Few Accuracy-Related Penalties Are Proposed in Large Business Examinations and They Are Generally Not Sustained on Appeal

The Commissioner, LB&I Division, should conduct a study to: 1) understand the reason why examiners' proposed tax assessments and accuracy-related penalties are not being sustained by Appeals and 2) evaluate whether examiners are taking into account all the relevant facts and circumstances before proposing the tax adjustments and accuracy-related penalties.

The Commissioner, Large Business and International (LB&I) Division should ensure that examiners and supervisors are trained to: 1) consider the accuracy-related penalty for all applicable examination cases; 2) follow the proper procedures to document all actions taken during penalty consideration and development, whether proposing or not proposing the penalty; and 3) follow the requirements for supervisory involvement and timely, written approval of all penalty decisions.

The Commissioner, Large Business and International (LB&I) Division should revise IRM 4.46 guidelines to: 1) clearly indicate which LB&I examiners are ultimately responsible for penalty development and documentation and 2) provide more specificity on the requirements of supervisory involvement in penalty development when proposing and not proposing penalties.

The Commissioner, Large Business and International (LB&I) Division should ensure that quality review systems are adequate and can accurately determine whether examiners are properly considering civil penalties, adequately supporting penalty decisions, consistently involving management, and obtaining required approvals.

The Commissioners, Large Business and International (LB&I) Division and Wage and Investment Division should, using the IRS's Lean Six Sigma team or other process improvement resources, evaluate the procedure for closing, shipping, and storing paper examination case files and take corrective action to improve the process.