When finance and banking groups caught wind of the proposed changes, they protested. According to these groups, the timing of the changes would put a burden on filers. This may seem strange, as much of the new information requested by the IRS is already kept by finance and banking groups. The format of the information became the crux of the issue.
In this post, we’ll review the proposed changes to the 1098. We’ll also consider why finance and banking groups had concerns.
Currently included on form 1098: An interest report for individual paying $600 or more.
New reporting proposed by the “Preserving America’s Transit and Highways Act of 2014:”
- The unpaid balance on the mortgage
- The address of the property securing the mortgage
- The loan origination date
- Real estate taxes paid from ESCROW
- Whether the mortgage is a refinancing during that tax year
Why would reporting this information be a problem? Finance and industry banking groups explained their qualms in a letter to the IRS. Typically, the IRS issues information about reporting requirements early in the tax year. This allows for enough time to gather the required information. In this case, the information was already gathered. Finance and banking companies collect the new information the IRS requested. The problem? Finance and banking companies maintain pieces of the information in separate systems.
Finance and banking institutions have the information requested by the IRS. Compiling that information for the new 1098 would be difficult. Each loan service provider would need to revise their systems. These revisions would also need to be tested for compliance. Loan service providers use different systems for different types of loans. Each system would need to undergo modifications. Systems edits were not the institutions’ only concern with the changes.
Finance and banking institutions expressed concern about completing the forms. Certain terms needed clarification, in their opinion. What does refinancing refer to? What is the definition of unpaid principal? What does the IRS want included in real estate taxes payed from ESCROW? How should filers categorize loans? These challenges led finance and banking institutions to request a postponement.
The IRS granted the postponement. The new reporting requirements for form 1098 will take effect on December 31, 2015.