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GGD-95-145R 1 (1995-05-05)

handle is hein.gao/gaobackur0001 and id is 1 raw text is: GAO United States General Accounting Office Washington, D.C. 20548 General Government Division B-261140 May 5, 1995 The Honorable Bob Franks House of Representatives Dear Mr. Franks: This letter responds to questions you raised in your letter of March 21, 1995, about the possible reporting of options transactions to the Internal Revenue Service (IRS) on information returns.' An option is a contract that gives the purchaser the right, in exchange for a premium, to buy or sell a specific amount of a property at an agreed upon price by a specified date (enclosure 1 has more information on options). You asked us to discuss IRS' reasons for not requiring information reporting on options and issues to be considered in reporting and using such information. You also asked how much tax revenue could be generated under information reporting for options. This letter provides descriptive responses to your questions and more details in enclosures. Our responses note relevant considerations but do not address whether an effective information reporting program for options is feasible. We did not attempt, in the limited time we had, to analyze all information received from IRS and industry groups. For example, IRS officials told us that administrative obstacles would challenge the feasibility of reporting and using options information. They believed IRS first needed to study whether a compliance problem exists and whether the obstacles could be addressed. 'Third parties such as banks and brokers file information returns with IRS and taxpayers to report payments such as interest and gross proceeds from stock sales. Enclosure 2 describes such reporting for investment transactions such as stock sales. GAO/GGD-95-145R Options Reporting to IRS /5V oS3=A

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