Treasury Inspector General for Tax Administration
June 4, 2009
Contact: Robert Sperling
The Internal Revenue Service (IRS) should take additional steps to ensure that farmers are properly reporting subsidies and other income received from the Federal Commodity Credit Corporation (CCC), according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA). These steps could increase tax revenues by an estimated $94 million over five years.
The CCC is an agency of the United States Department of Agriculture (USDA) that was created to stabilize, support, and protect farm income and prices. Farmers can pledge some or all of their production to secure a CCC loan and elect to immediately recognize the loan proceeds as taxable income. The USDA also sells and exchanges commodity certificates to farmers to help minimize CCC loan forfeitures and allow commodities to be marketed more freely and competitively. If a CCC loan is repaid using a commodity certificate and the market value of the commodity represented by the certificate is less than the loan amount, a taxable gain may occur.
TIGTA found that, between 2003 and 2005, the IRS received 18,813 Forms 1099-G with mismatched names or identification numbers reporting income payments of $190.8 million from the USDA. As a result, TIGTA estimates that 317 farmers may have avoided paying $318,000 in taxes, interest and penalties related to unreported CCC income payments.
In addition, TIGTA reviewed a sample of the 19,465 farmers who used commodity certificates to repay CCC loans between 2003 and 2005 and found that $21.1 million in market gains were not properly reported. However, without further investigation by the IRS, it is not possible to determine by how much these improperly reported gains affected tax liabilities.
"The IRS is to be commended for initiating the use of information returns reporting returns reporting the taxable income from repaying amounts borrowed with commodity certificates," commented J. Russell George, the Treasury Inspector General for Tax Administration. "The filing of information returns is central to the success of the nation's voluntary tax system because it allows the IRS to more economically and efficiently detect and pursue noncompliant taxpayers who can create unfair burdens on honest taxpayers and diminish the public's respect for the tax system."
TIGTA recommended that the IRS work with the USDA to reduce the number of information returns reporting CCC income payments that contain inaccurate names and identification numbers. The IRS should also explore compliance strategies to address potentially millions of dollars of improperly reported income from CCC loan forfeitures and suspected cases of underreporting that the IRS does not pursue due to resource constraints. The IRS agreed with TIGTA's recommendations.
To read the full report, including the scope, methodology and the IRS's complete response: https://www.treasury.gov/tigta/auditreports/2009reports/200930068fr.pdf.
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