NEW REAL ESTATE TRANSACTION REPORTING REQUIREMENTS

One of the lesser publicized provisions of the Tax Reform Act of 1986 requires that certain information regarding every real estate transaction closed on or after January 1, 1987 be reported to the Internal Revenue Service on Form 1099-B. This information must be reported by "the person responsible for closing the transaction," and the statute specifies the order in which various parties bear this responsibility as: (1) The closing attorney or title company; (2) The mortgage lender (if more than one mortgage lender, then the primary lender); (3) The seller's real estate broker; (4) The buyer's real estate broker; (5) As prescribed by IRS regulations.

Since attorneys close a vast majority of real estate transactions in North Carolina, most brokers will not bear responsibility for this reporting requirement. However, any broker who expects to personally close any transactions should promptly check into this matter.

The information to be reported includes the date of closing, the proceeds from the transactions, and the seller's name, address, and tax identification number (usually the social security number).

There are currently several unanswered questions about this reporting requirement that brokers should be aware of. Does the tempt "proceeds" mean "sale price" or some other amount? Exactly what is meant by the terms "seller's real estate broker" and "buyer's real estate broker?" (One wonders if the law's authors understand the law of agency as applied to real estate brokerage.) Must the information returns be filed with the IRS on magnetic computer tape, as is currently required for the reporting of securities transactions by securities brokers (using the same form)? Hopefully, the IRS will issue regulations clarifying these makers.

In view of this new requirement and the questions surrounding it, brokers who plan to personally close any real estate transactions should consult the IRS or their tax advisor!