Capital gains from various investments not likely to escape the notice of IRS

April 13, 1994|By Nelson Schwartz | Nelson Schwartz,Contributing Writer

WASHINGTON -- The millions of Americans rushing to complete their tax returns before Friday's deadline are unlikely to escape the notice of the Internal Revenue Service the way Hillary Rodham Clinton did when she neglected to report $6,498 in profits from commodities trading in 1980.

Thanks to tougher laws and electronic safeguards, IRS computers now compare records of capital gains on tax returns with statements from brokers to ensure that all profits are recorded on tax returns.

Mrs. Clinton's profits came two years before Congress first required brokerages to submit records of capital gains and losses -- Form 1099B -- to the IRS. Before 1982, traders would usually calculate their gains or losses from year-end brokerage reports, with little concern that the IRS could check their information. Now, IRS computers automatically compare millions of tax returns with statements supplied to the IRS by brokerage houses and banks.

The White House said Monday that Mrs. Clinton failed to report the $6,498 capital gain, in part because the commodities firm managing the account never sent her a year-end summary of the trades. There is a statute of limitations of three years on this kind of error, but the Clintons have chosen to voluntarily pay $14,615 in back taxes and interest as a result of the apparent oversight.

In 1992, the IRS electronically received hundreds of millions of various 1099 forms, according to Don Roberts, a spokesman for the agency in Washington. He said that 5.3 million Americans were contacted about apparent discrepancies in their records and that more than $4 billion was recovered by the IRS.

"It's similar to the process we use to check a W-2 from an employer," said Domenic LaPonzina, a spokesman for the Baltimore district office of the IRS. "Employers issue W-2s to employees and to the Internal Revenue Service, and we run a computerized cross-check."

At the time Mrs. Clinton was trading commodities, it was difficult and time-consuming for federal tax auditors to obtain brokerage records of securities and futures trading.

"Brokers didn't have a requirement to issue a statement prior to 1983, so it was difficult to perform the checks," he said. "If it happened today, the chances of us detecting it would be above 95 percent."

Mr. LaPonzina added that in the early 1980s, the IRS would receive reams of 1099Bs, which would take years to examine. With modern computers and other technology in use now, he said, the documents can be a checked in less than two years.

"We are getting closer to matching 100 percent of all returns," added Sam Serio, another IRS spokesman in Baltimore. "It's not like it was when we did it by hand."

"Most large companies give the information directly to us on magnetic tapes," Mr. Serio said. This kind of technology is increasingly allowing the IRS to examine tax returns more closely without making lengthy audits necessary, he said.

Not only do automatic reviews save money, Mr. Serio said, but they free up auditors for criminal cases.

"We used to be 12 years behind private industry in terms of technology," Mr. Serio said, noting that the agency has spent millions of dollars on computers in recent years. "We're not equal to private industry yet, but we're getting closer."

Mrs. Clinton's commodities trading raised eyebrows when it was revealed that she turned $1,000 into a $99,000 gain in a 10-month blizzard of trading, mostly in cattle futures. The gain reported Monday came from a separate account.

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