That's kind of like asking why you have to stop at a red traffic light...answer is: IT'S THE LAW. You must report as taxable income any income, including rental income, from any source. If you do not get a 1099 for the rent then the IRS will never know. But if you are picked for audit...even if picked for no reason other than at randomn, then the auditor, if he is worth his salt, will ask to see your bank accounts (IRS can subpeona all accounts if they desire). He will then see the rental deposits. Anyway, even if IRS does not know, the law says you must report rental income. Our tax system also relies on the honor system to an extent. I would never advise a client not to report taxable income.