Tax gap : actions that could improve rental real estate reporting compliance : report to the Committee on Finance, U.S. Senate / [GAO contact, James White].

Format:

Book

Government document

Author/Creator:

White, James.

Contributor:

United States. Government Accountability Office.

United States. Congress. Senate. Committee on Finance.

Language:

English

Subjects (All):

Taxpayer compliance--United States.

Taxpayer compliance.

United States.

Tax evasion--United States.

Tax evasion.

Income tax--United States.

Income tax.

Physical Description:

1 online resource (ii, 44 pages, digital, PDF file)

Other Title:

Actions that could improve rental real estate reporting compliance

Rental real estate reporting compliance

Place of Publication:

[Washington, D.C.] : U.S. Government Accountability Office, [2008]

System Details:

text file

Summary:

As part of its most recent estimate of the tax gap, for tax year 2001, the Internal Revenue Service (IRS) estimated that individuals underreported taxes related to their rental real estate activities by as much as $13 billion. Given the magnitude of underreporting, even small improvements in taxpayer compliance could result in substantial revenue. GAO was asked to provide information on rental real estate reporting compliance. This report (1) provides information on the extent and primary types of taxpayer misreporting of rental real estate activities and (2) identifies challenges IRS faces in ensuring compliance and assesses options for increasing compliance. For estimates of taxpayer misreporting, GAO analyzed a probability sample of examination cases for tax year 2001 from IRS's most recent National Research Program (NRP) study of individual taxpayer compliance. At least an estimated 53 percent of individual taxpayers with rental real estate misreported their rental real estate activities for tax year 2001, resulting in an estimated $12.4 billion of net misreported income. This amount of misreporting is understated because IRS knows it does not detect all misreporting during its NRP examinations and adjusts the amount of misreporting it detects to estimate the tax gap. Also, the rate of misreporting of rental real estate activity was substantially higher than for some other sources of income, such as wages, a disparity that undermines the fairness of the tax system. Misreporting of rental real estate expenses was the most common type of rental real estate misreporting. Limited third-party information reporting for rental real estate activity is among the challenges IRS faces in ensuring compliance for rental real estate reporting. While information reporting, such as financial institutions sending information to IRS about taxpayers' mortgage interest payments, improves compliance, it is not practical to implement and enforce broad, new information reporting.

Requirements for rental real estate activities. However, improving existing information reporting requirements is one of various options that could improve compliance. For example, based on current law, whether rental real estate property owners must file information returns for certain expenses they incur depends on whether the owners' rental activities are considered a trade or business, but the law does not define how to make this determination. Another approach to improving compliance is to require taxpayers to report additional detail about their rental real estate activities on tax returns. For example, requiring taxpayers to report complete property address information, which GAO found that some taxpayers did not report, could help IRS address misreporting. Requiring additional detail on tax returns could also compel paid tax return preparers, used by about 80 percent of individual taxpayers who report rental real estate activity, to obtain more accurate information from taxpayers. Enhanced IRS guidance, such as on required recordkeeping, and additional IRS outreach to paid preparers and others about rental real estate misreporting could also improve compliance.

Notes:

Record is based on bibliographic data in ProQuest U.S. Congressional Research Digital Collection. Reuse except for individual research requires license from ProQuest, LLC.

Includes bibliographical references.

Electronic reproduction. [Bethesda, Md.] : ProQuest, 2004. digital, PDF file. ProQuest U.S. Congressional Research Digital Collection. Mode of access: World Wide Web via ProQuest website.

Other Format:

Print version: Tax gap

Microfiche version: Tax gap. CIS 2008 J942-478

Access Restriction:

Restricted for use by site license.