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AICPA: Fix the tax penalty system

September 02, 2009

Dan Meyer reports on the dysfunctional tax penalty regime:

An AICPA report criticized the U. S. Treasury and Internal Revenue Service for overly broad and disproportionate penalties. Among criticisms: recently enacted penalties do not necessarily encourage voluntary compliance, poorly defined tax terms (examples: tax shelter and significant purpose), failure to distinguish between willful misconduct and negligent noncompliance regarding severity of penalties, an overemphasis on strict liability vs. taxpayer/preparer judgment, a bias favoring charging penalties in borderline cases and erosion of due process.

The insatiable demand for more revenue will drive penalty legislation for the next few years. Expect stricter penalties with fewer administrative outs - a package already included in the house "health care" legislation.