By: Brian Williams-Hodges, CBS NewsSpecial correspondent Brian Williams and The Associated PressSpecial correspondentBrian WilliamsHodgkinsburg, Va.
(AP) — The Internal Revenue Service has been sending letters to investors about how to manage their investments and avoiding potential tax problems for years, but recently, the agency has been taking a different approach.
The IRS says the new approach is aimed at protecting taxpayers from potential tax penalties if they invest in risky investments, and that it will now ask for a more specific answer when an investor requests one.
The agency’s letter comes in the midst of a tax overhaul that’s drawing scrutiny from Congress and a backlash from the investment industry.
The letter comes just weeks after the IRS announced it was sending letters telling investors they had to ask their tax preparers for more details about their investments.
The letter also asks for information on whether the IRS has ever investigated potential tax issues related to an investment in a retirement account, or any investment in real estate.
The new letter follows a recent letter sent to investors that also asked for more information.
“The IRS will only take actions that are necessary to protect the taxpayer from potential penalties if those actions result in the taxpayer paying a tax,” IRS Commissioner John Koskinen said in a statement.
Under the letter, the IRS says it will ask the fund’s investment adviser, the investment company and the investment manager to provide the IRS with information on investments that were made between Feb. 16, 2010, and May 31, 2020, if the fund is investing in real property.
The letters also ask for the following:Information on the investment in which you are investing and the fund you are invested in.
Information on any investments you have made in that investment.
Any information on any taxes you may have paid or incurred.
The department is also sending letters asking investors to submit additional information, such as information on the names and addresses of their financial advisors and any investments they have made.
At the time of the IRS letter, real estate investment advisers were not required to report their investments on their clients’ returns.
Many retirement funds, especially those for small businesses and individuals, use the investment advisor as the primary source of information on their investments, which can be costly for investors.