Information Reporting Requirements for State and Local Income Tax Refunds

Pursuant to a congressional request, GAO evaluated the benefits to the Federal Government and the costs to the States of implementing the refund reporting requirements of section 6050E of the Internal Revenue Code versus the benefits and costs of implementing H.R. 625, which would amend that section. Section 6050E requires that State and local governments provide written statements to taxpayers specifying the income tax refund amounts paid to them in the prior year, and these statements must be mailed to taxpayers during the month of January following the year during which the refunds were paid. The proposed bill would amend the law by allowing State and local governments to mail written statements along with the refund checks, rather than mailing them separately in the following January.

GAO found that States' costs to comply with the present reporting requirement may be as much as or more than the Federal revenues gained from it. On the other hand, H.R. 625 would further reduce such costs without adversely affecting estimated Federal revenues. Therefore, GAO concluded that, since the January mailing would produce only marginal estimated Federal tax revenues, H.R. 625 is a reasonable alternative to the present law.