Apparently, the Department of the Treasury feels that a significant number of real estate property owners have mis-reported rental income. They, as a group, have been singled out for special attention by the IRS. See the article below by Steven Katkov. Steven is an adjunct instructor who teaches Real Estate Law at the University of St Thomas. He is also the Senior Partner in the Katkov Law Group.
The Internal Revenue Service (IRS) should increase its examinations of personal tax returns that report losses from rental real estate activity, according to a new audit report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).
TIGTA’s report, “Actions are Needed in the Identification, Selection, and Examination of Individual Tax Returns with Rental Real Estate Activity,” was conducted because a Government Accountability Office report in August 2008 stated that at least 53 percent of individual taxpayers with rental real estate activity for Tax Year 2001 misreported their rental real estate activity, resulting in an estimated $12.4 billion of net misreported income.
TIGTA found that during Fiscal Years 2008 and 2009, the IRS’s rental real estate Compliance Initiative Program (CIP) examined a small percentage of the 318,339 examinations conducted by revenue agents and tax compliance officers. TIGTA projected that if the IRS increased the percentage of rental real estate CIP tax returns it examined, it could increase the potential tax assessments by $27.3 million over a five-year period.Treasury Report on Underreporting of Rental Real Estate Income
While the revenue raiser of $27 Million over five years doesn’t justify the time, energy and money spent by Treasury on this initiative,* you would be wise to steer clear of the costly and burdensome task of defending an examination of your tax returns involving rental real estate income disclosures. “Every pound saved is a pound earned.” See IRS Tax Tips on this issue here:Seven Tips About Reporting of Rental Income
*Note: Federal gross tax receipts for FY2008 alone were $2.524 Trillion