IllinoisTaxMan Posted June 24, 2009 Report Share Posted June 24, 2009 The client's rental property fell into the court ordered receivership in September 2006. I would like to know who is responsible for 2006 tax return, the taxpayer or the receiver. I reported the rental activity under the taxpayer return for a whole year after I colleced tax data from the receiver under my assumption that all the funds (trust) were treated as owned by the taxpayer. Now, the taxpayer wants me to amend it since she had no right to use the money/lease/rent collected by the receiver. I wonder if I have to amend it or not. Any experienced advice is welcome. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 24, 2009 Report Share Posted June 24, 2009 If this was part of a bankruptcy. the income that went to the trustee is not the taxpayers income. You should amend the return. The trustee has the responsibility to do any reporting required of the trust funds. Quote Link to comment Share on other sites More sharing options...
IllinoisTaxMan Posted June 24, 2009 Author Report Share Posted June 24, 2009 If this was part of a bankruptcy. the income that went to the trustee is not the taxpayers income. You should amend the return. The trustee has the responsibility to do any reporting required of the trust funds. It was not a part of bankruptcy. It was foreclosed but the lender didn't issue 1099-A or 1099C. The taxpayer could receive the Settlement Statement. It showed that the property was sold on October 2007 and the seller was the lender. Would you comment on my question again? Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted June 25, 2009 Report Share Posted June 25, 2009 What are the terms of the receivership? Was the receiver to give credit to your client for rents collected, or only use the rents for the benefit of your client? Were the rents applied to the loan on the property. Your client may or may not have a gain or loss on the sale of the property which may or may not have a tax effect, depending upon your client's tax circumstances. Quote Link to comment Share on other sites More sharing options...
IllinoisTaxMan Posted June 26, 2009 Author Report Share Posted June 26, 2009 What are the terms of the receivership? Was the receiver to give credit to your client for rents collected, or only use the rents for the benefit of your client? Were the rents applied to the loan on the property. Your client may or may not have a gain or loss on the sale of the property which may or may not have a tax effect, depending upon your client's tax circumstances. The lender sued the taxpayer for not payments of mortgages. The court ordered the receivership. The receiver just received the management fee approved by the court. The rents collected by the receiver was applied to interest, principles, property taxes and other operating expenses. The client couldn't even touch any money since the court didn't allow her to do it. Quote Link to comment Share on other sites More sharing options...
jainen Posted June 26, 2009 Report Share Posted June 26, 2009 >>she had no right to use the money/lease/rent<< She had every right to that money. That's why it was available for the court to use it for her own debts. It was all taxable income to her until title was transferred away from her, which apparently didn't happen until the sale. I wouldn't waste any time second-guessing the settlement statement. All in all, it sounds to me like she came through this foreclosure in remarkably good shape. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 26, 2009 Report Share Posted June 26, 2009 The lender sued the taxpayer for not payments of mortgages. The court ordered the receivership. The receiver just received the management fee approved by the court. The rents collected by the receiver was applied to interest, principles, property taxes and other operating expenses. The client couldn't even touch any money since the court didn't allow her to do it. Given those facts, it was her income, she got the benefit of the income, since it was applied to her debts. So it is taxable to her, the depreciation, interest and other expenses are deductible and you do need to amend the return to properly report these things. Quote Link to comment Share on other sites More sharing options...
IllinoisTaxMan Posted June 27, 2009 Author Report Share Posted June 27, 2009 >>she had no right to use the money/lease/rent<< She had every right to that money. That's why it was available for the court to use it for her own debts. It was all taxable income to her until title was transferred away from her, which apparently didn't happen until the sale. I wouldn't waste any time second-guessing the settlement statement. All in all, it sounds to me like she came through this foreclosure in remarkably good shape. Ok, But, the problem is that the taxpayer didn't receive any information from the lender such as the date of the foreclosure, debt cancellation, the mortgage interest payment which occurred in 2007. I wonder how I can prepare 2007 return on these matters. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted June 27, 2009 Report Share Posted June 27, 2009 1. There may not have been any debt forgiveness. 2. Has the client ask for the interest, fees, expenses, etc. from the receiver.? Quote Link to comment Share on other sites More sharing options...
jainen Posted June 27, 2009 Report Share Posted June 27, 2009 >>the taxpayer didn't receive any information from the lender<< Just in case he forgot, you might remind him about the receiver. Quote Link to comment Share on other sites More sharing options...
IllinoisTaxMan Posted June 27, 2009 Author Report Share Posted June 27, 2009 1. There may not have been any debt forgiveness. 2. Has the client ask for the interest, fees, expenses, etc. from the receiver.? I am asking the taxpayer to request P/L from the receiver. I have one more question. How do I calculate the capital gain on this foreclosed property? Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted June 28, 2009 Report Share Posted June 28, 2009 Just like any other business property that was sold. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted June 28, 2009 Report Share Posted June 28, 2009 Do you know if an Section 108 exception applies? Quote Link to comment Share on other sites More sharing options...
IllinoisTaxMan Posted June 28, 2009 Author Report Share Posted June 28, 2009 Do you know if an Section 108 exception applies? This is what I wonder about. In case of residence, due to Section 1082, the discharged debt is not income to the taxpayer. Does this real property apply to Section 108? The taxpayer has 1031 deferred gain. So, if the rule applies, it will save her lot of taxes. Quote Link to comment Share on other sites More sharing options...
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