Tax Administration:

Information Returns Should Increase Proper Reporting of Farm Income

GGD-86-69: Published: Jul 22, 1986. Publicly Released: Jul 22, 1986.

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Pursuant to a congressional request, GAO studied the need to improve taxpayer compliance in reporting taxable commodity credit loan and crop insurance income, specifically ways in which the Internal Revenue Service (IRS) could better detect unreported income.

GAO found that, in 1982: (1) 7 percent of crop loan and insurance income recipients failed to file federal income tax returns; (2) 77 percent of the taxpayers whose returns GAO reviewed failed to properly report their income; (3) computer matching of information returns with tax returns should help IRS to determine whether income was properly reported and the applicable taxes were assessed; and (4) IRS should improve its forms, filing instructions, and computer programs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS clarified the forms and instructions for commodity credit loan and crop insurance information returns. IRS clarified tax year 1986 instructions by instructing taxpayers to report crop insurance payments in box 7 of Form 1099MISC. For tax year 1987, IRS revised Schedule F and Form 4835 to include boxes to check indicating optional year reporting elections.

    Recommendation: The Commissioner of Internal Revenue should clarify instructions and forms concerning commodity credit loan and crop insurance income so that taxpayers and IRS can more efficiently and effectively use information returns.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: IRS plans to rely on its examination approach by which it will match information returns to income reported on tax returns only when taxpayers are selected for audit. This will satisfy, in part, the intent of this recommendation, but, since IRS plans to do no more, GAO might was well close this recommendation.

    Recommendation: The Commissioner of Internal Revenue should incorporate commodity credit loan and crop insurance income into the IRS document matching program.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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