Summary: GAO reviewed the Internal Revenue Service's (IRS) administration of the bad check penalty on taxpayers' checks to determine: (1) the number of bad checks returned to IRS; (2) the extent to which IRS assessed the penalty against such checks; and (3) the extent to which penalty assessments covered the costs of processing bad checks and assessing penalties.
GAO found that: (1) IRS assessed penalties on 82 percent of the 184,000 checks that depositories returned during the first 6 months of 1986; (2) it did not assess penalties on the balance because it determined that they were tendered in good faith; (3) the deterrent effect of the bad check penalty was difficult to determine because taxpayers who submitted bad checks were also subjected to bank processing charges and other IRS penalty and interest assessments which acted as deterrents; (4) IRS processing costs exceeded the amount of the penalty assessment for about 59 percent of the bad checks it processed during the first 6 months of 1986; and (5) the 1-percent penalty for bad checks written for large amounts more than offset the costs to process checks written for smaller amounts.
