The National Association of Realtors is supporting legislation that would spare homeowners federal income tax when part of a mortgage loan is forgiven though a “short sale” or foreclosure.

Short sales may occur when home prices fall and mortgage debt exceeds the value of the property. If the lender agrees, homeowners can sell the depreciated homes and settle their debts for reduced sums. Consumers may face tax penalties, however, since the Internal Revenue Service views such transactions as mortgage relief.

“How can we add insult to injury?” asked Realtors association President Pat Vredevoogd Combs. “As if losing your home isn’t painful enough, to turn around and tax a family on what the government calls income is distressing.”

According to the real estate trade group, the U.S. tax code requires a lender who forgives debt to disclose the amount. The disclosure is required whether it is a short sale, foreclosure, deed in lieu of foreclosure or any similar arrangement that relieves mortgage obligations.

If the property is sold for less than the amount borrowed, that difference is considered income. Generally, any forgiven debt that is taxable under federal law would be taxable under California state law, said Linda Goold, tax counsel for the Association of Realtors.

Combs says the law should be changed. “Clearly, it is unfair to tax people on a phantom income, particularly right at the time they have experienced a serious economic loss and probably have no cash with which to pay the tax.”

IRS warns of new e-mail scam that tells victims they are under tax investigation

WASHINGTON – The Internal Revenue Service warned computer users not to fall for phony e-mails that scare people into believing they are under tax investigation – then give scammers access to their computer hard drives.

The tax agency said that the e-mail claiming to be from IRS Criminal Investigation falsely states that the person is under a criminal probe for submitting a false tax return to the California Franchise Board. Opening up an attachment to learn more about the complaint allows those behind the scam to gain remote access to the computer.

The IRS stressed that it does not send out unsolicited e-mails or ask for detailed personal and financial information, including PIN numbers, passwords or other credit card and bank information.

It said that people receiving questionable e-mails should not open attachments or click on any links. Instead, they should forward the e-mails to phishing@irs.gov. It said that since that mail box was opened last year, the IRS has received more than 17,700 e-mails from taxpayers reporting more than 240 separate phishing or scam incidents hosted in at least 27 countries and the United States.

Other scams try to entice taxpayers to enter a fake IRS web site and ask for bank account numbers or tell taxpayers the IRS is holding a refund for them as a ruse to obtain financial account information