Options Reporting to IRS

GGD-95-145R: Published: May 5, 1995. Publicly Released: May 5, 1995.

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Pursuant to a congressional request, GAO provided information on possible options reporting to the Internal Revenue Service (IRS), focusing on: (1) issues to be considered in reporting such information; (2) how such information would be used; and (3) how much revenue could be generated from options reporting. GAO noted that: (1) IRS does not require options reporting because of its complex nature and administrative difficulties and burdens that may outweigh reporting benefits; (2) an option reporting program may be justified if there is significant underreporting of options income, but IRS does not know the extent of such underreporting; (3) many brokers already report options transactions to their clients, but the extent that this information could be used to improve tax compliance is not known; (4) the complexities of options reporting would complicate computer matching programs and could generate many false leads; (5) issues to be considered in reporting options include the cost-effectiveness of reporting and matching options information and the exemption from reporting payments to certain institutions; (6) there is no sufficient data available to estimate the potential revenues that options reporting might generate; and (7) IRS needs to study whether a compliance problem regarding options reporting exists and whether administrative obstacles could be addressed.

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