Form 1099-R Improvement Could Lead to Enhanced Compliance
Form clarification could provide billions toward closing the tax gap.

Generally, distributions from pensions, annuities, profit-sharing and retirement plans, IRAs, and insurance contracts are reported to recipients on Form 1099-R. Many churches and church pension plans have difficulty completing this form, and this difficulty is compounded in the case of ministers who receive a housing allowance.

The Treasury Inspector General for Tax Administration (TIGTA) conducted a review to determine whether the IRS has effective controls and processes in place to ensure that taxpayers and retirement income providers are correctly computing and reporting the taxable portion of retirement income on Form 1099-R. TIGTA estimated that as much as $4.2 billion of the "tax gap" (the difference in taxes paid and taxes owed) can be attributed to underreported retirement income.

TIGTA found that, given the magnitude of underreporting, even small improvements in the IRS's examination of tax returns with retirement income could increase taxpayer compliance and generate substantial revenue to the federal government to reduce the tax gap.

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Posted: May 1, 2012

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