Recently, the IRS decided to expand on an existing program of mining mortgage payment data to catch tax cheats—anyone who reported less income than they paid in mortgage interest run the risk of getting an IRS audit.

Each year, the home lender sends the home owner a 1098 form, also known as the mortgage-interest statement. The IRS also receives a copy of this form and will cross-check the numbers on this form with the numbers on your tax return. This is to ensure that you did not deduct more interest than what you actually paid and to ensure that the lender reported all interest income.

Due to the economic recession, many people have lost their jobs (and therefore not filing taxes) but are still able to make mortgage payments on their homes from savings. In many cases, people like this may need professional tax help to prove their innocence from tax evasion. Consider the following:

According to the TIGTA report, the IRS had their computer match up filed tax returns with Form 1098s from 2004 and 2005 showing residential mortgage interest paid by individuals. There were hundreds of thousands of 1098s that had no corresponding tax return on file. After some filtering, IRS sent notices to 227,019 non-filers asking that they either file their tax returns or explain why they do not need to file. (Many people were living on savings or tax-free income.)

As a result, nearly 70,000 new tax returns were filed for those two years by the non-filers. For 2005, about 28,000 of those tax returns generated $276 million in assessments. TIGTA estimates that in a given year, this type of audit system will generate between $352 million and $900 million per year in additional tax assessments.

Of course, simply assessing taxes does not guarantee they can be collected. Remember, many people who earned a great deal of money last year or the year before are nearly broke now.

What’s the likelihood that this money will be collected? George and his staff don’t deal in that kind of information. And the IRS doesn’t publish statistics that track collections by these criteria. But look at this population logically:
•    The Form 1098 shows mortgage interest actually paid, not just assessed.
•    These people are paying mortgage interest of $10,000 or more (the TIGTA study considered Forms 1098 with interest of $20,000 or more). People wouldn’t waste that kind of money without equity in the home.
•    Therefore, even if they don’t pay the taxes, when the IRS or a state files a tax lien, there’s apt to be enough equity in the house to force the taxpayer to pay the tax bill if they refinance or sell.

Tax Help Advice: Did you know that if you don’t file a tax return, the IRS and your state can audit that year forever? Yes indeed! If the government is really desperate for money and finds that you owe them money and have the funds to pay the taxes, beware. If you have not filed tax returns for years, file them now and close the statute of limitations for audits and collections. Otherwise the un-filed years are always in jeopardy.

(Source: Eva Rosenberg, MarketWatch)

The IRS may not always have the complete story to explain your un-filed taxes during years that you still have money to pay your bills; you may be using your savings or received a generous gift–it’s good practice to keep all records of monetary gifts, previous savings, and any other relevant documentations in order to prove your innocence if the IRS comes after you for back taxes.

If you receive a notice from the IRS, it’s important to act quickly and carefully. It is unwise to wait a couple of months after receiving an IRS notice because chances are, the IRS problem will only get worse. Remember that you are entitled to professional tax help–this means you can get a tax attorney, CPA, or certified tax resolution specialist to take over your IRS communication and help you handle the situation in a legal manner that will benefit you.

Don’t fight the IRS alone–you can contact our team of experts for a free consultation. Call us at 866-IRS-PROBLEMS (1-866-477-7762) or visit our website at www.TaxResolution.com

More Tax Help, IRS News and Tax Relief Tips:

1. Tax Help For Taxpayers Short on Cash: Filing a Tax Return Late is Better than Filing a False Tax Return
2. Release Your IRS Bank Levy: How a Tax Attorney or Certified Tax Resolution Specialist Can Give You an Advantage
3. Tax Help For Offer in Compromise Applicants: New IRS Changes to Processing
4. Tax Resolution News: IRS Warns Against Frivolous Tax Arguments That Can Incur Severe Penalties
5. Tax Help: How to Resolve Your Back Taxes & Prevent Tax Problems If You’re Short on Cash This Season

Tags: Back Taxes, delinquent taxes, IRS debt, Michael Rozbruch, mortgage-interest database mining, tax attorney, tax help, tax resolution

This entry was posted on Tuesday, September 22nd, 2009 at 10:04 am and is filed under Back Taxes, Seeking Professional Tax Help, Tax news and tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.