Don’t expect tax increases when the new Democratic Congress takes over in January. Despite Republican claims during the recent election, it just won’t happen as long as Dubya remembers how to use his veto pen.
But do expect lawmakers from both parties to continue to look for ways to get more tax money via existing laws.
And attention homeowners: A couple of your favorite tax breaks are on a list of enhanced enforcement possibilities.
At the request of the Senate Finance Committee, the Joint Committee on Taxation put together some "discussion options" for closing the tax gap, the difference between taxes owed and taxes paid. An estimated $345 billion a year goes uncollected.
Senate Finance Committee Chairman Charles Grassley (R-Iowa) and the ranking Democratic member, Max Baucus (D-Montana; he’ll take over the Committee in January), asked for the latest batch of recommendations as a follow-up to a 2005 report.
Among the ways to get people to pay taxes they owe are changes that would directly affect homeowners and their two favorite deductions.
Mortgage interest:
First, the report calls for tightening mortgage interest reporting requirements. Currently, mortgage holders send property owners and the IRS annual information on the amount of interest paid on a real estate loan.
Lawmakers suspect that some of that interest is not actually deductible because it is for debt that exceeds the $100,000 tax ceiling on home equity loans. The IRS could catch such nondeductible interest claims if the form included a method to identify whether a loan was to refinance a property and, if so, revealed the refi amount that exceeds the outstanding balance.
Real estate taxes: The other major home-related write-off that’s drawing potential enhanced enforcement attention is property taxes paid at the state and country (or lower) level. The Joint Tax Committee doesn’t have a problem per se with this deduction. It just thinks Uncle Sam should be brought into the loop.
The report wants a requirement that either state or local governments report to the IRS the amount of real estate tax payments property owners pay or, in cases where the taxes are paid from escrow accounts, that mortgage lenders report the amount to the tax agency.
If the IRS had such information, says the report, it should help reduce improper tax return claims on assessments, services and other non-deductible charges that often are combined with real estate billings.
Report review on tap: In releasing the report, Grassley emphasized the need to "keep finding ways to get taxpayers to pay what they owe and keep chipping away until the tax gap is as small as possible."
This latest report, said Grassley, "gives the committee new options to review in the coming months. We may not end up endorsing all of them, but this document is a good starting point for discussion."
You can read all the latest tax-gap closure recommendations here. You also can tell Grassley, Baucus and their colleagues what you think of the suggestions. Through Dec. 1, the Committee is accepting public comment on the proposals at taxgap@finance-rep.senate.gov.
