IRS Hearing Transcript Available on Penalty Approval Regs

UNITED STATES DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

TELECONFERENCE PUBLIC HEARING ON PROPOSED REGULATIONS

“RULES FOR SUPERVISORY APPROVAL OF PENALTIES”

[REG-121709-19]

Washington, D.C.

Monday, September 11, 2023

PARTICIPANTS:

For IRS:

DAVID BERGMAN
Senior Counsel (PA)

PAMELA FULLER
Senior Technician Reviewer (PA)

ASHTON TRICE
Deputy Associate Chief Counsel (PA)

For U.S. Department of Treasury:

NATASHA GOLDVUG
Attorney (OTP)

Speakers:

NINA OLSON
Center for Taxpayer Rights

JOSHUA SMELTZER
Tax Section of the State Bar of Texas

PETE SEPP
LINDSEY CARPENTER
National Taxpayers Union

ROBERT PROBASCO
Self

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PROCEEDINGS

(10:00 a.m.)

MR. BERGMAN: Good morning, everyone. This is the public hearing regarding the rules for supervisory approval of penalties, REG 121709-19A.

Each speaker will have 10 minutes to present their comments. There's a timer and lighter indicator on top — on the timer on top of the podium. When the light turns green, you can begin to speak; when it turns yellow, you have a three-minute warning to summarize your positions; and when the light is red, your time is over.

I'm going to introduce the panel. My name is David Bergman, I'm a senior counsel. To my left is Pamela Fuller, senior technician reviewer. Ashton Trice is deputy associate chief counsel. Natasha Goldvug is from the Office of Tax Policy at Treasury.

I'd like to introduce our first speaker, Pete Sepp, from National Taxpayers Union. Whenever you're ready.

MR. SEPP: Thank you. It's an honor to be here. On behalf of NTU — I'm president of the organization — I'd like to give some supplementary comments to our written comments that might help better inform this hearing. I staffed our representative, David Keating, on the National Commission on Restructuring the IRS back in 1996-97, and I can attest that even back then, penalty administration and maladministration was a very controversial topic, and it was discussed among members of that commission in depth. And in fact, the notion of supervisor approval for penalties was bandied back and forth by commission members for a number of reasons. The commission demured on making that recommendation, but it provided the basis for later legislation, the IRS Restructuring and Reform Act, and further discussions in Congress. One of the things that was conceived under section 67.51(B), and this was communicated between commission members and legislative staff, was not just that this was to protect taxpayer rights in the process, but to save the IRS resources. If you had a backstop where supervisors were reviewing penalties and approving them, you just might cut off a considerable supply of erroneous penalties before they got into the system of collection, due process, saving the service, court time, administrative appeals, all kinds of resources.

There was another reason behind the supervisor approval requirement, and that was that at the time, there had been roughly 10 years of controversy over regional variations in how the service was conducting audits and other enforcement activities. That was brought to light in the late 1980s by David Burnham with Transactional with Track, and he had said that even though the audits were being applied unevenly by region, so were the penalties resulting from the audits. And so it was thought that if we had a supervisor approval requirement in place, we just might get better communication within the chain of command as to what types of penalties were being approved and why nationwide. So this is not just a taxpayer rights issue: This is a good tax administration issue. And that's why 67.51 is so important. To us it is the linchpin providing a preventative, rather than a reactive, tool for taxpayer rights and good tax administration.

I would also point out, unfortunately, that even though that involved a lot of ancient history, some 25 years ago, Congress has taken a recent interest in 67.51(B). You may recall that in the September 2021 tax bill that House Democrats proposed, there was a provision that would modify 67.51(B) to essentially just require certification on a quarterly basis, that employees were following certain procedures regarding penalties. Even that less sweeping measure than what this rulemaking was being proposed today got rejected. And it wasn't just because the bill was moving through the Senate and the Byrd rule was scrubbing provisions from it. There was bipartisan concern with tampering with 67.51(B). There is legislation also that has been introduced by Senator Tim Scott and eight other co-sponsors to strengthen 67.51(B) defining what time in the pre-assessment process the supervisor approval has to be obtained. So Congress is taking an interest in this, and I would contend that the rulemaking here could very well clash not only with past legislative intent, but legislative intent going forward.

Finally, I would point out that every single commenter, all nine of them offering substantive comments, have a fundamental disagreement with portions of this rulemaking, not just over the details, but over the fundamentals. You look at Fox Rothschild saying, "The only clarity these proposed regulations would provide is certainty that the IRS can prevent any inquiry into its failures to follow 67.51(B)." GBX Group saying, "The regulations would adopt a regime that is attended to shield the IRS from attacks on supervisory approval." Daniel J. Price's law offices said that arguably this rulemaking could very well invite a judicial challenge. Those are strong words and fairly unanimous consensus that we need a different direction with this rulemaking, one that establishes fundamentally different definitions, to strengthen this section of the law. And to comment on those recommendations, let me introduce my colleague, Lindsey Carpenter, who is an attorney with our foundation.

MS. CARPENTER: Good morning, everyone and everyone in the room. Thank you so much, Pete. So, building off what Pete said, we have three recommendations that we think would really help add clarity to the statute and help bolster what the IRS and the taxpayers both would like to see out of this statute. And the first one deals with the automatic calculated penalties exception. Under section 2(b) of the statute, we believe that this automatic calculated penalty exception should really only apply to true or false automatically calculated penalties. The issue right now is that under the proposed regulations is that the IRS is now exempting any automatically calculated penalty that comes from a computer. This per se is not bad in of itself, but currently the IRS is using the Under Automated Reporting System, which means that they are able to place penalties upon taxpayers for negligence for underreporting. A negligence is a case-by-case, fact-specific inquiry. This fact-specific inquiry and case-by-case analysis needs to be done by a personnel or an IRS employee. What's happening by allowing this to be done by the computer system is that taxpayers are now facing a penalty from a computer that really needs to be done by a person on this fact-specific inquiry. So what we're proposing is that with these automatically calculated penalties is that it only should be for true or false factual inquiries. So if the computer is able to put out a true or false fact-specific analysis, then it should be an automatic penalty in lieu of automatically being able to apply penalties for negligence. That's first with the exception.

Our second recommendation really goes to the language of the statute itself. And I know the proposed regulations touched on this briefly, but when we're defining the terms within the statute, a plain-language interpretation controls. This falls under both Supreme Court precedent and precedents under all 13 federal courts. So under a plain language interpretation, currently with the term initial determination, that is really the crux of this statute. And in fact, the term “assessed” under the statute is predicated upon the term initial determination. That means before a penalty can be assessed under the statute, the term initial determination must first be defined and applied before the penalty can actually be assessed. Now, a plain language interpretation doesn't mean that we can just define it however we would like to define it, but it really is just what the dictionaries say, how it's used in common day language, how the courts went intermittent, black law, et cetera. Now, a commonsense definition of initial determination just means that the first instant that a penalty is considered, the first instant that the penalty is communicated to the taxpayer. And this is really what the Second Circuit was addressing in Chi D (phonetic) Commissioner. So that's what we need to focus on is that before the assessment that the initial determination is when the supervisory approval should be required, i.e., the first time that the IRS employee says, “This is what penalty we should propose to the taxpayer; that's when the supervisor approval should be acquired.”

The second term that really under also plain language interpretation is the term “supervisor.” Now, the term supervisor and proposed regulations has a myriad of definitions, but again, a plain-language, commonsense definition of supervisor should be adopted. And this in essence is supervisor, the person has the ability to hire you, to fire you, to grant you leave time. That is the term of supervisor that should be adopted within this statutory interpretation, meaning that once IRS employee makes the determination that there should be a communication with the taxpayer for a penalty, that they go to their supervisor, i.e., the same person that they ask off to go have an extra few days during Christmas break. So this should be how a supervisor is defined within the penalty.

And finally, our final recommendation is that there should be a statement of signing adopted within the IRS internally to ensure that the supervisory approval has been actually approved and done within a timely manner. And this really benefits both the IRS and the taxpayer. First, it benefits the IRS because it allows internally to see, okay, we complied with the statute, here's a date, time, and stamp. And if there's any litigation surrounding your supervisory approval, you have a dated time and stamp on a piece of paper. It also benefits the taxpayer because they can see, well, the statute was complied with and therefore, we can rest assured that 67.51(B) was complied with this situation. So these are our recommendations, and we thank both the panel for your time and just for allowing us to be here today, and we'll take any questions.

MR. BERGMAN: Thank you very much. Are there any questions for this speaker? No? Thank you, very much. The next speaker will be, no —

MS. OLSEN: Before I start, I'd just like to make a comment to acknowledge the event that happened 22 years ago today and remember those who lost their lives and were injured otherwise in the events on September 11. Including the families and friends and colleagues of folks. I will personally never forget that day, the anxious hours of not being able to find my own employees in Manhattan and Brooklyn and walking home from the IRS and seeing the plume over the Pentagon. And then visiting ground zero the following week and seeing my own employees' trauma. And I want to remember Dave Bernard, who is the IRS employee who lost his life as a result of injuries from September 11th and who is, I hope, still acknowledged in the courtyard of the IRS building here. So thank you.

Okay, section 67.51 was not enacted in a vacuum. From 1987 to 1989, amidst public concerns about IRS penalty administration, the IRS established an executive task force that issued three substantive reports on penalty policy and administration. The reports and subsequent congressional hearings led to substantial legislative reform in 1989. Central to that reform were the principle of fairness, which the IRS task force defined as having three main components: horizontal equity, proportionality, and procedural fairness. In the 2008 annual report to Congress, I noted that procedural fairness means, in part, don't shoot first and ask questions later. This comports with the 1989 conference report on penalty reform, where Congress recommended "in the application of penalties, the IRS should make a correct substantive decision in the first instance rather than mechanically assert penalties with the idea that they will be corrected later." Congress still had concerns in 1998 as to "whether the current penalty and interest provisions encourage voluntary compliance." Thus, in RRA 98, it required the Joint Committee on Taxation and the secretary to seek public comment and make legislative and administrative recommendations to, among other things, reduce taxpayer burden and ensure penalties promote voluntary compliance. In this context, in August 1998, the IRS adopted Policy Statement P1.18, which stated, penalties support the service's mission only if penalties enhance voluntary compliance. Emphasis in the original. Even the current watered down policy statement 20-1 states, penalties are used to enhance voluntary compliance and IRS will evaluate penalty programs based on how those programs can most efficiently encourage voluntary compliance.

While the IRS has not adequately researched whether its current penalty regime encourages such compliance, the Taxpayer Advocate Service has done so. For example, in 2013, we looked at whether accuracy-related penalties improve future reporting compliance by Schedule C filers, since unincorporated, unreported business income is the largest component of the tax gap. We found that although Schedule C filers who received an assessment improved their reporting compliance in the future, "those subject to an accuracy penalty had no better reporting compliance than those who were not subject to the penalty." We concluded, "Accuracy related penalties did not appear to improve reporting compliance among the Schedule C filers who were subject to them." Most importantly, we found that audited Schedule C filers who were subject to default penalty abatement assessments, or who appealed their assessments, had lower reporting compliance over five years later than those not penalized based on IRF disc scores. We found similar negative compliance results where taxpayers were assessed penalties that were subsequently abated.

In short, we found statistically valid evidence that the IRS's policy of shoot first and ask questions later actually undermined the stated goal of penalty policy, namely, to efficiently encourage voluntary compliance. This research confirms a key question for penalty administration is, as Congress noted in 1989, whether the IRS is getting it right in the first place, and this is the context for interpreting 67.51(B). The 1998 Senate Commit Finance Committee report states the committee believes that penalties should only be imposed where appropriate and not as a bargaining chip. Commenters and the proposed regulation conflate this conjunctive clause such that appropriate is defined as not using penalties as a bargaining chip. I do not interpret this sentence so narrowly. It was written in the context of the 1989 executive task force reports and legislative reforms and the 1998 general concern about property penalty administration. Appropriate imposition of penalties stands on its own. By focusing on penalties as a bargaining chip, the discussion underestimates the harm inappropriate initial application of a penalty can have on voluntary compliance.

Moreover, inappropriate initial proposals of penalties stack the deck against taxpayers who are not represented and have limited resources to exercise their right under section 783(a)3 to challenge the IRS's position and be heard. The appropriateness concern underlying section 67.51 makes clear intended supervisory review to occur at the initial stages of penalty determination, before the penalty is articulated in the earlier of a proposed or final assessment document. To avoid the inappropriate penalties, supervisory review should occur before appeals because tax research has shown a negative voluntary compliance effect where penalties are opposed, imposed, and later appealed even when abated. Further, supervisory approval would be best be granted by the employee's immediate supervisor; that is, one with management and performance evaluation responsibilities over the employee. The immediate supervisor's approval can be informed by a quality reviewer's analysis, but the written approval should be given by a supervisor who otherwise evaluates the employee's performance. An example of what is not meaningful supervisory review is the IRS's application of section 60 of 32K two-year ban where a taxpayer's claim for EITC, CTC, or AOTC was due to reckless or intentional disregard of rules and regulations. Since at least 2013, the IRM requires supervisory approval of the 32K penalty. TAS's 2013 research study showed in 69 percent of the cases, IRS employees did not obtain the required managerial approval before imposing the penalty, and in almost 40 percent of the cases did not make the required determination of the taxpayer's state of mind. Following this study, the IRS had revised the IRM to require auditors denote the reason for imposition or not in their workpapers and to not use boilerplate declaratory statements as an explanation for imposition. Yet TAS's 2019 study found that in 54 percent of the cases, there was no managerial review, and in 84 percent of the cases, the explanation for imposition was inadequate. These results make the case for the ABA Tax Section's recommendation that the IRS develop specific forms that make examiners and supervisors consider and document key elements that justify imposition of a penalty.

The regulation's definition of penalties automatically calculated through electronic means as those proposed by an IRS computer without human involvement does not comport with current thinking about the proper use of automation and artificial intelligence in tax administration. For example, under article 22 of the EU's General Data Protection Regulation, a person has the right not to be the subject of a decision based exclusively on automated processing where it significantly affects them, subject to three exceptions not applicable here. Supervisory review is especially necessary in case of penalties imposed via automated correspondence exam, which involves a disproportionate audit rate of black taxpayers. In systems like AUR and ACE, where no one employee is responsible for the case, the penalty should not be imposed absent communication with the taxpayer that evidences the taxpayer's careless, reckless, or intentional disregard. Although the calculation of accuracy-related penalties can be automated, the automatic imposition thereof violates the right to a fair and just tax system, which includes the expectation that the tax system "consider the facts and circumstances that might affect their underlying liabilities".

This is especially true where the IRS utilizes combination letters in which the notice of proposed assessment and the 30-day letter giving the right to appeal are combined. None of these instances should be considered automatically calculated through electronic means. The later reclassifying of the penalty does not cure the negative taxpayer morale compliance impact arising from the initial inappropriate imposition of the penalty. The proposed regulation maintains in many places that earlier supervisory written approval of penalties is unworkable under the IRS's current approach to penalty administration. That may very well be true, but research has shown the IRS's current approach has either little or negative effect on voluntary compliance. Accordingly, exceptions to the supervisory review requirements should be narrowly crafted because the rationale for penalties is based on changing human behavior toward compliance. Sound tax administration principles mean that supervisory review should occur before a penalty is formally communicated to the taxpayer, as the Tax Court is held to ensure that penalties are properly imposed and the negative compliance impact minimized. That the statute is silent on timing indicates Congress deferred to the IRS to observe human behavior and see what timing best encourages voluntary compliance. The approach adopted in the proposed reg does not achieve that goal. Thank you, and I look forward to answering any questions you may have.

MR. BERGMAN: Thank you very much. Are there any questions?

MS. CARPENTER: Happy to answer any questions you may have.

MR. BERGMAN: Thank you very much. Are there any questions for the speaker? Thank you, very much. The next speaker will be Joshua Smeltzer.

MR. SMELTZER: Thank you for the opportunity to testify on these regulations. I appreciate that. I'm here on behalf of the State Bar of Texas, the Tax Section there, and although the Tax Section hasn't taken a formal position, we're privileged to be able to be here to testify and answer any questions you may have regarding it. We also submitted written questions, and there are lots of things that are included in there. But I'd like to focus my comments today on the timing of the approval and also the definition of immediate supervisor. And the reason I'd like to focus on those two things is because I believe those two things in particular deal with the fairness of the application of penalties. And it is the fairness of the application of penalties that I think is the motivation; it's a congressional intent, and it's what drives compliance with taxpayers. Both the taxpayers and the IRS have an interest in properly applied penalties. Taxpayers need to know that the system is fair in order for voluntary compliance. Also, they need to know that if they are going to voluntarily comply, that those who are truly deserving of penalties are the ones who are giving penalties and they aren't being applied arbitrarily, in order to have that work as a system. Within the IRS as well, inefficiencies and mistakes need to be minimized to the extent that they can. And the only way to do that is making sure that both the timing of the penalty is appropriate and the person approving the penalties is the proper person to do so.

Now, the IRS acknowledges in the background section of the proposed regulations that congressional concern over the process of imposing penalties included — could occur without supervisory approval and they included as a bargaining chip. I also agree that I feel like the proposed regulations conflate the two of appropriateness and focus too much on the bargaining chip in order to justify a timing that is too far along in the process. Congress was concerned that penalties could occur without supervisory approval, and that's the important aspect that we need to focus on. We believe that the statute would function much better and the regulations would provide more clarity if the supervisory approval for penalties subject to both deficiency procedures and the accessible penalties should be made prior to the issuance of the 30-day letter or its equivalent. This treatment is consistent with the analysis that has already been provided and applied by the United States Tax Court. Within the proposed regulations, there are citations to circuit courts that have taken a different position, pushing it to the notice of deficiency, and that's the one that's in the proposed regulations.

However, we believe that the United States Tax Court has more familiarity with the procedural requirements of the deficiency procedures. They also see way more of the tax litigation than the district courts do. District courts' tax cases only make up about 1 percent of its docket. I am a former litigator for the Department of Justice's Tax Division and the first question of almost every district court judge when I appeared is why was I there and not in Tax Court? Those district courts, while knowledgeable and while those judges are very intelligent, they are not familiar enough with the deficiency procedures. They do not see enough of these disputes to, I believe, assess it as well as the Tax Court does. And therefore we think that adopting the procedure that the Tax Court has done, of doing it at the 30-day letter or the equivalent essentially when Appeals is being offered to the taxpayer. This is important as well because at that point the taxpayer knows the penalties are officially on the table and is faced with the decision of either incurring the time and cost to challenge IRS Appeals or accepting the penalties as written. The taxpayer deserves to know that at that point in the process, the penalties have not only been considered by the revenue agent but also by a supervisor above him so that he can have faith that it's been given its due course of vetting and consideration.

So the preamble contends that this would not prevent penalties from being used as a bargaining chip at all circumstances because it would not require that oral communications couldn't be used as a bargaining chip for penalties. However, that may not prevent the use of penalties as a bargaining chip in some extreme circumstances. The IRS acknowledges that that would violate their own policies. That doesn't warrant abandoning it for a rule that would allow the use of penalties as a bargaining chip in far more circumstances in that window between the 30-day and the 90-day letters as well. In addition, the preamble contends that the Tax Court's role has led to penalties being disallowed where the penalties were otherwise appropriate. But it is the statute that bars the penalties when the IRS fails to obtain supervisory approval, regardless of whether the penalty is otherwise appropriate, not the Tax Court. Both the IRS and the taxpayer will benefit from the system that they both can trust as fair and equitable. And we believe that the 30-day letter is when the taxpayer must make that decision and that decision should be well thought out.

We believe the same rule should apply to accessible penalties. The example used in the examples in the proposed regulations is section 67.07(A) penalty. The preamble contends that these penalties cannot be used as a bargaining chip because they are not in addition to a tax liability. But this ignores that the penalties are often one aspect of a larger audit and it may be used as a bargaining chip in other respects and not just regarding a related tax liability. Treating accessible penalties the same also provides a bright-line rule that promotes certainty, and it's easier to administer and consistent with the stated objectives in the preamble and congressional intent.

Also, the definition of immediate supervisor — ensuring the proper individual provides the required supervisory approval is just as important as making sure that approval occurs at the right time. Section 67.51(B) requires that the initial determination to assess certain penalties be personally approved in writing by the immediate supervisor. Now, the proposed regulations define immediate supervisor to mean any individual with responsibility to approve another individual's proposal of penalties. And this definition, as written, doesn't prevent non-managerial, non-supervisory personnel from being included in those who provide supervisory approval. This could allow the IRS to centralize the approval process into a few individuals who would not have the necessary knowledge of the specific facts and circumstances of each case, which would require the fairness that is required. Congressional intent clearly indicates that the goal was to ensure that proper supervisory review was provided to ensure that penalties were posed only where appropriate. Defining immediate supervisor as the person who directly supervises the substantive work of the person who first proposed the penalty provides an objective standard that taxpayers and the IRS can easily apply and more consistent with congressional intent. And I have left a little bit of time, and I'll leave that in case the panel has any questions.

MR. BERGMAN: Thank you, very much. Are there any questions for this? Thank you. Our final speaker will be Robert Probasco.

MR. PROBASCO : Good morning. I am a professor at Texas A&M University School of Law, where I direct our low-income taxpayer clinic, or LITC. These remarks represent my views based on representation of low-income taxpayers. I didn't bother to ask the law school of the university whether they agreed. I don't think they know enough to have an opinion either way. I think that there are some respects where low-income taxpayers in particular face challenges different than other taxpayers. One particular area that I wanted to talk about concerns the method of review by the immediate supervisor of the determination to issue a penalty. The low-income taxpayers have a greater need than most for the protection offered by the supervisory approval requirement. They often do not even receive audit notices. They frequently may not respond because they don't have the time or the knowledge necessary, and they frequently are unable to obtain representation. Not all taxpayers are able to find an LITC to assist them.

Further, almost all of their audit adjustments result from the automated under reporter or automated correspondence examination or similar programs. I was struck when looking at the proposed regulations and the comments, written comments received about the frequent references to revenue agents. I remember with great affection my history in private practice of dealing with revenue agents. I don't deal with them anymore. Low-income taxpayers don't deal with them. They deal with examiners or technicians that don't have the same level of education, experience, or training and are often not well equipped to evaluate whether a penalty is appropriate as well as might be a revenue agent. For example, low-income taxpayers disproportionately are dealing with factual issues rather than legal issues. As a result, it is very important for the reviewer and the supervisor to recognize that the failure to prove entitlement to a tax position does not mean that they were not entitled to that tax provision, because the evidence that they provided may have been insufficient to convince the examiner or technician. LITCs routinely find, on the taxpayers that we are able to help, that even the tax, let alone the penalty that was determined, is reversed after we reach Tax Court, which is by itself a very intensive requirement for a taxpayer to go through.

In particular, the issue of factual substantial authority indicates that even though they are not entitled to the tax position, based on review by a court, they might be entitled to penalty relief. That process was determined or set forth by the Eleventh Circuit in the Osteen (phonetic) case that we referred to. The Fifth and Sixth circuits have also endorsed that and followed Osteen and others may at some point as well. Even if an increase in tax liability is upheld because there isn't quite enough evidence to persuade the court, the penalty may be reversed if a decision in favor of the taxpayer would not have been clearly erroneous when reviewed by an appellate court. That type of perspective on penalties should be followed by the service, and applicable personnel should be trained accordingly. It doesn't appear that they are.

A meaningful determination to propose a penalty and a meaningful review by the supervisor are very important for low-income taxpayers. The process apparently is not working. Nina Olsen talked about problems found in the 2013 review by TAS of penalties. It was very surprising when I read that report, to see how poorly they did, because the EITC ban is a 200 percent penalty, and one would think that it would receive a lot more attention than a 20 percent accuracy-related penalty. If we're not doing it well for the 32K ban, then there is a strong likelihood that we're not doing it well for other penalties. The existing forms, I believe, are insufficient to really ensure that that's done well. I concur with and support the suggestions about how that should be done that were included in written comments submitted by the ABA Section of Taxation.

The other thing that I wanted to address was automatically calculated through electronic means. The walkit (phonetic) quest factors, that many have recommended be followed in determining whether a penalty is automatically calculated, tell us whether a penalty is automatically calculated. They don't address whether it should be. And in much of what low-income taxpayers see today, I believe that it shouldn't be. If we establish a standard for deciding whether the penalties should be automatically calculated, I think that that would likely be something along the lines that there would be a very high degree of confidence that the additional tax liability is correct and a very low degree of probability that a substantial understatement — that a defense based on substantial authority or reasonable cause or other defenses — would succeed. I don't believe that applies to two penalties currently being proposed under the automated underreporter. First, on substantial understatement and secondly, on negligence when the same emission has occurred two years running. Because the low-income taxpayers often are unable to respond, the negligence penalty does not necessarily indicate that they are intentionally or recklessly ignoring something a second time. And substantial understatement also is a problem because many of the things that show up on a substantial understatement report, automated underreporter report, the liability is known to have a high degree of likelihood that it's false.

If there is a 1099B without cost basis, the IRS knows that that gain is incorrect. If there is a W-2G for gambling winnings, there's a very high likelihood that even if they can't adequately document it, that the taxpayer has incurred gambling losses at least as much. If that were not the case, Las Vegas would not exist as it does today. If a 1099C — "Cancellation of Debt” — is indicated, there is a good likelihood for the people that have those, that they have other debts that they cannot pay, and that they probably are insolvent, or at least it's a strong possibility. 1099-Miscellaneous or NEC for gig work are notoriously incorrect. So for a lot of reasons, those should not, in my opinion, be included, and the IRS should take into account more whether it's appropriate to automatically calculate a penalty. I am sympathetic to the IRS that is dealing with inadequate funding and inadequate staffing, but I am more sympathetic to low-income taxpayers. Efficiency alone should not justify circumventing the important taxpayer rights that section 67.51(B) provides and protects. And I'm about out of time, so I will stop there, and I would be glad to address any questions from the panel.

MR. BERGMAN: Thank you, very much. Are there any questions?

MR. PROBASCO: Thank you.

MR. BERGMAN: That was our last speaker. I'd like to thank everyone for attending, especially our speakers who took the time to provide their comments today. Thank you all for attending, have a great day.

(Whereupon, at 10:43 a.m., the PROCEEDINGS were adjourned.)

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