AN EVALUATION OF THE FEDERAL CIVIL TAX PENALTY FOR THE FAILURE TO TIMELY DEPOSIT PAYROLL TAXES: A SURVEY OF GEORGIA TAX PRACTITIONERS

In December of 1989, Congress passed the Omnibus Budget Reconciliation Act which included the Improved Penalty Administration and Compliance Tax Act (IMPACT). The purpose of IMPACT was to encourage a higher level of voluntary compliance with federal tax laws through the administration of penalties which were improved, in terms of fairness, effectiveness, comprehensibility, and administrability. These criteria were established by the IRS Task Force on Civil Penalties (IRS Task Force) as a framework within which to evaluate the civil tax penalty system.; One of the many changes made by IMPACT involved the Failure to Timely Deposit (FTD) penalty (I.R.C. Section 6656(a)) which is generally assessed against those employers who fail to deposit withheld federal employment taxes on a timely basis. The objective of this study was to provide evidence of how tax practitioners viewed the new FTD penalty structure and current payroll tax deposit rules, in terms of the IRS Task Force penalty criteria described above. Additionally, responses were analyzed to determine whether tax practitioners felt that the new FTD penalty had achieved its goal of enhancing voluntary compliance with the payroll tax deposit rules.; The study was conducted using a mailed questionnaire completed by 290 Georgia tax practitioners who had a working knowledge of the payroll tax area. Data collected were analyzed using nonparametric statistical procedures since the data were from nominal and ordinal scales in which intervals were not assumed to be equal.; Results indicated that participating tax practitioners gave fairly good ratings to the new FTD penalty's levels of voluntary compliance, fairness, and effectiveness. Slightly below average ratings were received by the penalty's comprehensibility and administrability. More importantly, respondents felt that only the perceived level of fairness had improved between the old and new FTD penalty structures. Participants ranked fairness as the most important criterion in an "ideal" FTD penalty, with comprehensibility and effectiveness ranked equally as the second most important criterion. Finally, to enhance voluntary compliance with payroll tax deposit rules, respondents indicated stronger support for improving the payroll tax deposit rules and IRS' administration of the FTD penalty, rather than changing the new FTD penalty structure itself.