Tax Administration

Expanded Reporting on Seller-Financed Mortgages Can Spur Tax Compliance Gao ID: GGD-91-38 March 29, 1991

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).

GAO found that, according to an IRS study: (1) some taxpayers failed to correctly report SFM interest paid or received; (2) in one service area, IRS enforcement efforts were severely hampered because it could not locate 978 of the 1,495 corresponding seller returns, mainly because of illegible, incomplete, or missing sellers' names and addresses cited on SFM buyers' tax returns; and (3) the number of SFM would increase and, unless action was taken, noncompliance would continue. GAO also found that: (1) Social Security Number (SSN) reporting has helped improve voluntary compliance in such areas as dependent exemptions, alimony payment deductions, and child care tax credits; and (2) total SFM interest payments exceeded other payments for which SSN reporting is already required. GAO believes that SSN reporting requirements for SFM could generate improved compliance and additional tax revenues.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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