The Internal Revenue Service should check Form 1098 mortgage interest statements to catch tax dodgers, recommended a new report.
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TIGTA used data from 2005 to produce a random sample of 100 potential nonfilers, and found that 21 of them may collectively owe up to $177,715 in delinquent taxes and $107,209 in penalties and interest. A similar random sample of 100 individuals who filed returns showing income insufficient to cover their mortgage and expenses indicated that 37 individuals might collectively owe $265,018 in additional taxes and $61,233 in penalties and interest.
Information reporting is a key component in IRS compliance programs that are designed to detect and pursue noncompliant taxpayers who underreport income, overstate deductions or fail to file tax returns, said TIGTA Inspector General J. Russell George in a statement. Individuals who fail to file required returns and/or underreport their income create unfair burdens on honest taxpayers and diminish the publics respect for the tax system.
The IRS agreed with TIGTAs recommendations and plans to take action. We concur with your recommendation and agree that we should explore the feasibility of making greater use of mortgage interest data to pursue additional nonfilers and underreporters for audit, wrote Christopher Wagner, commissioner of the IRSs Small Business/Self-Employed Division, in a letter to TIGTA.
In addition to the TIGTA report, the Government Accountability Office also issued a report Monday recommending that the IRS closely watch mortgage interest deductions.
"Several options exist for expanding information reporting on taxpayers mortgages and using private sector data to enhance compliance," said the