Enhancing Voluntary Compliance Through the Administration of Civil Tax Penalties

Similar cases and similarly situated taxpayers are to be treated in a similar manner with each having the opportunity to have their interests heard and considered. Penalty relief is to be viewed from the perspective of fair and impartial enforcement of the tax laws in a manner that promotes voluntary compliance. Penalties encourage voluntary compliance by defining standards of compliant behavior, defining consequences for noncompliance and providing monetary sanctions against taxpayers who do not meet the standard. In this regard, penalty administration should be severe enough to deter noncompliance, encourage noncompliant taxpayers to comply, be objectively proportioned to the offense and be used as an opportunity to educate taxpayers and encourage their future compliance.In this environment where many continue to call for simplification and fairness in penalty administration, taxpayers and practitioners are held to various standards of knowledge, responsibility and diligence based on the most recently issued court decisions, statutes and regulations. Many penalties may be avoided based upon a determination that reasonable cause existed for the positions maintained within a return. Reasonable cause is based on a review of all relevant facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations, but nevertheless failed to comply with those obligations.Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur. A taxpayer may establish reasonable cause by providing facts and circumstances showing that they exercised ordinary business care and prudence (taking that degree of care that a reasonably prudent person would exercise), but nevertheless were unable to comply with the law