Tax Administration: Overstated Real Estate Tax Deductions Need To Be Reduced
GGD-93-43
Published: Jan 19, 1993. Publicly Released: Feb 22, 1993.
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Highlights
Pursuant to a congressional request, GAO reviewed federal real estate tax deductions in Montgomery County, Maryland, and New Jersey and Minnesota, focusing on the: (1) extent to which taxpayers overstated their federal real estate tax deductions and related tax losses; and (2) reasons for overstated deductions.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress should consider legislation that would require states to annually send IRS and taxpayers an information return on any cash rebates for real estate tax payments. |
Closed – Not Implemented
|
The legislative proposal does not have the support of the NACO and is effectively dead. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | The Commissioner of Internal Revenue should include rules on the tax deductibility of user fees, special assessments, and rebates in the Form 1040 instructions and consider ways, such as an optional worksheet, to help taxpayers calculate the real estate tax deduction. |
Closed – Implemented
IRS has expanded the discussion of real estate taxes in several publications. IRS has not created a worksheet since the thousands of local taxing authorities have not standardized their real estate bills. IRS believes the new instructions are detailed enough to include the need for a worksheet. GAO accepts this explanation.
|
| Internal Revenue Service | The Commissioner of Internal Revenue should work cooperatively with local governments to revise their real estate tax bills in order to identify user fees and special assessments, label these charges as not tax deductible, and notify taxpayers that the local government may report the deductible tax to IRS. |
Closed – Not Implemented
IRS held discussions with local governments about changing the bills. However, due to resistance from many of these governments, IRS will not actively pursue this recommendation. IRS does not foresee any federal funding becoming available for this change.
|
| Internal Revenue Service | The Commissioner of Internal Revenue should notify examiners to check local records on user fees and state records on rebates to verify real estate tax deductions. |
Closed – Implemented
IRS has notified examiners but IRS noted that IRS examiners have many other checks to make.
|
| Internal Revenue Service | The Commissioner of Internal Revenue should negotiate agreements with local governments on their sharing of data on real estate tax payments by individuals, and use the data in IRS enforcement programs. |
Closed – Not Implemented
IRS has met with local governments on such sharing. However, due to resistance from some local governments and the IRS costs to match incompatible data, IRS will not be actively pursuing this recommendation.
|
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