Not reporting rental income

Discussion in 'Tax' started by Alex M, Jul 28, 2007.

  1. Alex M

    Alex M Guest

    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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    Alex M, Jul 28, 2007
    #1
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  2. Alex M

    Dick Adams Guest

    "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?


    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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    Dick Adams, Jul 30, 2007
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  3. Alex M

    Phil Marti Guest

    "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?


    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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    << nor can it used, for the purpose of avoiding penalties >>
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    Phil Marti, Jul 30, 2007
    #3
  4. Alex M

    Brew1 Guest

    "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?


    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.

    << ------------------------------------------------------- >>
    << 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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    << Copyright (2006) - All rights reserved. >>
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    Brew1, Jul 30, 2007
    #4
  5. Alex M

    John L Guest

    > 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

    << ------------------------------------------------------- >>
    << 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. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    John L, Jul 30, 2007
    #5
  6. Alex M

    Mike Guest

    "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?


    No

    Mike

    << ------------------------------------------------------- >>
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    << 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. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Mike, Jul 30, 2007
    #6
  7. Alex M

    Guest

    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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    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
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    << Copyright (2006) - All rights reserved. >>
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    , Jul 30, 2007
    #7
  8. "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?


    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.

    << ------------------------------------------------------- >>
    << 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. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    John H. Fisher, Jul 30, 2007
    #8
  9. Alex M

    Bill Brown Guest

    "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?


    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.

    << ------------------------------------------------------- >>
    << 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. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Bill Brown, Jul 30, 2007
    #9
  10. Alex M

    Mike Wellman Guest

    "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?


    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 >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Mike Wellman, Jul 30, 2007
    #10
  11. Alex M

    ed Guest

    "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?


    We have an extensive "underground economy" in cash only
    where no one reports the income and no one reports the
    expenses. If properly taxed we probably woundn't have a
    deficit, so these "tax cheats" are costing you and me MONEY.

    We could stop a considerable amount of it with the FAIR TAX
    where the tax is based on consumption rather than income,
    let alone the accounting savings. The regulation of State
    Sale Taxes is much more efficient than our FET so once the
    rate is set the system should lower taxes while increasing
    tax income due to efficiency and tapping the underground
    economy. People get hostile and nit-pic at FAIR TAX
    features without considering the tremendous advantages it
    offers overall. The objections are all hollow when you look
    at them objectively and in relation to the present mess we
    have. Our tax advisory boards didn't recommend it because
    they were directed to find a solution WITHOUT any kind of
    consumption tax, thereby ruling out any meaningfull insight
    from that quarter.

    So, your friend would be taxed under FAIR TAX when he spends
    the rent to buy grocieries, even though the tenant doesn't
    report the rental income as a taxable "purchase" (which he
    should). It creates more tax income than the present system
    of neither reporting anything.

    ed

    Moderator:
    While the conjectures of the respondent may have merit,
    The Charter of the newsgroup restricts tax discussions
    to current tax laws and those under consideration. Is a
    national consumption tax under consideration?

    << ------------------------------------------------------- >>
    << 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. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    ed, Jul 31, 2007
    #11
  12. Alex M

    joetaxpayer Guest

    >> 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.


    There are some state where a renter is allowed to take a
    deduction for their rent, up to some limit. It wouldn't take
    a supercomputer to discover a rent deduction at 123 main
    street, with no corresponding schedule E along with claimed
    rental income. This scenario hints at both 'wrong' and
    'stupid', not sure which is worse.

    JOE

    << ------------------------------------------------------- >>
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    << 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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    joetaxpayer, Jul 31, 2007
    #12
  13. Alex M

    Guest

    It's a crying shame there is so much abuse on this. A simple
    Tax credit for renters would force out billions in
    unreported income.

    Why are such simple solutions avoided??

    Nichols
    CBS

    Moderator:
    When logic or simplicity coincide with tax legislation.
    it means Congress was asleep at the swith.

    Or better put: When someon says "Tax Simplification", I
    reach under my pillow and click off the safety catch on
    my gun.

    << ------------------------------------------------------- >>
    << 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. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    , Jul 31, 2007
    #13
  14. "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?


    This really isn't a forum on how to commit tax fraud.
    (I think intentionally not reporting rental income could be
    just that)

    Also, I think that somewhere in the past week or so, I saw
    that the IRS put out something on just this topic -
    underreporting of rental income. So, its safe to say that
    the IRS is cognizant of this scam of yours. That being the
    case, expect more vigilance from the IRS in this area.

    How lucky are you at playing the IRS audit lottery?

    ___________________________________
    <<< Benjamin Yazersky, CPA [NJ & NY] >>>
    -----> real address on hobokeni or hobokenx <-----

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    << nor can it used, for the purpose of avoiding penalties >>
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    Benjamin Yazersky CPA, Aug 1, 2007
    #14
  15. Alex M

    None Guest

    On Jul 28, 1:28 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?


    You have to be kidding? Of course he's wrong. Besides that
    there's clearly something wrong with his ethics. Not much
    difference here and what those guys did at Enron....just a
    matter of magnitude.

    Dick Adams mentioned the guy who got 3 years. To show you
    how seriously the IRS takes provable fraud, one guy
    overreported expenses by a mere $1000 and got 6 months.
    Another underreported income by about the same amount. He
    too got 6 months.

    The biggest issue here is his lack of integrity.

    << ------------------------------------------------------- >>
    << 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. >>
    << Copyright (2006) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    None, Aug 1, 2007
    #15
  16. Alex M

    ed Guest

    <> wrote:

    > It's a crying shame there is so much abuse on this. A simple
    > Tax credit for renters would force out billions in
    > unreported income.
    >
    > Why are such simple solutions avoided??


    ANOTHER tax credit to appease a minority. RE already has
    the best tax credit available with depreciation, Schedule E
    expenses, and more room for cheating than on a Schedul C or
    A. PLUS the investment keeps up with inflation and has a
    high cash yeild. I don't think we have to pamper (payoff
    with a credit) anyone (them) honest. They'll cheat on top
    of the credit (ala the Earned Income Credit to entice people
    to go out an earn money).

    ed

    << ------------------------------------------------------- >>
    << 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. >>
    << Copyright (2006) - All rights reserved. >>
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    ed, Aug 3, 2007
    #16
  17. ed <> wrote:
    > <> wrote:


    >> It's a crying shame there is so much abuse on this. A simple
    >> Tax credit for renters would force out billions in
    >> unreported income.
    >>
    >> Why are such simple solutions avoided??


    > ANOTHER tax credit to appease a minority. RE already has
    > the best tax credit available with depreciation, Schedule E
    > expenses, and more room for cheating than on a Schedul C or
    > A. PLUS the investment keeps up with inflation and has a
    > high cash yeild. I don't think we have to pamper (payoff
    > with a credit) anyone (them) honest. They'll cheat on top
    > of the credit (ala the Earned Income Credit to entice people
    > to go out an earn money).


    The idea is that a renters credit would smoke out who
    receives the rental income, not that the credit would be
    sufficient to make people not want to cheat.

    Stu

    << ------------------------------------------------------- >>
    << 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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    << Copyright (2006) - All rights reserved. >>
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    Stuart Bronstein, Aug 4, 2007
    #17
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