IRS mining mortgage and UBS data to find tax cheats

UBS (UBS) data won't be the only data used to find tax cheats. Thanks to a report by the Treasury Inspector General for Tax Administration (TIGTA), called "Mortgage Interest Data Could Be Used to Pursue More Nonfilers and Underreporters," the IRS plans to start looking at how it can use Form 1098 mortgage interest statements to catch tax dodgers.

TIGTA auditors found that many people pay significant levels of mortgage interest, yet they are not filing tax returns or filing returns indicating that their income is not sufficient to cover their mortgage obligations and basic living expenses. The report recommended that the IRS explore the possibility of making greater use of data from mortgage interest statements to pursue tax evaders.

"Information reporting is a key component in IRS compliance programs that are designed to detect and pursue noncompliant taxpayers who underreport income, overstate deductions or fail to file tax returns," said TIGTA Inspector General J. Russell George in a statement. "Individuals who fail to file required returns and/or underreport their income create unfair burdens on honest taxpayers and diminish the public's respect for the tax system."

In a related story, the IRS decided to shift the audits of wealthy Americans suspected of offshore tax evasion to its elite division that examines businesses. The IRS filed the formal request for data on 4,450 UBS clients with the Swiss as part of the agreement that ended the lawsuit between the IRS and UBS. This is in addition to the 250 names already received after the successful settlement in February with UBS.

In fact, Bloomberg reports that the IRS posted internal job listings on Monday seeking auditors to work for a newly created office within its Large and Mid-Size Business division that will monitor what the IRS called the "global high-wealth industry." Clearly the IRS intends to aggressively use the data from UBS to catch bankers and lawyers who've helped wealthy Americans evade taxes, as well as the tax evaders.

We've all known for years that many wealthy Americans use sophisticated schemes to avoid taxes. Some of those schemes are legal and some are not. Finally the IRS is starting to find ways to expose those using illegal methods to avoid paying taxes.

Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Tax Breaks and Deductions."

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