Rental Real Estate Owners Are New Audit Targets?

A report (www.treasury.gov/tigta/auditreports/2011reports/201130005fr.pdf) by the Treasury Inspector General for Tax Administration cued the IRS in on the need to better audit owners of rental real estate. The report found that at least 53% of such owners misreported their rental real estate activity in 2001, resulting in an estimated $12.4 billion of net misreported income. The report projected that if the IRS stepped up its examination activities, it would result in as much as $27.3 million over a five-year period, revenue that is sorely needed by the federal government at this time.

The report made three recommendations to the IRS:

• Analyze the population to determine which returns would be best for examination.
• Track the income and loss information provided by real estate professionals
• Update the instructions to Form 8582 to require all taxpayers with passive activity loss carryovers to submit the form with their tax return

In light of the report, the IRS has indicated that it will apply more scrutiny to the tax returns filed by owners of rental real estate.

Source: www.treasury.gov/tigta/auditreports/2011reports/201130005fr.pdf