IRS Penalties on Filing Compliance Form 5471
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One of the major trends challenging the IRS is accelerating globalization.
The overall objective of the review was to determine whether the IRS has improved its penalty-setting process to promote filing compliance for entities with Form 5471 reporting requirements.
Overall, controls ensured that systemic penalties for late‑filed Forms 5471 were properly assessed and compliance was improved for many taxpayers.
While a standardized framework was not used to develop a pilot program for systemically assessing late‑filed Form 5471 penalties, the IRS objectives to enhance revenue and improve taxpayer compliance were met.
However, controls are insufficient to ensure the proper abatement of systemically assessed penalties on late‑filed Forms 5471.
Specifically, in a statistically valid sample of 93 cases, the penalties were incorrectly abated in 40 cases. Not good news.
Total abatement’s for these 40 cases amounted to $1.75 million, resulting in approximately $31 million in incorrect abatement’s when projected to the population.
In addition, the IRS did not properly process eight filing extensions.
This led to $6.4 million in unnecessary late‑filed Form 5471 penalty assessments ultimately being abated, resulting in approximately $11.6 million in incorrect assessments when projected to the population.
Further, in 80 of the 93 sampled cases, IRS employees did not adequately document their decisions to abate these penalties.
TIGTA recommended that the IRS:
1) conduct a study to determine if the automated late‑filed Form 5471 penalty‑setting process should be expanded;
2) provide refresher training to employees and their managers on the importance of documenting penalty abatement request decisions;
3) require managers to review all late‑filed Form 5471 penalty abatement’s; and 4) ensure that filing extension requests received with a payment are properly coded and timely processed.
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