The IRS has informed ABA that it will conduct a formal process to issue guidance on 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 mortgages. The announcement came as the IRS ended a project to address the topic through its Industry Issue Resolution program, which offers industry groups and others an opportunity to submit frequently disputed or burdensome business tax issues for possible resolution through published or administrative guidance.
By using a formal guidance process, the IRS will allow a broader group of stakeholders to submit information and provide public comments. ABA remains hopeful that future IRS guidance will address ambiguity in the tax rules about whether, when and how the accrued interest should be reported. ABA is urging that guidance be prospective in nature, allowing sufficient time for any technology and system changes to be made and consideration to be given to borrowers who may need to be make changes in interest deduction taken on past returns.