A photo caption in Business Wednesday incorrectly identified an IRS official appearing at a congressional hearing with commissioner Lawrence B. Gibbs. He was Michael J. Murphy, senior deputy commissioner. (Published 2/19/88)

The Internal Revenue Service will waive tax penalties for taxpayers who paid too little in 1987 because the IRS provided incorrect answers to their tax questions, Commissioner Lawrence B. Gibbs said yesterday. The service also is looking into whether it has the legal power to waive interest on the additional taxes.

In the past, the IRS has said the advice given by agents who answer telephone inquiries is not binding, leaving the taxpayer liable for full penalties if excessive deductions or credits are mistakenly taken on the basis of that advice.

This year, as taxpayers struggle to cope with the revised tax code that Congress approved in 1986, the IRS has adopted several measures to help taxpayers make the transition, the penalty waiver being one of the measures.

Gibbs said after his appearance before a Senate hearing that taxpayers will have to prove that they prepared their tax return in accordance with information provided by IRS officials on the other end of the telephone line, probably by citing the name of the person they talked to and the day and time of the call.

"Within the limit of the law, we are trying to do as much as we can do," Gibbs told the oversight subcommittee of the Senate Finance Committee.

But to get advice from the IRS, a taxpayer has to be able to reach someone. Subcommittee chairman David H. Pryor (D-Ark.) said eight members of his staff had spent much of the previous week telephoning various information numbers to test the accuracy and availability of the service.

The IRS employees who the staff aides reached were courteous and helpful, Pryor said, but the aides often encountered busy signals. Pryor himself spent 22 minutes yesterday morning trying to reach the IRS' advice service before he could get through. The staff has not yet calculated how many of the roughly 75 IRS answers in the informal telephone survey were accurate.

"It is going to cause a lot of frustration and we've got to look at beefing up that telephone service," Pryor said.

Gibbs responded that 85 percent of taxpayers get through on the first or second call, but said he would be delighted if Congress approved additional funding to improve the telephone service. The number of telephone assistants already has been increased to 4,500 from 3,500, and the number of telephone lines has been increased 30 percent.

Gibbs listed a number of other measures the IRS is taking to make the tax filing season go smoothly: 3,000 new employees to process tax returns, more training, a $1 million advertising campaign in conjunction with the Ad Council, more telephone lines for ordering forms and an extensive monitoring process to ensure that IRS agents give accurate answers to telephone questions -- something they have not always done in the past, various studies have shown.

Pryor praised Gibbs' efforts, but said taxpayers remain confused.

Gibbs also told the hearing that Americans were filing their tax returns a bit faster than they have been during the last few weeks, though still slower than they did in 1987. By Feb. 12, the IRS had received nearly 17 million of the 107 million returns it expects, about 10 percent fewer than the service received by this time last year.