The Tax Office dropped part of the $1.4 million in penalties that it slapped on PwC last year because it mixed up some of the documents that it claimed were false and misleading, ATO second commissioner Jeremy Hirschhorn has told a Senate committee.

Mr Hirschhorn revealed the ATO mistake as he fielded questions over the settlement the Tax Office signed with PwC in March which halved penalties for falsely claiming legal professional privilege over tens of thousands of documents relating to five multinational clients.