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Review:
beanie - 2009-02-27 22:52:00
My thought? Your friend either needs to move, or get a good tax lawyer!
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Miss Hiss - 2009-02-28 03:59:22
From my observations, family money arguments are rarely about logic, and almost always about sheer emotional greed, so I think your friend should give the children what they want now -- all in the name of familial harmony, of course -- and deduct, say, $75 000 from their share of her estate in her will and leave it instead to the local Cats' Home or Donkey Refuge or Children's Orphanage or something similar -- all in the name of teaching greedy children a lesson after she's gone, of course. Love, R xxx
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steve - 2009-02-28 05:16:53
I can't really give you any financial advice, except to say that's why I don't get into agreements like that. However, I do like Miss Hiss's solution, providing she can afford to do it in the short run. If not, dissolve this partnership asap. I can't believe someone went to all the trouble to figure that all out. :)
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lost one - 2009-03-02 15:50:51
Yep, it is totally taking advantage of her situation. Taxes, regardless of the plusses and minuses are based on a percentage of the tax-payer's income. She is getting the correct amounts back, based on her income and the inclusion of the property. Its unfortunate, but, if the property is in her name, no matter the outcome, it falls to her to make the payments. If something should happen, she is ultimately responsible, and whatever signed document they have on the side likely has little legal value. Her risk, her benefit. Its a gesture of "good faith" that your friend would ever want to make up the difference in taxes to them with a personal gift. (which by the way needs to be less than $3999, or it becomes trackable and immediately taxable by the IRS) Taxes are figured based on income and credits. YOUR income and credits. As much as they might like to have the income of your friend, The childandplusone is dreaming if they think they should get a bigger refund because some's income is different than their own. I would LOVE to be able to get a refund based on someone else's taxes. Give a refund based on Bill Gate's income please.
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Crystal Balls - 2009-03-07 15:33:11
Lost One has the right answer, though I do like Miss Hiss's response, as well. Your income tax refund or payment is based on YOUR income. Her only obligation would be - at most - the dollar amount difference that would be paid to the other "owners" were they to file on their own behalf.
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Jana - 2009-03-11 02:52:00
I am an accountant working on my Master of Accounting and Taxation. It seems to me that this is a Partnership by estoppel. I assume that they did not elect out of being treated as a partnership (via IRC section 761). If they had, then they would not be required by law to follow the rules of partnership taxation - filing a 1065 tax return which would kick out a k-1 they would use to prepare their 1040's. 2+ people who own rental property (and are not married) can elect out of this partnership requirement because rental property, by nature, is a passive/investment activity, and therefore do not belong in Subchapter K of the code where partnership taxation is found.
However, it seems to me that it might be in their best interest to go a head and allow the formation of a partnership as their individual bases (what they contributed toward it's purchase) will determine the allocation of deductions and other items.
They can contact a lawyer who will draw up a parnership agreement to state that each person can be allocated any percentage of income and deductions that are different than what their bases are as long as they meet the 3 requirements of the Basic Test for Economic Effect:
1. They must maintain capital accounts as per IRC Section 705.
2. They must liqudate the partnership according to the positive capital accountas. Negative capital accounts get nothing upon liquidation.
3. If there is a deficit in a partner's capital account upon liquidation, that patner must make the other's whole. Deficit make-up.
This is the thing that most people don't realize.... you can form a partnership without even realizing you are doing so.
It is always wise to consult CPA's and Attorneys in these cases, though I know it can get quite spendy!
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