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Not reporting rental income

 
 
Alex M
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      07-28-2007, 06:28 AM
One of my colleague was mentioning that he rented his
property and did not report the rental income since he was
barely breaking even. According to him there is no direct
way the IRS will be able to find out the actual rentals
received.

Is it right? If that is the case everyone will do it, right?

Thanks
LV

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Dick Adams
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      07-30-2007, 02:11 AM
"Alex M" <(E-Mail Removed)> wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right?


Do you really need to ask about the difference between
right and wrong?

Your colleague is playing the audit-lottery where the enrty
fee is free, the winnings are minimal, and the cost of
losing can be very high.

I know of a hog farmer who got three years in the slammer
over $5,000 of unreported income - not to mention the
back taxes, the interest, the penalties, and the attorney
fees.

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Phil Marti
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      07-30-2007, 02:11 AM
"Alex M" <(E-Mail Removed)> wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right?


Time will tell, won't it? If he's dumb enough to tell you
this, he's dumb enough to tell it to someone he's peeved,
who will tell IRS, etc. That's one way they could find out.

What's really stupid is that if he's barely breaking even in
cash flow he probably has a loss for tax purposes. I
wouldn't tell him.

--
Phil Marti
Clarksburg, MD

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Brew1
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      07-30-2007, 02:11 AM
"Alex M" <(E-Mail Removed)> wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right? If that is the case everyone will do it, right?


He is required to report the income--it's the law--he is
filing a fraudulent return when he doesn't. If that's not
good enough for him, he should consider these three factors:

1`) a perusal of his bank account, property records, or an audit would
reveal the issue. There is no statute of limitations on fraud.

2) he might benefit from filing a Schedule E--up to $25,000
in annual losses can be taken on rental property if certain
criteria are met.

3) The IRS is always looking at methods of narrowing the tax
gap (the difference between what is collected and what
should be collected) with new reporting requirements and new
software.

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John L
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      07-30-2007, 02:11 AM
> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right? If that is the case everyone will do it, right?


Unless the tenant reports it, which is unlikely unless the
tenant is a business, it's hard to see how they'd find out
unless they audited him and started going through his bank
account statements. Maybe not even then if he doesn't
deposit rent checks and cashes them instead.

I know casual landlords around here who don't report the
income, but don't treat the property as a business and so
don't deduct the expenses either. The extra taxable income
if they reported it all would be insignificant.

R's,
John

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Mike
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      07-30-2007, 02:11 AM
"Alex M" <(E-Mail Removed)> wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right? If that is the case everyone will do it, right?


No

Mike

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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rlsusenet@NOSPAMPUHLEEZschnapp.org
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      07-30-2007, 02:11 AM
Alex M wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right? If that is the case everyone will do it, right?


What are you asking?

Are you asking whether it's "right" for your colleague to
not report rental activity? It's neither ethical nor legal.

Are you asking whether your colleague is likely to get
caught? I'm guessing the answer is no. Your colleague
*probably* won't get caught at it. Your colleague might get
caught if the state government looks at the property tax
records and sees the properties owned by this person, and
somehow figures out that not all the property taxes are
showing up on Schedule A. (Of course, if Your Colleague
*IS* deducting those property taxes, the situation starts
smelling less of laziness and more of fraud.)

Or perhaps Your Colleague's tenant gets unhappy with his
landlord and files a 1099.

Or perhaps Your Colleague gets called in for one of those
random TCMP audits they're considering resurrecting.

These are fairly unlikely scenarios.

Of course, the penalties of a low probability event could
make it worth avoiding. After all, that's why most people
buy insurance.

Worrying about getting caught certainly is ONE reason that a
lot of people just do the right thing.

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John H. Fisher
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      07-30-2007, 02:11 AM
"Alex M" <(E-Mail Removed)> wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right? If that is the case everyone will do it, right?


There is nothing new about people taking income under the
table. However, there are many new ways (old ones as well)
which lead to discovery of such activity at the local,
state, and federal level. Local licensing, property tax
rebates requested by the renters, etc often lead such
discovery.

In any case, your "colleague" is likely cheating him/herself
by not reporting the income/expense (including
depreciation). Often, these properties offer a tax shelter
and provide for the deduction of losses up to $25,0000 from
ones adjusted gross income. Tax avoidance is fine. Tax
evasion can lead to criminal prosecution. Advise your
friend to do what the law requires 'n', if he/she has a
conscience, perhaps he/she will sleep a little better.

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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Bill Brown
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      07-30-2007, 02:11 AM
"Alex M" <(E-Mail Removed)> wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right? If that is the case everyone will do it, right?


Yeah, you can cheat on your taxes and if you get away it
then you've gotten away with it. You can rob banks, too, and
if you don't get caught, you've gotten away with that, too.

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
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Mike Wellman
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      07-30-2007, 02:11 AM
"Alex M" <(E-Mail Removed)> wrote:

> One of my colleague was mentioning that he rented his
> property and did not report the rental income since he was
> barely breaking even. According to him there is no direct
> way the IRS will be able to find out the actual rentals
> received.
>
> Is it right? If that is the case everyone will do it, right?


He is correct that currently, renters do not report rents
paid to the IRS. However, some states have rent credits and
I guess it is possible, I have no clue, that in an audit of
one of them, it could become known. Not to mention possible
rental subsisdy issues, etc.

Most of the airlines and auto manufacturers also barely
break even but I am pretty sure they file tax returns. None
of that is the point I guess except that I have many
landlords/property owner clients and a lot of them break
even or even lose money on paper, yet they own property
valued in the millions. The depreciation not taken is just
the first thing that comes to mind that could make this a
very complicated situation in the future.

If he is just renting a single-hole porta-potty I guess this
is no big deal. If he owns a 200 unit apartment complex then
maybe it is.

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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