I.R.S. Penalties Are Too Low

Because many penalties are not adjusted for inflation, reducing the deterrent effect of fines, says the Government Accountability Office in a report released today.

The inflation-corrected value of some penalties has fallen by more than 50 percent since they were last adjusted.

For example, the current penalty on failure to file a partnership return is $50 per partner per month. This was last readjusted in 1979. So in today's dollars, compared with 1979 dollars, the value of the penalty is $18. If the fine had been allowed to keep up with rising prices it would be nearly three times greater at $145 per partner per month.

The G.A.O. estimates that an additional $60 million in fines could've been collected in 2004 if four penalties were readjusted for inflation:

Penalty	Current Penalty Amount	Penalty Amount, Adjusted for Inflation
Failure to file	$100 minimum	$214 minimum
Failure to file correct information returns	$15, $30, or $50 per return	$25, $50, or $83 per return
Various penalties on returns by exempt organizations and by certain trusts	$20 or $100 per day	$26 or $131 per day
Failure to file partnership returns	$50 per partner per month	$145 per partner per month

The report recommends that Congress consider requiring the I.R.S. to periodically adjust fines for inflation.

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