Penalty Administration Handbook.

On September 3, 1992, Tax Executives Institute filed the following preliminary comments with the Internal Revenue Service on its Consolidated Penalty Administration Handbook. The handbook is intended to ensure consistency in the administration of penalties; it includes guidelines for asserting, not asserting, and abating penalties. The comments were filed following a meeting between representatives of TEI's IRS Administrative Affairs Committee and two IRS officials with responsibility over the IRS's administration of the Internal Revenue Code's penalty provisions: Marshall V. Washburn, the IRS's Compliance 2000 Executive, and Damon O. Holmes, Taxpayer Ombudsman. The Institute's comments, which were signed by Timothy J. McCormally, the Institute's General Counsel and Director of Tax Affairs, were prepared under the aegis of its IRS Administrative Affairs Committee, whose chair is W. Remi Taylor of the Duke Power Company.

During our meeting, I referred briefly to an inference that I believe could regrettably be drawn from the Penalty Handbook.(1) Specifically, section (2)123(1)(d), which is captioned "Impartiality," states -

While each Service employee appropriately approaches his or her job from a government perspective and with the objective of protecting the government's interest, the true interest of the government in the area of penalties is the unbiased enforcement of the tax law.

Obviously, TEI does not disagree with the statement that "the true interest of the government in the area of penalties is the unbiased enforcement of the tax law." The inference, however, is that outside of the penalty area, Service employees should not worry about the unbiased enforcement of the tax law. That is to say, that the objective of protecting the government's interest (read: revenues?) should be considered paramount.

TEI recognizes that the inference is not intended. Indeed, the IRS's "Statement of Principles of Internal Revenue Tax Administration" (which is reprinted in every issue of the Internal Revenue Bulletin) clearly provides:

[I]t is the duty of the Service to carry out that [congressionally prescribed tax] policy by correctly applying the laws enacted by Congress; ... and to perform this work in a fair and impartial manner, with neither a government nor a taxpayer point of view.

It is the responsibility of each person in the Service, charged with the duty of interpreting the law, to try to find the true meaning of the statutory provision...