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IRS Audits

Chapter 6. Payer Compliance

Section 2. Information Returns and Information Reporting (Cont. 1)

4.6.2  Information Returns and Information Reporting (Cont. 1)

4.6.2.3 
International Information Reporting Issues

4.6.2.3.15  (08-01-2002)
International Referrals

  1. A domestic examiner should make a preliminary analysis of the international features of a return to determine if the case should be referred to the District Program Manager (DPM) with Form 2962, Foreign and Domestic International Transaction Report and Referral Form.

  2. The domestic examiner will refer the case to international if the taxpayer:

    1. Attaches Form 926, Return by Transferor of Property to a Foreign Corporation; Form 1116, Foreign Tax Credit, (if Foreign Tax Credit claimed is greater than $25,000); Form 1118, Foreign Tax Credit-Corporations, (if Foreign Tax Credit claimed is greater than $25,000); Form 2555, Foreign Earned Income; Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts; Form 3520-A, Annual Information Return of Foreign Trust with a US Owner; Form 5471; Form 5472; Form 5713, International Boycott Report; or Form 5735, Possessions Corporation Tax Credit (under Sections 936 and 30A);

    2. Files Form 1065 (with foreign partners); Form 1120F; or Form 1042;

    3. Is a Foreign Sales Corporation (FSC) or controls a FSC; or is an Interest Charge-Domestic International Sales Corporation (IC-DISC);

    4. Has a foreign branch, subsidiary, affiliate, partnership, trust, joint venture, or related entity in any form;

    5. Has possible subpart F issues per the provisions of the IRC section 951 et.seq;

    6. Has a subsidiary, affiliate, or related entity in any form in Puerto Rico, including a domestic corporation qualifying under IRC section 936;

    7. Is involved in an international boycott;

    8. Is a shareholder, officer, director, partner, trustee, beneficiary, or has some other possible involvement in an entity in a tax haven country; or

    9. Answers "yes" to the foreign ownership question on page 3 of its corporate tax return.

     

  3. A domestic examiner may voluntarily submit a Form 2962, requesting participation of an International Examiner (IE) in a case involving a complex and substantial domestic IRC section 482 issue. In addition to completing Form 2962, the domestic examiner may attach a memorandum setting forth the pertinent facts and reasons for requesting participation of an IE.

4.6.2.4  (08-01-2002)
Form 1098, Mortgage Interest Statement

  1. This part of Section 2 explains the filing requirements for Form 1098, Mortgage Interest Statement.

4.6.2.4.1  (08-01-2002)
Introduction

  1. This form is used to report mortgage interest (including points) of $600 or more received by the mortgagor during the year in the course of their trade or business from an individual, including a sole proprietor. See IRC section 6050H.

  2. If an overpayment of interest on an adjustable rate mortgage (ARM) or other mortgage was made in a prior year and the mortgagor refunds (or credits) such overpayment, the mortgagor may have to file Form 1098 to report the refund (or credit) of the overpayment.

4.6.2.4.2  (08-01-2002)
Definitions

  1. The definition of a mortgage under IRC section 6050H depends on the year the mortgage obligation was incurred.

    1. An obligation incurred after 1987 is a mortgage if real property that is located inside or outside the United States secures all or part of the obligation.

    2. An obligation incurred after 1984 but before 1988 is a mortgage only if secured primarily by real property.

    3. An obligation in existence on December 31, 1984, is not a mortgage if, at the time the obligation was incurred, the interest recipient reasonably classified the obligation as other than a mortgage, real property loan, or other similar type of obligation.

     

  2. A collection agent is someone who receives interest payments on behalf of someone else.

  3. Real property includes a manufactured home with a minimum living space of 400 square feet and a minimum width of more than 102 inches of a kind customarily used at a fixed location, including certain mobile homes. See IRC section 25(e)(10).

  4. The payer of record is the individual carried on the mortgagor's books and records as the principal borrower.

4.6.2.4.3  (08-01-2002)
Who Must File

  1. Any mortgagor who receives or reimburses $600 or more interest in the course of their trade or business is required to file a Form 1098.

  2. Even if the mortgagor is not in the trade or business of lending money, the mortgagor may be required to file a Form 1098 if the mortgage was originated or acquired in the course of a trade or business.Example:A real estate developer provides financing to an individual to buy a home in their subdivision, and that home is used for security, the developer would have to file a Form 1098.

  3. A government unit (or any subsidiary agency) receiving mortgage interest from an individual of $600 or more must file this form. See IRC section 6050H(c). Also see Reg. 1.6050H-1(c)(4).

  4. A cooperative housing corporation is an interest recipient and must file Form 1098 to report an amount received from its tenant-stockholders that represent the tenant-stockholder's proportionate share of mortgage interest described in IRC section 216(a)(2). See IRC section 6050H(g).

  5. If the mortgagor is not in a trade or business, they are not required to file. Example:A taxpayer (mortgagor) holds the mortgage on his former personal residence. The buyer makes mortgage payments to the taxpayer. The taxpayer