Treasury Inspector General for Tax Administration
August 31, 2009
Contact: Li-Yun Chien
The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit report on the Internal Revenue Service's (IRS) use of mortgage interest data and how such data may be used to identify individuals who are not filing or are underreporting income on their tax returns.
The audit report found that large numbers of individuals are paying a significant amount of mortgage interest and are either not filing tax returns or filing returns indicating that their income is not sufficient to cover their mortgage obligations and basic living expenses. TIGTA recommended that the IRS explore the possibility of making greater use of the data provided by Form 1098, Mortgage Interest Statements, to pursue additional nonfilers and underreporters.
TIGTA used data from 2005 to produce a random sample of 100 potential nonfilers, of which 21 individuals 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 such individuals may 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 J. Russell George, the Treasury Inspector General for Tax Administration. "Individuals who fail to file required returns and/or underreport their income create unfair burdens on honest taxpayers and diminish the public's respect for the tax system," added Inspector General George.
The IRS agreed with TIGTA's recommendation and has identified corrective actions to more effectively pursue potential nonfilers and underreporters through the use of mortgage interest data.
To view the report, including the scope, methodology, and full IRS response, go to: https://www.treasury.gov/tigta/auditreports/2009reports/200940112fr.pdf.
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