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01 Desember 2008

Re: [taxchat] Equitable party

It is generally nice to have the proper FORM to go along with one's tax positions.  But often with IRS taxes the SUBSTANCES over Form takes precedence.
 
Using a NOMINEE or STRAW MAN to take bare legal title to an asset is a concept that is allowable under the IRS rules.    It is also, somewhat out of the ordinary, so you should have good solid supporting documentation to back up the position that identifies the true economic owner.
 
IMO, in the example given I would guess that the standard mileage method would work (unless there's already a specific ruling to the contrary).   Before doing so though, going on record that the insurance company was lied to may not be a good idea.  Penny wise and pound foolish, if an insurance claim is challenged due to the little slight of hand that's going on here.  IMO one can't have his cake and eat it too.  Either play it for the tax deductions, or play it for the safety of having proper insurance protection... not both.  The potential consequences are too great if trying to have it both ways.
 

Colin Cody, CPA
Trumbull, CT

 
----- Original Message -----
Sent: Monday, December 01, 2008 5:31 PM
Subject: RE: [taxchat] Equitable party

Let's take this one step further.  I have a client who purchased a vehicle but it went into a relative's name because he could not get insurance himself.  He paid cash for the car and pays the car insurance.  Would the same rules apply here, too? That my client can claim the standard mileage rate for the vehicle?  I think last year I only took actual expenses since I treated it that he didn't own the vehicle.
 
Donna
 
 
Donna J. Perrone, EA
East Haven, CT
203-469-4939
203-468-2038 fax
 
 

IRS Circular 230 Disclosure: Unless expressly stated otherwise, any tax advice contained herein, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (1) avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

 

From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Colin Cody
Sent: Sunday, November 30, 2008 6:45 PM
To: taxchat@yahoogroups.com
Subject: Re: [taxchat] Equitable party

Not mentioned below is a key issue - that the taxpayer making the payments and taking the mortgage interest deduction must not only own the property (directly or via a nominee) but the taxpayer must also occupy the place as his primary residence, or use it as his 2nd home.
 
One of the issues the court decided was WHO is the true owner of the property?  The person who's name happens to be listed in the land records?  Or does substance over form suggest that an analysis of facts and circumstances can determine who the true equitable owner is regardless of the name used for bare legal title purposes?   The court has confirmed it is proper to consider substance over form.
 
 
As JofA said:
The court rejected both arguments, holding Njenge and Rachel were the equitable owners of the property since, from the date of acquisition, the taxpayers were the only ones who enjoyed the benefit and bore the burden of the home. Furthermore, the court found that the Camrock checking account was in essence the taxpayers' personal account.

This case illustrates that the economic substance rather than the legal form of a home ownership situation can dictate the tax result. In this case, it is important to note that the taxpayers prevailed because the evidence suggested that their son was owner in name only and that the "business," whose name was on the checking account used to make the housing payments, existed in name only.


Colin Cody, CPA

 
----- Original Message -----
Sent: Sunday, November 30, 2008 10:38 AM
Subject: Re: [taxchat] Equitable party

Robert that is the same conclusion we all arrived at last time.  So that's even more confirmation.  I actually used it for a client on the 2006 tax return. 
 
 
----- Original Message -----
Sent: 11/30/2008 10:31 AM
Subject: [taxchat] Equitable party

Several months ago it was asked if a relative could deduct the interest if they were making the mortgage payments. At that time the consensus was that only the mortgage/title holder could make the deduction. I was reading an excerpt this AM in the October Journal of Accountancy that described when another party could take the deduction. As I had taken the stand that a family member could since I had allowed the son, as one of my clients, to take the deduction this article makes me feel happier about my choice. My client like the party in the excerpt was the equitable party as they made the mortgage payments, paid the property tax and took care of the maintenance. In the excerpt the brother and sister-in-law were making the payments while the owner was the qualifier for the mortgage.

--
Robert Lukey EA CPA

Arnie Socol
President
Ways & Means, Inc.
845-562-6070

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IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.



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