WASHINGTON — In an effort to collect an estimated $700 million a year in additional taxes, the Internal Revenue Service issued regulations Wednesday requiring that a special IRS form be filed any time a home is sold.
The regulations apply to homes sold after Dec. 31, 1986, although the IRS said it would not penalize any seller who does not comply if a sale closes before May 4 this year.
Using discretion authorized by Congress, the agency exempted from the requirement any residential real estate with more than four units. That means the requirement applies to any house, town house or condominium with four or fewer units, as well as stock in a cooperative housing corporation.
Transactions Not Reported
In passing a landmark tax overhaul last year, Congress required the IRS to implement a reporting requirement on real estate transactions. The lawmakers acted after receiving reports that billions of dollars of profits on property sales escape taxation because the transactions are never reported. Congress estimated the change would bring in $3.5 billion over five years.
The IRS is studying whether to extend the requirement to other real estate transactions, but decided to begin with smaller residential units because that is where most of the potential for abuse lies, said Don Rocken, assistant to the IRS commissioner.
The agency is developing a program under which information from the sales reports will be matched against tax returns, just as bank statements of interest paid are matched to find those who fail to report that interest as income.
Information on real estate transactions will be reported on a Form 1099, similar to the interest-earned form. The form will have to disclose the sale price, names of the seller and buyer and date of the transaction.
As a rule, the report must be filed by the person responsible for closing the sale, usually a broker, title company or attorney. The penalty for failing to file the report is $50, and another $50 penalty is imposed for failing to give the seller a copy.
Rocken indicated that many taxpayers apparently are unaware of their obligation to pay tax on profits--capital gains--they make when they sell their homes.