The $18 billion in small business tax abatements, identified over a two and a half year period, were reported in a study (GAO-02-336) prepared for Senator Kit Bond, Ranking Member of the Senate Committee on Small Business and Entrepreneurship.

Bond released the report and a letter to the IRS Monday, urging the agency to analyze data on "abatements" or reductions in tax assessments and to help prevent similar, costly errors in the future.

"$18 billion is hardly chicken feed," said Bond. "It's real money related to errors that could be avoided in many cases. Small business owners already pay plenty of taxes without adding more due to mistakes and then spending time and money to correct those errors. The IRS too has a vested interest in terms of the administrative costs of correcting mistakes made by its employees and small business taxpayers."

The IRS abates hundreds of thousands of small business tax assessments annually because either the business or the IRS made an error in calculating taxes due, according to the GAO.

In a letter to IRS Commissioner Charles O. Rossotti and IRS Small Business/Self-Employed Division Commissioner Joseph Kehoe, Bond wrote: "If the IRS can identify specific issues or guidance that repeatedly results in taxpayer or IRS errors, significant improvements can be made." He recommended the IRS improve tax forms and instructions, implement new educational outreach efforts, and better train IRS employees to handle the specific issue better.

The GAO also found that the IRS already collects some data on small business tax abatements, although significant improvements in this data remain to be implemented. In particular, there is little readily available data on who made errors and how and why the errors occurred. In addition, the GAO discovered that the IRS' new Small Business/ Self-Employed (SB/SE) Division was not utilizing the data that currently exists.

To improve the IRS' ability to understand and address tax abatements for small businesses, the GAO recommended that the IRS evaluate the benefits and costs of various steps for improving existing data or collecting additional data on the volume, nature, and burden of small business tax abatements, and use any improved or additional data to study cost-effective ways to reduce or eliminate the errors in tax assessments that have to be abated.

Bond urged the IRS "to develop a framework for evaluating the costs and benefits of the GAO's recommendations and implement those that are cost effective." He called on the agency, at a minimum, to start using existing data to help reduce errors and continue to improve taxpayer service.

To add your voice to Letters to the Editor, write editor@smartpros.com. All letters become the property of SmartPros and may be edited for space, clarity, relevance and fairness upon publication. Read the most recent Letters to the Editor.