Appendix III Legislative Actions Taken in Fiscal Year 1992 on GAO Recommendations Congress Should Enact Legislation to (1) Require Buyers Who 114 Legislative Actions Taken in Fiscal Year Expanded Reporting Recommendation(s) to Congress GAO/GGD-91-38, 03/29/91 This report responded to a request from the Chairman, Subcommittee on Private Retirement Plans and Oversight of the Internal Revenue Service, Senate Committee on Finance. It discussed how third-party information reports might help increase taxpayer compliance with the requirements for reporting interest payments made under seller-financed mortgages. Under this mortgage arrangement, the individual seller finances all or part of the buyer's purchase of the property. The Internal Revenue Code requires that the seller pay tax on the interest income received from the buyer. IRS requires sellers to report on Schedule B (Interest and Dividend Income) of their Form 1040s the amount of interest income received from the buyer and the buyer's name. The Internal Revenue Code stipulates that buyers who itemize deductions can deduct their mortgage interest payments to sellers. IRS requires that buyers report sellers' names and addresses on Schedule A (Itemized Deductions) of their Form 1040s. Federal law does not give IRS the authority to require buyers to provide sellers' Social Security numbers nor does IRS require buyers to send sellers a notice that IRS is aware of the interest payment made to them. On the basis of its analysis, GAO concluded that as much as $200 million in 1989 federal taxes may not have been paid because of noncompliance in reporting seller-financed mortgage interest income and deductions. GAO believed that if legislation was enacted to require buyers to report sellers' Social Security numbers, most of this tax revenue would have been paid due to increased voluntary compliance. To pursue any remaining unpaid taxes, IRS could use the numbers as part of an enforcement program to identify sellers who fail to report mortgage interest as well as buyers who overstate mortgage deductions. Congress should enact legislation to require buyers who deduct seller-financed mortgage interest to report on their tax returns the name and Social Security number of the seller and ⚫ authorize IRS to penalize (1) buyers who fail to provide the seller's identification number and cannot show that they made reasonable efforts to obtain it and (2) sellers who refuse to provide their numbers to buyers. Legislative Actions Taken in Fiscal Year Recommendation(s) to the Actions(s) Taken And/or If Congress enacts legislation to require buyers to report sellers' Social Security numbers, the Commissioner of Internal Revenue should use the sellers' and buyers' numbers to study the extent of taxpayer noncompliance and, on the basis of the study's results, implement an enforcement program, such as computer matching, to pursue cases of potential noncompliance. Congress implemented the GAO recommendation by including in the Energy Act of 1992 (P.L. 102-486, dated October 24, 1992) a provision requiring the reporting of seller-financed mortgage interest. The act, among other things, requires taxpayers claiming deductions for such interest to provide IRS with the name, address, and taxpayer identification number of the seller. Conversely, it requires sellers reporting such interest income to provide IRS with the same information regarding the buyer. The act also includes a provision that would penalize buyers or sellers who either refuse to provide their taxpayer identification numbers to the other party or who refuse to report the required information on their tax returns. These provisions became effective with taxable years beginning after December 31, 1991. As a result of this action, the Joint Committee on Taxation estimated an additional $565 million in revenue will be generated over the next 5 years. Appendix IV Listing of Open Recommendations to Congress Congress Should Clarify the Law by Expressly Authorizing Congress Should Explore the Level of Tax Evasion With the If Evasion is Sufficiently High, Congress Should Congress Should Amend the Internal Revenue Code to Allow Workers Along the Lines That GAO Recommended in its 18 36 42 44 70 (1) Specifically Provide IRS Authority to Withdraw a 89 95 |