|
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.?
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
Back to Title and Escrow Information
|
