Tax Administration:

Improving Compliance With Real Estate Tax Deductions

T-GGD-93-46: Published: Sep 21, 1993. Publicly Released: Sep 21, 1993.

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GAO discussed the need to improve taxpayer compliance with real estate tax deduction law, focusing on: (1) nondeductible payments such as user fees; (2) the confusion over what is and is not deductible; and (3) the simplification of tax documents and redirection of enforcement efforts by the Internal Revenue Service (IRS). GAO noted that: (1) taxpayers overstated their real estate tax deductions by an estimated $1.5 billion for 1988 which led to a $400-million tax loss in 1992; (2) most taxpayers overstate real estate tax deductions because they include nondeductible user fees on their tax returns; (3) taxpayers are confused over what is deductible tax because tax return instructions and local government tax bills do not distinguish between deductible real estate taxes and nondeductible user fees; (4) IRS has begun implementation of GAO recommendations to improve real estate tax deduction law compliance; (5) the National Association of Counties has proposed federal legislation to require IRS to clarify its tax return instructions and mortgage companies to clarify their annual statements, and provide federal funding to local governments for needed changes in their accounting systems and tax bills; (6) IRS should consider requiring information returns from local governments if improvements are not sufficient, but the costs may outweigh the benefits; and (7) information returns on debt forgiveness and automatic verification of taxpayer identification numbers could improve taxpayer compliance.

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