a a a a a
a aFailure to pay (6651(a) (2)-(3)) 53.6 46.4 49.6 50.4 46.1 53.9
48.5 51.5

Bad check (6657) 100.0 0 100.0 0 100.0 0 100.0 0Tip income
(6652(b)) 100.0 0 100.0 0 100.0 0 100.0 0 Fraud (6663) 100.0 0
100.0 0 100.0 0 100.0 0 Negligence (6662(c))e 100.0 0 100.0 0
100.0 0 100.0 0 Percent of total penalty abatement amounts 89.8
10.2 87.3 12.7 86.4 13.6 86.9 13.1 Percent of interest abatements
49.6 50.4 36.7 63.3 27.5 72.5 18.0 82.0

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

IRS employees manually make decisions on abatements when taxpayers
establish that penaltyassessments are in error or they had
reasonable cause for being delinquent. IRS computers automatically
abate all or portions of penalty and interest assessments when IRS
reduces associatedtax or other penalty assessments or applies
timely payments to taxpayers' accounts. aDoes not apply. bFee
accumulated by certain trusts and exempt organizations for failure
to file in a timely manner. cTrust fund penalties are assessed
against responsible individuals of a business when they fail to
pay IRS the taxes they withheld from employees' earnings dFrom
fiscal year 1995 through 1998, abatements of accuracy penalties
(section 6662(d)-(h))

accounted for an average of 78 percent of abatement  amounts for
other miscellaneous civil penaltyabatements. The remaining
abatement amounts, averaging 22 percent, were spread over numerous

types of other miscellaneous civil penalties. eNegligence includes
any failure to make a reasonable attempt to comply with the
provisions of the

Code. Source: GAO compilation of IRS data.

Table IV.8: Percent of Amount of Penalty and Interest Abatements
Computed Manually and by Computer by Fiscal Year ofAbatement--
Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 37 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 TotalIncome level reported on original return
Number Amount Number Amount Number Amount Number Amount Number
Amount Individual nonbusiness1040A TPI < $25,000 588,579 $281
621,497 $304 574,650 $315 576,303 $339

2,361,029 $1,239Non-1040A TPI < $25,000 131,526 17 144,810 12
138,390 17 182,419 13

597,145 59TPI $25,000 < $50,000 249,616 36 251,466 28 268,271 26
389,746 36 1,159,099 126TPI $50,000 < $100,000 182,982 43 194,341
36 213,875 39 295,568 43

886,766 161TPI $100,000 or more 202,668 165 173,992 144 149,475
167 199,977 184 726,112 660   Subtotal 1,355,371 $542 1,386,106
$524 1,344,661 $563 1,644,013 $616 5,730,151 $2,245 Individual
businessa C-TGR < $25,000 90,291 $13 82,830 $28 87,814 $7 125,285
$89 386,220 $138 C-TGR $25,000 < $100,000 153,361 55 131,533 37
127,896 27 198,049 36 610,839 156 C-TGR $100,000 or more 104,699
94 93,384 76 87,281 70 131,299 73 416,663 314 F-TGR < $100,000
5,435 1 5,071 1 5,083 1 6,326 1 21,915 4 F-TGR 100,000 or more
7,023 5 5,291 4 8,443 4 7,111 4 27,868 16   Subtotal 360,809 $169
318,109 $146 316,517 110 468,070 $203 1,463,505 $628 Income level
not availableb 239,392 $743 194,577 $659 227,799 $680 261,220 $633
922,988 $2,715 Total penalty abatements 1,955,572 $1,454 1,898,792
$1,330 1,888,977 $1,352 2,373,303 $1,452 8,116,644 $5,588

Legend

1040A = Nonbusiness returns filed by individualsTPI = Total
positive income (income reported as a positive on tax return
tables)

C-TGR = Form 1040 Schedule C (profit or loss from business) total
gross receiptsF-TGR = Form 1040 Schedule F (profit or loss from
farming) total gross receipts

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Totals are
based on abatements, not returns. Amounts may not sum to totals
because of rounding. aReturns with Schedules C or F may be
categorized as nonbusiness rather than business if the

reported primary source of income was wages, investments, and
other nonbusiness income. bIncome level was not available on
certain miscellaneous civil penalties.

Source: GAO compilation of IRS data.

Table IV.9: Number and Amount of Penalty Abatements by Income
Level and by Fiscal Year of Abatement--Individual TaxReturns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 38 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 TotalIncome level reported on original return
Number Amount Number Amount Number Amount Number Amount Number
Amount Individual nonbusiness1040A TPI < $25,000 484,237 $349
514,806 $349 557,349 $383 509,310 $385

2,065,702 $1,467Non-1040A TPI < $25,000 157,246 27 171,338 14
181,239 18 190,116 12

699,939 71TPI $25,000 < $50,000 298,861 44 299,003 39 448,283 31
474,163 28 1,520,310 142TPI $50,000 < $100,000 217,128 54 227,703
34 377,843 34 391,470 36 1,214,144 158TPI $100,000 or more 232,091
214 206,216 168 186,352 225 210,826 158

835,485 765   Subtotal 1,389,563 $688 1,419,066 $604 1,751,066
$692 1,775,885 $619 6,335,580 $2,603 Individual businessa C-TGR <
$25,000 76,600 $13 79,089 $11 98,780 $6 102,707 $8 357,176 $39 C-
TGR $25,000 < $100,000 116,553 48 111,696 31 139,782 19 159,651 27
527,682 125 C-TGR $100,000 or more 88,756 124 83,745 88 87,724 68
104,220 73 364,445 353 F-TGR < $100,000 6,442 3 5,808 1 6,790 1
7,177 1 26,217 6 F-TGR 100,000 or more 6,766 6 6,045 8 7,038 8
7,733 3 27,582 24   Subtotal 295,117 $195 286,383 $139 340,114
$101 381,488 $112 1,303,102 $546 Income level not availableb
13,502 45 12,241 77 12,009 23 9,698 25 47,450 169 Total interest
abatements 1,698,182 $927 1,717,690 $820 2,103,189 $816 2,167,071
$756 7,686,132 $3,319

Legend

1040A = Nonbusiness returns filed by individualsTPI = Total
positive income (income reported as a positive on tax return
tables)

C-TGR = Form 1040 Schedule C (profit or loss from business) total
gross receiptsF-TGR = Form 1040 Schedule F (profit or loss from
farming) total gross receipts

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income. Totals are
based on abatements, not returns. Amounts may not sum to totals
because of rounding. aReturns with Schedules C or F may be
categorized as nonbusiness rather than business if the

reported primary source of income was wages, investments, and
other nonbusiness income. bIncome level was not available on
certain miscellaneous civil penalties.

Source: GAO compilation of IRS data.

Table IV.10: Number and Amount of Interest Abatements by Income
Level and by Fiscal Year of Abatement--Individual TaxReturns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 39 GAO/GGD-99-77 IRS' Abatement of Assessments Tables IV.11-
IV.14 show information on the number and amount of penaltyand
interest abatements by tax year of return.

Fiscal year of abatement Tax year of return 1995 1996 1997 1998
Total Before 1980a 3,379 1,805 856 1,074 7,114 1980-84 89,553
44,039 26,661 25,959 186,212 1985-89 443,094 277,406 202,511
219,915 1,142,926 1990 167,701 110,988 84,803 86,073 449,565 1991
229,634 152,397 104,899 102,122 589,052 1992 218,807 253,154
169,260 134,375 775,596 1993 409,116 258,460 194,973 174,236
1,036,785 1994 393,350 360,043 188,916 175,891 1,118,200 1995 938
439,097 409,480 285,014 1,134,529 1996 b 1,403 505,005 682,380
1,188,788 1997 b b 1,613 484,471 486,084 1998 b b b 1,793 1,793
Total penalty abatements 1,955,572 1,898,792 1,888,977 2,373,303
8,116,644 Notes: Individual tax returns are Form 1040, Federal
Individual Income Tax Returns, including thosewith Schedule C,
sole proprietor business income and Schedule F, farm income.

Totals are based on abatements, not returns. aEarliest tax year
was 1962.

bDoes not apply.

Source: GAO compilation of IRS data.

Dollars in Millions Fiscal year of abatement Tax year of return
1995 1996 1997 1998 Total Before 1980a $9 $6 $5 $3 $23 1980-84 151
81 71 40 343 1985-89 522 357 259 210 1,348 1990 162 131 95 82 469
1991 184 153 121 107 565 1992 155 188 157 118 618 1993 217 161 194
150 722 1994 53 165 156 146 521 1995 1 86 209 150 447 1996 b c 84
238 323 1997 b b 1 208 2091998

b b b c c

Total penalty abatements $1,454 $1,330 $1,352 $1,452 $5,588 Notes:
Individual tax returns are Form 1040, Federal Individual Income
Tax Returns, including thosewith Schedule C, sole proprietor
business income and Schedule F, farm income.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. aEarliest tax year was 1962.

bDoes not apply. cLess than $1 million.

Source: GAO compilation of IRS data.

Table IV.11: Number of PenaltyAbatements by Tax Year and Fiscal
Year of Abatement--Individual Tax Returns

Table IV.12: Amount of PenaltyAbatements by Tax Year and Fiscal
Year of Abatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 40 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement Tax year of return 1995 1996 1997 1998
Total Before 1980a 2,922 1,759 960 670 6,311 1980-84 34,093 19,826
14,392 8,877 77,188 1985-89 213,403 128,271 94,432 57,102 493,208
1990 111,210 65,093 47,409 28,565 252,277 1991 214,662 102,249
61,941 37,114 415,966 1992 238,902 239,965 134,261 64,442 677,570
1993 435,155 295,705 195,749 108,128 1,034,737 1994 447,362
380,853 195,589 134,077 1,157,881 1995 473 483,121 410,139 265,857
1,159,590 1996 b 848 947,431 660,200 1,608,479 1997 b b 886
801,287 802,173 1998 b b b 752 752 Total interest abatements
1,698,182 1,717,690 2,103,189 2,167,071 7,686,132 Notes:
Individual tax returns are Form 1040, Federal Individual Income
Tax Returns, including thosewith Schedule C, sole proprietor
business income and Schedule F, farm income.

Totals are based on abatements, not returns.  aEarliest tax year
was 1962.

bDoes not apply.

Source: GAO compilation of IRS data.

Dollars in millions Fiscal year of abatement Tax year of return
1995 1996 1997 1998 Total Before 1980a $82 $43 $25 $19 $169 1980-
84 278 168 183 114 742 1985-89 355 303 238 180 1,077 1990 65 58 59
55 236 1991 65 59 52 55 231 1992 22 84 80 63 250 1993 45 59 90 93
287 1994 15 31 33 63 142 1995 b 15 33 40 89 1996 c b 21 55 77 1997
c c b 19 191998

c c c b b

Total interest abatements $927 $820 $816 $756 $3,319 Notes:
Individual tax returns are Form 1040, Federal Individual Income
Tax Returns, including thosewith Schedule C, sole proprietor
business income and Schedule F, farm income.

Totals are based on abatements, not returns. Amounts may not sum
to totals because of rounding. aEarliest tax year was 1962.

bLess than $1 million. cDoes not apply.

Source: GAO compilation of IRS data.

Table IV.13: Number of InterestAbatements by Tax Year and Fiscal
Year of Abatement--Individual Tax Returns

Table IV.14: Amount of InterestAbatements by Tax Year and Fiscal
Year of Abatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 41 GAO/GGD-99-77 IRS' Abatement of Assessments Tables IV.15-
IV.21 show information on selected return characteristics
forpenalties and/or interest abatements. Tables IV.19-IV.21 show
the characteristics for abatements of three specific types of
penalties.

Filing status Fiscal year of penalty andinterest abatement Number
ofreturns Single Married, filingjointly Married, filingseparately
Head ofhousehold Widow(er) withdependent child Total

1995 a a a a a a a1996

a a a a a a a

1997 2,319,461 29.1% 52.5% 4.9% 13.5% 0.1% 100% 1998 2,721,264
31.6 50.9 5.3 12.2 0.1 100

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages may not sum to 100 because of rounding. aIRS was
unable to reconstruct the filing status data from its historical
files within the time frames of

our review. Source: GAO compilation of IRS data.

Selected characteristic Fiscal year of penaltyand interest
abatement Number ofreturns Primary taxpayerover age 65 Substitute
forreturn prepared Paid preparer onoriginal return Earned income
crediton original return

1995 1,918,078 8.5% 12.5% 52.1% 3.9% 1996 1,933,715 9.3 13.8 50.8
4.3 1997 2,319,461 8.5 10.6 48.2 3.81998 2,721,264 8.6 7.0 52.8
4.9

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.
Percentages should not be totaled because abatements could occur
on returns with more than oneselected characteristic. Source: GAO
compilation of IRS data.

Table IV.15: Distribution of Returns With Penalty and Interest
Abatements by Filing Status and Fiscal Year of Abatement--
Individual Tax Returns Table IV.16: Distribution of Returns With
Penalty and Interest Abatements by Selected Characteristic and
Fiscal Year ofAbatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 42 GAO/GGD-99-77 IRS' Abatement of Assessments

Selected characteristic Fiscal year of penaltyabatement Number
ofreturns Primary taxpayerover age 65 Substitute forreturn
prepared Paid preparer onoriginal return Earned income crediton
original return

1995 1,329,636 8.2% 16.7% 51.7% 2.9% 1996 1,351,348 9.1 18.5 49.7
3.11997 1,331,583 10.0 16.4 49.1 3.4

1998 1,761,327 9.1 9.6 55.1 4.9

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could occur
on returns with more than oneselected characteristic. Source: GAO
compilation of IRS data.

Selected characteristic Fiscal year of interestabatement Number
ofreturns Primary taxpayerover age 65 Substitute forreturn
prepared Paid preparer onoriginal return Earned income crediton
original return

1995 1,576,967 8.7% 12.5% 53.0% 2.4%1996 1,595,320 9.5 13.7 51.7
2.6 1997 1,954,573 8.4 10.1 48.3 2.3 1998 2,000,680 9.0 6.9 51.6
2.4

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could occur
on returns with more than oneselected characteristic. Source: GAO
compilation of IRS data.

Table IV.17: Distribution of Returns With Penalty Abatements by
Selected Characteristic and Fiscal Year of Abatement--Individual
Tax Returns Table IV.18: Distribution of Returns With Interest
Abatements by Selected Characteristic and Fiscal Year of
Abatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 43 GAO/GGD-99-77 IRS' Abatement of Assessments

Selected characteristic Fiscal year of failure tofile penalty
abatement Number ofreturns Primary taxpayerover age 65 Substitute
forreturn prepared Paid preparer onoriginal return Earned income
crediton original return

1995 429,811 3.7% 46.9% 30.0% 1.2% 1996 439,040 4.3 52.6 27.1
1.21997 434,432 5.1 45.0 31.0 1.9

1998 433,415 5.7 30.8 39.5 2.3

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could occur
on returns with more than oneselected characteristic. Source: GAO
compilation of IRS data.

Selected characteristic Fiscal year of estimatedpayment penalty
abatement Number ofreturns Primary taxpayerover age 65 Substitute
forreturn prepared Paid preparer onoriginal return Earned income
crediton original return

1995 249,270 8.8% 38.0% 41.5% 0.4%1996 230,018 9.3 44.2 34.1 0.4
1997 210,414 12.3 39.8 36.9 0.4 1998 205,031 15.3 30.5 42.4 0.3

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could occur
on returns with more than oneselected characteristic. Source: GAO
compilation of IRS data.

Selected characteristic Fiscal year of failure topay penalty
abatement Number ofreturns Primary taxpayerover age 65 Substitute
forreturn prepared Paid preparer onoriginal return Earned income
crediton original return

1995 914,793 9.5% 4.5% 63.3% 3.1%1996 933,188 10.9 5.0 61.9 3.5
1997 920,358 11.6 5.6 58.9 3.51998 1,355,750 9.6 4.1 61.4 5.1

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.
Percentages should not be totaled because abatements could occur
on returns with more than oneselected characteristic. Source: GAO
compilation of IRS data.

Table IV.19: Distribution of Returns With Failure to File Penalty
Abatements by Selected Characteristic and Fiscal Year ofAbatement-
-Individual Tax Returns Table IV.20: Distribution of Returns With
Estimated Payment Penalty Abatements by Selected Characteristic
and Fiscal Year ofAbatement--Individual Tax Returns Table IV.21:
Distribution of Returns With Failure to Pay Penalty Abatements by
Selected Characteristic and Fiscal Year ofAbatement--Individual
Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 44 GAO/GGD-99-77 IRS' Abatement of Assessments Tables IV.22-
IV.27 show information on the number or amount ofabatements by
selected IRS activities for penalties and interest combined, or
separately for penalty and interest on individual returns.

Selected IRS activityaFiscal year ofpenalty and interestabatement
Number ofabatements Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 3,653,754 10.5% 15.8% 30.1% 2.0% 97.6% 6.7% 0.2%1996
3,616,482 11.1 17.7 31.1 0.9 97.7 4.0 0.1

1997 3,992,166 10.1 14.2 26.3 0.3 98.0 2.7 0.11998 4,540,374 10.7
9.2 22.5 0.2 97.7 3.0 0.1

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.
Percentages should not be totaled because abatements could be
preceded by more than oneselected IRS activity. aIRS activity that
occurred before the abatement. bIncludes audits that are still
open and audits closed with a change in tax assessments or no
change in tax assessments. cReturn prepared by IRS based on third
party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy cases

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table IV.22: Distribution of Number of Penalty and Interest
Abatements on Returns Associated With Selected IRS Activity
byFiscal Year of Abatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 45 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions

Selected IRS activityaFiscal yearof penalty

and interestabatement Amount ofabatements Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 $2,382 34.6% 16.4% 48.1% 9.2% 98.8% 25.2% 4.8%1996 $2,150
34.8 21.4 49.6 4.7 98.9 19.3 2.7

1997 $2,168 35.8 22.7 50.7 1.9 98.9 15.9 4.11998 $2,208 35.5 21.8
44.1 1.3 98.3 12.9 2.3

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.
Percentages should not be totaled because abatements could be
preceded by more than oneselected IRS activity. aIRS activity that
occurred before the abatement. bIncludes audits that are still
open and audits closed with a change in tax assessments or no
change in tax assessments. cReturn prepared by IRS based on third-
party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table IV.23: Distribution of Amount of Penalty and Interest
Abatements on Returns Associated With Selected IRS Activity
byFiscal Year of Abatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 46 GAO/GGD-99-77 IRS' Abatement of Assessments

Selected IRS activityaFiscal year of penaltyabatement Number
ofabatements Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 1,955,572 11.0% 18.6% 27.6% 2.5% 97.9% 8.5% 0.3% 1996
1,898,792 11.0 21.1 29.2 1.1 98.0 5.3 0.21997 1,888,977 10.3 18.4
25.8 0.4 97.3 3.9 0.1

1998 2,373,303 11.4 11.2 20.3 0.3 97.1 4.4 0.1

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could be
preceded by more than oneselected IRS activity. aIRS activity that
occurred before the abatement. bIncludes audits that are still
open and audits closed with a change in tax assessments or no
change in tax assessments. cReturn prepared by IRS based on third-
party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table IV.24: Distribution of Number of Penalty Abatements on
Returns Associated With Selected IRS Activity by Fiscal Year
ofAbatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 47 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions

Selected IRS activityaFiscal year of penaltyabatement Amount
ofabatements Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 $1,454 20.6% 13.1% 28.7% 9.1% 98.7% 18.9% 2.9% 1996 1,330
21.1 17.0 30.7 4.9 99.0 15.4 1.81997 1,352 22.3 17.1 31.1 2.0 98.0
12.5 2.9

1998 1,452 22.2 14.4 26.1 1.2 98.6 10.7 1.4

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could be
preceded by more than oneselected IRS activity. aIRS activity that
occurred before the abatement. bIncludes audits that are still
open and audits closed with a change in tax assessments or no
change in tax assessments. cReturn prepared by IRS based on third
party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table IV.25: Distribution of Amount of Penalty Abatements on
Returns Associated With Selected IRS Activity by Fiscal Year
ofAbatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 48 GAO/GGD-99-77 IRS' Abatement of Assessments

Selected IRS activityaFiscal year of interestabatement Number
ofabatements Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 1,698,182 10.0% 12.6% 33.0% 1.4% 97.4% 4.7% 0.2% 1996
1,717,690 11.2 13.8 33.2 0.6 97.4 2.7 0.11997 2,103,189 9.9 10.3
26.8 0.2 98.6 1.6 0.1

1998 2,167,071 10.1 7.1 24.8 0.1 98.3 1.4 0.1

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could be
preceded by more than oneselected IRS activity. aIRS activity that
occurred before the abatement. bIncludes audits that are still
open and audits closed with a change in tax assessments or no
change in tax assessments. cReturn prepared by IRS based on third
party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table IV.26: Distribution of Number of Interest Abatements on
Returns Associated With Selected IRS Activity by Fiscal Year
ofAbatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 49 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions

Selected IRS activityaFiscal year of interestabatement Amount
ofabatements Auditindicator

b Substitutefor returnc Additional taxassessmentsd Offer-in-
compromisee Collectionf Litigationg Criminalinvestigationh

1995 $927 56.7% 21.4% 78.5% 9.6% 99.1% 35.1% 7.7% 1996 820 57.1
28.6 80.3 4.3 98.8 25.5 4.21997 816 58.2 32.1 83.3 1.8 99.0 21.5
6.2

1998 756 61.1 36.0 78.8 1.3 97.7 17.3 4.1

Notes: Individual tax returns are Form 1040, Federal Individual
Income Tax Returns, including thosewith Schedule C, sole
proprietor business income and Schedule F, farm income.

Percentages should not be totaled because abatements could be
preceded by more than oneselected IRS activity. aIRS activity that
occurred before the abatement. bIncludes audits that are still
open and audits closed with a change in tax assessments or no
change in tax assessments. cReturn prepared by IRS based on third
party information of income paid to a nonfiler.

dIRS makes additional tax assessments after the original tax
assessment because of an IRS enforcement action, such as an audit,
or a taxpayer action, such as filing amended returns. eIRS and
taxpayer had reached an agreement on the portion of unpaid
assessments the taxpayer

would pay. fReturn was in collection stream (notices, installment
agreements, delinquent accounts). Abatements

on full paid returns result in refunds to taxpayers and would not
be in collection status. gReturn was in some phase of the
litigation process--open or closed. Would include bankruptcy
cases,

and cases settled or closed before trial. hIRS investigation of
criminal wrongdoing associated with the return. Includes cases
open and closed,

including those without further action by IRS. Source: GAO
compilation of IRS data.

Table IV.27: Distribution of Amount of Interest Abatements on
Returns Associated With Selected IRS Activity by Fiscal Year
ofAbatement--Individual Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 50 GAO/GGD-99-77 IRS' Abatement of Assessments Tables IV.28-
IV.55 show information on penalty and interest abatements
onbusiness tax returns. Tables on corporate income tax, employment
tax, and other business tax returns, generally, are subsets of the
tables titledbusiness tax returns.

Fiscal year of abatement 1995 1996 1997 1998 Average Penalty (IRC
section) Number Percent Number Percent Number Percent Number
Percent Number Percent Failure to file (6651(a)(1)) 388,319 16.0
375,819 15.1 391,828 16.6 375,457 16.1 382,856 15.9 Estimated tax
(6654 and 6655) 26,737 1.1 29,105 1.2 31,992 1.4 36,730 1.6 31,141
1.3 Failure to make tax deposit (6656) 866,594 35.6 809,347 32.5
773,695 32.7 740,374 31.7 797,503 33.2Failure to furnish taxpayer

identification number (6723) a a a a a a a a a a Daily delinquency
(6652(c)(2)(A))b 39,644 1.6 39,829 1.6 38,905 1.6 58,106 2.5
44,121 1.8Miscellaneous civil-trust fund

(6672)c a a a a a a a a a a Miscellaneous civil-other (6721(e)and
others)d 63,818 2.6 62,415 2.5 43,474 1.8 48,027 2.1 54,434 2.3

Incomplete partnership return(6698) 4,661 0.2 3,321 0.1 3,077 0.1
2,339 0.1 3,350 0.1 Failure to pay (6651(a) (2)-(3)) 1,038,745
42.7 1,169,099 46.9 1,076,456 45.6 1,062,182 45.5 1,086,621 45.2
Bad check (6657) 2,037 0.1 1,977 0.1 2,879 0.1 8,665 0.4 3,890
0.2Tip income (6652(b))

a a a a a a a a a a

Fraud (6663) 226 e 259 e 217 e 88 e 198 e Negligence (6662(c))f
485 e 453 e 369 e 210 e 379 e Total penalty abatements 2,431,266
100.0 2,491,624 100.0 2,362,892 100.0 2,332,178 100.0 2,404,490
100.0 Interest abatements 1,376,550 100.0 1,499,031 100.0
1,403,958 100.0 1,365,054 100.0 1,411,148 100.0 Total 3,807,816
100.0 3,990,655 100.0 3,766,850 100.0 3,697,232 100.0 3,815,638
100.0

Note: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

aDoes not apply. bFee accumulated by certain trusts and exempt
organizations for failure to file in a timely manner. cTrust fund
penalties are assessed against responsible individuals of a
business when they fail to pay IRS the taxes they withheld from
employees' earnings. dFrom fiscal year 1995 through 1998,
abatements of penalties for intentional disregard of the

information return filing requirements (section 6721(e)) accounted
for an average of 75 percent ofother miscellaneous civil penalty
abatements. The remaining abatements, averaging 25 percent, were

spread over numerous types of other miscellaneous civil penalties.
eLess than one-tenth of 1 percent.

fNegligence includes any failure to make a reasonable attempt to
comply with the provisions of the Code. Source: GAO compilation of
IRS data.

Table IV.28: Number and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement--Business Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 51 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 Average Penalty (IRC section) Amount Percent
Amount Percent Amount Percent Amount Percent Amount Percent
Failure to file (6651(a)(1)) $606 17.5 $913 19.5 $977 23.3 $855
25.6 $838 21.4 Estimated tax (6654 and 6655) 76 2.2 122 2.6 103
2.5 184 5.5 122 3.1 Failure to make tax deposit (6656) 1,831 52.7
2,493 53.3 2,182 52.1 1,343 40.2 1,962 50.0Failure to furnish
taxpayer identification

number (6723) a a a a a a a a a a Daily delinquency
(6652(c)(2)(A))b 55 1.6 58 1.2 55 1.3 110 3.3 70 1.8Miscellaneous
civil-trust fund (6672)

c a a a a a a a a a a

Miscellaneous civil-other (6721(e) andothers)

d 566 16.3 553 11.8 545 13.0 540 16.2 551 14.1

Incomplete partnership return (6698) 125 3.6 67 1.4 22 0.5 7 0.2
55 1.4 Failure to pay (6651(a) (2)-(3)) 205 5.9 467 10.0 286 6.8
264 7.9 306 7.8 Bad check (6657) 1 e 1 e 2 e 7 0.2 3 0.1Tip income
(6652(b))

a a a a a a a a a a

Fraud (6663) 5 0.1 4 0.1 3 0.1 1 e 3 0.1 Negligence (6662(c))f 2
0.1 3 0.1 13 0.3 29 0.9 12 0.3 Total penalty abatements $3,471
100.0 $4,680 100.0 $4,188 100.0 $3,343 100.0 $3,920 100.0 Interest
abatements $1,720 100.0 $2,375 100.0 $1,972 100.0 $1,381 100.0
$1,862 100.0 Total $5,191 100.0 $7,054 100.0 $6,160 100.0 $4,724
100.0 $5,782 100.0

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

Note: Amounts may not sum to totals because of rounding. aDoes not
apply.

bFee accumulated by certain trusts and exempt organizations for
failure to file in a timely manner. cTrust fund penalties are
assessed against responsible individuals of a business when they
fail to pay IRS the taxes they withheld from employees' earnings.
dFrom fiscal year 1995 through 1998, abatements of penalties for
intentional disregard of the

information return filing requirements (section 6721(e)) accounted
for an average of 86 percent ofabatement amounts for other
miscellaneous civil penalty abatements. The remaining abatement

amounts, averaging 14 percent, were spread over numerous types of
other miscellaneous civilpenalties. eLess than one-tenth of 1
percent. fNegligence includes any failure to make a reasonable
attempt to comply with the provisions of the Code. Source: GAO
compilation of IRS data.

Table IV.29: Amount and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement-Business Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 52 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Penalty (IRC section)
Manual Computer Manual Computer Manual Computer Manual
ComputerFailure to file (6651(a)(1)) 47.7 52.3 46.6 53.4 51.3 48.7
50.1 49.9

Estimated tax (6654 and 6655) 77.3 22.7 82.7 17.3 82.8 17.2 85.6
14.4 Failure to make tax deposit (6656) 57.7 42.3 55.1 44.9 50.8
49.2 49.4 50.6Failure to furnish taxpayer identification number
(6723)

a a a a a a a a

Daily delinquency (6652(c)(2)(A))b 100.0 0 100.0 0 100.0 0 100.0
0Miscellaneous civil-trust fund (6672)

c 100.0 0 100.0 0 100.0 0 100.0 0

Miscellaneous civil-other (6721(e) and others)d 100.0 0 100.0 0
100.0 0 100.0 0Incomplete partnership return (6698) 100.0 0 100.0
0 100.0 0 100.0 0

Failure to pay (6651(a) (2)-(3)) 11.8 88.2 9.5 90.5 9.9 90.1 11.0
89.0 Bad check (6657) 95.2 4.8 95.2 4.8 95.6 4.4 98.8 1.2Tip
income (6652(b))

a a a a a a a a

Fraud (6663) 100.0 0 100.0 0 100.0 0 100.0 0 Negligence (6662(c))e
100.0 0 100.0 0 100.0 0 100.0 0 Percent of total penalty
abatements 38.4 61.6 34.6 65.4 34.4 65.6 35.0 65.0 Percent of
interest abatements 1.8 98.2 1.4 98.6 1.3 98.7 1.2 98.8

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

IRS employees manually make decisions on abatements when taxpayers
establish that penaltyassessments are in error or they had
reasonable cause for being delinquent. IRS computers automatically
abate all or portions of penalty and interest assessments when IRS
reduces associatedtax or other penalty assessments or applies
timely payments to taxpayers' accounts. aDoes not apply. bFee
accumulated by certain trusts and exempt organizations for failure
to file in a timely manner. cTrust fund penalties are assessed
against responsible individuals of a business when they fail to
pay IRS the taxes they withheld from employees' earnings. dFrom
fiscal year 1995 through 1998, abatements of penalties for
intentional disregard of the

information return filing requirements (section 6721(e)) accounted
for an average of 75 percent ofother miscellaneous civil penalty
abatements. The remaining abatements, averaging 25 percent, were

spread over numerous types of other miscellaneous civil penalties.
eNegligence includes any failure to make a reasonable attempt to
comply with the provisions of the

Code. Source: GAO compilation of IRS data.

Table IV.30: Percent of Penalty and Interest Abatements Computed
Manually and by Computer by Fiscal Year of Abatement--Business Tax
Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 53 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Penalty (IRC section)
Manual Computer Manual Computer Manual Computer Manual
ComputerFailure to file (6651(a)(1)) 58.4 41.6 56.2 43.8 69.6 30.4
64.8 35.2

Estimated tax (6654 and 6655) 98.0 2.0 97.7 2.3 97.6 2.4 98.0 2.0
Failure to make tax deposit (6656) 83.7 16.3 84.9 15.1 77.7 22.3
72.0 28.0Failure to furnish taxpayer identification number (6723)

a a a a a a a a

Daily delinquency (6652(c)(2)(A))b 100.0 0 100.0 0 100.0 0 100.0
0Miscellaneous civil-trust fund (6672)

c 100.0 0 100.0 0 100.0 0 100.0 0

Miscellaneous civil-other (6721(e) and others)d 100.0 0 100.0 0
100.0 0 100.0 0 Incomplete partnership return (6698) 100.0 0 100.0
0 100.0 0 100.0 0Failure to pay (6651(a) (2)-(3)) 31.1 68.9 57.4
42.6 38.7 61.3 36.0 64.0

Bad check (6657) 82.9 17.1 99.1 0.9 99.6 0.4 99.9 0.1Tip income
(6652(b))

a a a a a a a a

Fraud (6663) 100.0 0 100.0 0 100.0 0 100.0 0 Negligence (6662(c))e
100.0 0 100.0 0 100.0 0 100.0 0 Percent of total penalty
abatements 76.4 23.6 77.7 22.3 76.5 23.5 74.4 25.6 Percent of
interest abatements 57.3 42.7 55.7 44.3 61.1 38.9 56.9 43.1

Notes: Business tax returns include corporate income tax, various
employment taxes, and other typesof returns on IRS' business
master file.

IRS employees manually make decisions on abatements when taxpayers
establish that penaltyassessments are in error or they had
reasonable cause for being delinquent. IRS computers automatically
abate all or portions of penalty and interest assessments when IRS
reduces associatedtax or other penalty assessments or applies
timely payments to taxpayers' accounts. aDoes not apply. bFee
accumulated by certain trusts and exempt organizations for failure
to file in a timely manner. cTrust fund penalties are assessed
against responsible individuals of a business when they fail to
pay IRS the taxes they withheld from employees' earnings. dFrom
fiscal year 1995 through 1998, abatements of penalties for
intentional disregard of the

information return filing requirements (section 6721(e)) accounted
for an average of 86 percent ofabatement amounts for other
miscellaneous civil penalty abatements. The remaining abatement

amounts, averaging 14 percent, were spread over numerous types of
other miscellaneous civilpenalties. eNegligence includes any
failure to make a reasonable attempt to comply with the provisions
of the Code. Source: GAO compilation of IRS data.

Table IV.31: Percent of Amount of Penalty and Interest Abatements
Computed Manually and by Computer by Fiscal Year ofAbatement--
Business Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 54 GAO/GGD-99-77 IRS' Abatement of Assessments

Fiscal year of abatement 1995 1996 1997 1998 Average Penalty (IRC
section) Number Percent Number Percent Number Percent Number
Percent Number Percent Failure to file (6651(a)(1)) 22,428 16.4
23,807 16.9 25,350 18.5 22,599 16.4 23,546 17.0 Estimated tax
(6654 and 6655) 20,316 14.9 21,438 15.2 21,715 15.8 22,684 16.4
21,538 15.6Failure to make tax deposit (6656)

a a a a a a a a a a

Failure to furnish taxpayer identificationnumber (6723)

a a a a a a a a a a

Daily delinquency (6652(c)(2)(A))b a a a a a a a a a
aMiscellaneous civil-trust fund (6672)

c a a a a a a a a a a

Miscellaneous civil-other (6721(e) andothers)

d 142 0.1 186 0.1 229 0.2 204 0.1 190 0.1

Incomplete partnership return (6698) a a a a a a a a a a Failure
to pay (6651(a) (2)-(3)) 93,552 68.5 95,213 67.6 89,670 65.4
92,345 66.8 92,695 67.1 Bad check (6657) 105 0.1 101 0.1 142 0.1
286 0.2 159 0.1Tip income (6652(b))

a a a a a a a a a a

Fraud (6663) 30 e 24 e 29 e 16 e 25 e Negligence (6662(c))f 70 0.1
41 e 48 e 26 e 46 e Total penalty abatements 136,643 100.0 140,810
100.0 137,183 100.0 138,160 100.0 138,199 100.0 Interest
abatements 117,415 100.0 120,185 100.0 118,260 100.0 122,757 100.0
119,654 100.0 Total 254,058 100.0 260,995 100.0 255,443 100.0
260,917 100.0 257,853 100.0

Note: Corporate returns include all Form 1120, Federal Corporate
Income Tax returns. aDoes not apply.

bFee accumulated by certain trusts and exempt organizations for
failure to file in a timely manner. cTrust fund penalties are
assessed against responsible individuals of a business when they
fail to pay IRS the taxes they withheld from employees' earnings.
dBecause miscellaneous civil penalties account for less than 3
percent of all business penalties, we

did not develop information on specific penalties below the level
of all businesses. eLess than one-tenth of 1 percent.

fNegligence includes any failure to make a reasonable attempt to
comply with the provisions of the Code. Source: GAO compilation of
IRS data.

Table IV.32: Number and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement--Corporate Income TaxReturns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 55 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
MiIlions Fiscal year of abatement

1995 1996 1997 1998 Average Penalty (IRC section) Amount Percent
Amount Percent Amount Percent Amount Percent Amount Percent
Failure to file (6651(a)(1)) $202 53.3 $434 49.2 $150 43.9 $190
39.8 $244 47.0 Estimated tax (6654 and 6655) 71 18.7 113 12.9 95
27.8 171 35.8 112 21.6Failure to make tax deposit (6656)

a a a a a a a a a a

Failure to furnish taxpayeridentification number (6723)

a a a a a a a a a a

Daily delinquency (6652(c)(2)(A))b a a a a a a a a a
aMiscellaneous civil-trust fund (6672)

c a a a a a a a a a a

Miscellaneous civil-other (6721(e) andothers)

d 2 0.5 2 0.2 3 0.8 2 0.5 2 0.4

Incomplete partnership return (6698) a a a a a a a a a a Failure
to pay (6651(a) (2)-(3)) 100 26.5 331 37.5 80 23.5 84 17.6 149
28.7 Bad check (6657) e 0.1 e f e 0.1 1 0.3 e 0.1Tip income
(6652(b))

a a a a a a a a a a

Fraud (6663) 2 0.6 1 0.1 2 0.5 1 0.1 1 0.3 Negligence (6662(c))g 1
0.3 1 0.1 11 3.4 28 5.9 10 2.0 Total penalty abatements $379 100.0
$881 100.0 $342 100.0 $477 100.0 $520 100.0 Interest abatements
$1,243 100.0 $1,883 100.0 $1,299 100.0 $912 100.0 $1,334 100.0
Total $1,622 100.0 $2,765 100.0 $1,641 100.0 $1,389 100.0 $1,854
100.0

Notes: Corporate returns include all Form 1120, Federal Corporate
Income Tax returns.

Amounts may not sum to totals because of rounding. aDoes not
apply.

bFee accumulated by certain trusts and exempt organizations for
failure to file in a timely manner. cTrust fund penalties are
assessed against responsible individuals of a business when they
fail to pay IRS the taxes they withheld from employees' earnings.
dBecause miscellaneous civil penalties account for less than 3
percent of all business penalties we did

not develop information on specific penalties below the level of
all businesses. eLess than $1 million.

fLess than one-tenth of 1 percent. gNegligence includes any
failure to make a reasonable attempt to comply with the provisions
of the Code. Source: GAO compilation of IRS data.

Table IV.33: Amount and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatement--Corporate Income TaxReturns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 56 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 Average Penalty (IRC section) Number Percent
Number Percent Number Percent Number Percent Number Percent

Failure to file (6651(a)(1)) 266,206 13.9 241,556 13.3 228,085
13.0 229,001 12.8 241,212 13.3Estimated tax (6654 and 6655)

a a a a a a a a a a

Failure to make tax deposit (6656) 824,772 43.2 779,226 42.8
745,366 42.4 716,595 40.1 766,490 42.1 Failure to furnish
taxpayeridentification number (6723) a a a a a a a a a a

Daily delinquency (6652(c)(2)(A))b a a a a a a a a a a
Miscellaneous civil-trust fund(6672)c

a a a a a a a a a a

Miscellaneous civil-other (6721(e)and others)d 705

e 665 e 677 e 523 e 643 e

Incomplete partnership return(6698)

a a a a a a a a a a

Failure to pay (6651(a) (2)-(3)) 816,661 42.8 798,850 43.8 782,587
44.5 833,261 46.6 807,840 44.4 Bad check (6657) 1,568 0.1 1,469
0.1 2,228 0.1 7,404 0.4 3,167 0.2 Tip income (6652(b)) a a a a a a
a a a a Fraud (6663) 67 e 41 e 140 e 42 e 73 e Negligence
(6662(c))f 273 e 253 e 255 e 130 e 228 e Total penalty abatements
1,910,252 100.0 1,822,060 100.0 1,759,338 100.0 1,786,956 100.0
1,819,652 100.0 Interest abatements 1,084,668 100.0 1,060,487
100.0 1,033,848 100.0 1,060,169 100.0 1,059,793 100.0 Total
2,994,920 100.0 2,882,547 100.0 2,793,186 100.0 2,847,125 100.0
2,879,445 100.0

Notes: Employment tax returns include Form 940, Employer's Annual
Federal Unemployment TaxReturn; Form 941, Employer's Quarterly
Federal Tax Return; Form 942, Employer's Quarterly Federal

Return for Household Employees (for tax periods prior to the
requirement that these taxes be reportedon Schedule H of the
employer's Form 1040); and Form 943, Employer's Annual Tax Return
for Agriculture Employees. aDoes not apply.

aFee accumulated by certain trusts and exempt organizations for
failure to file in a timely manner. bTrust fund penalties are
assessed against responsible individuals of a business when they
fail to pay IRS the taxes they withheld from employees' earnings.
cBecause miscellaneous civil penalties account for less than 3
percent of all business penalties, we

did not develop information on specific penalties below the level
of all businesses. eLess than one-tenth of 1 percent.

fNegligence includes any failure to make a reasonable attempt to
comply with the provisions of the Code. Source: GAO compilation of
IRS data.

Table IV.34: Number and Percent of Penalty and Interest Abatements
by Fiscal Year of Abatements--Employment Tax Returns

Appendix IV Abatements of Penalty and Interest Assessments on
Individual and Business Tax Returns

Page 57 GAO/GGD-99-77 IRS' Abatement of Assessments Dollars in
Millions Fiscal year of abatement

1995 1996 1997 1998 Average Penalty (IRC section) Amount Percent
Amount Percent Amount Percent Amount Percent Amount Percent
Failure to file (6651(a)(1)) $134 7.6 $156 6.5 $243 10.7 117 8.3
$162 8.3Estimated tax (6654 and 6655)

a a a a a a a a a a

Failure to make tax deposit (6656) 1,580 89.2 2,148 90.2 1,885
83.2 1,194 84.7 1,702 87.0Failure to furnish taxpayer
identification

number (6723) a a a a a a a a a a Daily delinquency
(6652(c)(2)(A))b a a a a a a a a a aMiscellaneous civil-trust fund
(6672)

c a a a a a a a a a a

Miscellaneous civil-other (6721(e) andothers)

d 1 0.1 5 0.2 2 0.1 2 0.2 3 0.1

Incomplete partnership return (6698) a a a a a a a a a a Failure
to pay (6651(a) (2)-(3)) 54 3.1 70 3.0 132 5.8 92 6.5 87 4.5 Bad
check (6657) e f e f 1 f 5 0.3 2 0.1Tip income (6652(b))

a a a a a a a a a a

Fraud (6663) e f e f 1 f e f e f Negligence (6662(c))g e f 1 0.1 1
f e f 1 f Total penalty abatements $1,770 100.0 $2,381 100.0
$2,264 100.0 $1,410 100.0 $1,956 100.0 Interest abatements $219
100.0 $298 100.0 $436 100.0 $239 100.0 $298 100.0 Total $1,989
100.0 $2,679 100.0 $2,701 100.0 $1,649 100.0 $2,254 100.0

Notes: Employment tax returns include Form 940, Employer's Annual
Federal Unemployment TaxReturn; Form 941, Employer's Quarterly
Federal Tax Return; Form 942, Employer's Quarterly Federal

Return for Household Employees (for tax periods prior to the
requirement that these taxes be reportedon Schedule H of the
employer's Form 1040); and Form 943, Employer's Annual Tax Return
for Agriculture Employees. Amounts may not sum to totals because
of rounding. aD

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