The Internal Revenue Service Advisory Council has released its annual report featuring recommendations on a wide range of tax administration matters, including a suggestion that the IRS expand its voluntary correction programs to make it easier for taxpayers to self-report any prior year non-compliance.

“Given the finite resources available for IRS enforcement efforts and the voluntary nature of the U.S. tax system, it is appropriate for the IRS to encourage taxpayers to discover tax compliance errors,” said the IRSAC report. “This can be done by promoting standardized methods to correct errors. When an error is discovered, the entity should be able to bring the error to IRS’s attention and pay a negotiated amount that approximates the actual tax liability if the error was not made. Closing agreements could be used for some taxes; for income taxes this could involve a process for adjusting the current year’s tax filing. In cases where the error is relatively small and not likely to have a material tax effect, it should be possible to avoid adjusting the information returns, but rather just to pay a negotiated compliance fee amount. Currently, IRS policy and taxpayers’ anecdotal experiences are more discouraging than encouraging.”

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