Can a partner in a venture report all income solely?

[jh...@burntmail.com]

My wife and her siblings pooled their money together and purchased an
apartment as equal partners. All their names are on the title deed.
All the income from the rental units, however, is reported by one
sibling on his income tax from, all the other siblings having agreed
that they would defer their share of the proceeds until after the
building is sold.

Is this permissible under the tax code? Are there tax consequences to
partners forgoing their share of the rental income until after the
sale of the building?

Thank you,

Jim

[Paul Thomas, CPA]

<jh...@burntmail.com> wrote

> My wife and her siblings pooled their money together
> and purchased an apartment as equal partners. All
> their names are on the title deed. All the income
> from the rental units, however, is reported by one
> sibling on his income tax from, all the other siblings
> having agreed that they would defer their share of
> the proceeds until after the building is sold.
>
> Is this permissible under the tax code?

Maybe. Is a partnership return being filed? If not, then there are
problems.

If there is a partnership return being filed, is it in accordance with the
pratnership agreement? If so, then everything is fine, if not, then someone
has problems.

> Are there tax consequences to partners forgoing
> their share of the rental income until after the
> sale of the building?

The partnership agreement can allocate the profits, losses, gains and other
items in any manner that the partners agree to, and that split can be
different than the ownership split.

Lacking any written agreement that defines the income allocation, the
default is by the percentage ownership.

Now, just because a partner didn't receive a distribution from the
partnership, doesn't mean they don't have taxable income (see recent court
case on that matter). So there could be some serious problems if the IRS
determines that a partnership return should have been filed, and that the
split should be like such, and your wife and siblings get hammered on their
share of the income they didn't receive or report from that partnership.

All parties involved should sit down with a very expensive attorney
(independent of all the parties) and get this all on paper - now.

Then go back and fix any existing problems before this gets way out of hand.

--
Paul A. Thomas, CPA
Athens, Georgia

[jh...@burntmail.com]

On Aug 3, 8:40 am, "Paul Thomas, CPA" <paulthomascp...@bellsouth.net>
wrote:

> All parties involved should sit down with a very expensive attorney
> (independent of all the parties) and get this all on paper - now.
>
> Then go back and fix any existing problems before this gets way out of hand.

Many thanks for that thoughtful advice. It's much appreciated.

Jim