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Required Reporting to
the I.R.S.
Sellers of real property will have
certain information regarding the sale reported to the Internal Revenue
Service.
This required reporting is a consequence of the Tax Reform Act of 1986; it
is intended to encourage taxpayer compliance and aid in audit and
enforcement efforts by the I.R.S.
To help you better understand this subject, the Land Title Association has
answered some of the questions most commonly asked about Required Reporting
to the I.R.S.
Who is required to report to the I.R.S.?
A. Sellers of real property, under guidelines established by the I.R.S., are
required to have their gross proceeds from the sale reported on a Form
1099S. When a settlement agent is used, the I.R.S. makes this agent
responsible for the delivery of the information on the Form 1099S.
The settlement agent generally will be the escrow agent or title company;
however, it may be an attorney, real estate broker or other person providing
settlement services.
What is an I.R.S. Form 1099S, and what will be reported?
The Form 1099S is the reporting form adopted by the I.R.S. for submitting
the information required by law.
The information will be transferred onto magnetic media by the settlement
agent who will store the information and make the required report to the
I.R.S. The settlement agent is also responsible for keeping a master copy of
all transactions reported.
In general, information required by the I.R.S. falls into the following
categories:
(1) The name, address and taxpayer ID number (social security or tax
identification number) of the seller(s)
(2) A general description of the property (in most cases an address)
(3) The closing date of the transaction
(4) The gross proceeds of the transaction (even though gross proceeds do not
correspond to taxable income)
(5) Any property involved as part of the transaction other than cash or cash
equivalent
(6) The name, address and taxpayer identification number of the settlement
agent.
On what type of transactions is a Form 1099S required?
Currently, typical homeowner transactions covered include sales and
exchanges of 1-4 family residential properties such as houses, townhouses,
and condominiums. Also reportable is stock in cooperative housing
corporations and mobile homes without wheels.
Specifically excluded from reporting are foreclosures and abandonment of
real property and financing or refinancing of properties.
What happens if the seller(s) refuses to provide the taxpayer
identification number for the Form 1099S?
Should the seller fail to provide the identification number and certify its
correctness, the settlement agent may choose to:
(1) Delay the closing of the transactions until the information is
furnished, or
(2) Complete the transaction and report to the I.R.S. that an attempt was
made to obtain the information from the seller.
How is the sale reported when there is more than one seller involved or
when multiple sellers do not own equal interests in the property?
Multiple sellers may allocate the gross proceeds among themselves for
purposes of reporting. If there is no allocation, an incomplete allocation
or conflicting allocations, then the entire gross proceeds will be reported
for each seller.
Where can I go for further information on taxation of real property?
The I.R.S. provides free publications that explain the tax aspects of real
estate transactions. You may wish to order:
Publication #523 "Tax Information on Selling Your Home"
Publication #530 "Tax Information for Home Owners"
Publication #544 "Sales and Other Dispositions of Assets"
Publication #551 "Basis of Assets"
To place your order, phone toll-free (800) 829-3676
Article by CLTA
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