Tax Administration: Expanded Reporting on Seller-Financed Mortgages Can Spur Tax Compliance
GGD-91-38
Published: Mar 29, 1991. Publicly Released: May 06, 1991.
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Highlights
Pursuant to a congressional request to assist the Internal Revenue Service (IRS) in increasing taxpayer compliance, GAO reviewed buyers' and sellers' reporting of interest payments made or received under seller-financed mortgages (SFM).
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress should enact legislation to require buyers who deduct SFM interest to report on their tax returns the name and SSN of the seller. |
Closed – Implemented
|
P.L. 102-486, signed October 1992, included provisions for SFM reporting as recommended. |
| Congress should enact legislation to authorize IRS to penalize: (1) buyers who fail to provide the sellers' SSN and cannot show that they made reasonable efforts to obtain it; and (2) sellers who refuse to provide SSN to buyers. |
Closed – Implemented
|
P.L. 102-486 provisions for SFM reporting included penalty provisions as recommended. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | If Congress enacts legislation to require buyers to report sellers' SSN, the Commissioner of Internal Revenue should use the sellers' and buyers' SSN 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. |
Closed – Implemented
Tax returns for 1992, filed in 1993, were the first with SFM information. IRS is using SFM data from these returns in any audits of the mortgage interest deduction. IRS has no plans to do any formal computer matching because the costs would be too high for the level of noncompliance. IRS may reconsider doing matching after TSM comes on board. TSM will cut these costs a lot.
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