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GAO: IRS needs to get tough with real estate tax deductions.

In a recent report, the General Accounting Office said millions of dollars are being lost to federal and state governments due to the overstatement of taxpayers' real estate deductions.

The GAO reviewed Internal Revenue Service audits of randomly selected 1988 New Jersey, Maryland and Minnesota returns on Which real estate taxes were deducted. According to the GAO, the IRS found only about $37 million of a possible $127 million in overstated deductions. The overstatements were due to the improper deduction of user fees (including water, sewer and trash collection charges) and to the failure to include previously deducted real estate tax rebates.

The GAO recommended the IRS make clear, in instructions to taxpayers and possibly in a worksheet, that user fees are not deductible under Internal Revenue Code section 164.

The GAO also made these recommendations:

* In specific audits, the IRS should check local records on user fees and rebates.

* The IRS should get local governments to write tax bills separating deductible taxes from nondeductible fees, and should negotiate information-sharing agreements with them.

* Congress should pass a law requiring states to file information returns on cash rebates with the IRS.
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Title Annotation:General Accounting Office
Publication:Journal of Accountancy
Article Type:Brief Article
Date:May 1, 1993
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