ABA in a letter Friday formally requested the opportunity to work with the IRS to resolve the issue of whether and how to report — on IRS Form 1098, Mortgage Interest Statement — any accrued but unpaid interest that is added to the principal of modified loans. The letter asks the IRS to engage on the issue through its Industry Issue Resolution program, which offers industry and others an opportunity to submit frequently disputed or burdensome business tax issues for possible resolution through published or administrative guidance.
ABA noted that there is ambiguity in tax rules regarding whether, when and how the accrued interest should be reported, as well as an inconsistency in reporting. The IIR request notifies the IRS of the importance of resolving this issue for the benefit of both lenders and their customers. It also suggests that guidance be prospective in nature, allow sufficient time for any technology and system changes to be made and consideration be given to borrowers who may need to make changes in interest deductions taken on past returns.
