Hamlet the Prince wrote:

- quote -

I think a lot depends on the exact behavior of the parties.
Certainly, if they attempt to conceal a transaction or
create phony documentation, they are in for a tough ride.
But, the situation as described does not strike me as rising
to a criminal level.

Meantime, were IRS to investigate, I would fully expect the
taxpayers to get hit with CIVIL penalties (including
negligence and fraud) to the max!

MTW

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"MTW" <mtwingcpa[at]yahoo.com> wrote:

- quote -

I disagree. The situation sounds like a classic case of tax evasion
to me. Tax evasion is a felony.

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- quote -

There's rarely going to be enough facts in a post here,
which suggests the possibility of a crime, to be "sure"
prosecution won't happen. The poster stated he intends to
greatly inflate the sales price to save his mother taxes,
and the criminal statutes could apply to the mother if she
knowingly claims depreciation on an inflated basis, and/or
reduced gain later, with the son possibly prosecuted for
conspiracy.

Fred F.

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John Ye wrote:

- quote -

I'm sure the situation is "legal" in the sense that no one
is going to go to jail over it.

However, if the IRS were to look at the situation, I think
they would conclude that your mother's purchase of the home
was part PURCHASE (to the extent of FMV) and part GIFT (to
the extent of the excess). Obviously, she would not be
entitled to include the gift portion in her basis of the
house. And, she might owe gift taxes as a result.

MTW

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johnye[at]hotmail.com (John Ye) wrote:

- quote -

Transactions involving relatives are (quite rightly, for
reasons just such as what you propose) at special risk for
being scrutinized to determine whether they were in fact at
arm's length and for fair market value. Although usually
this kind of transaction goes the other direction (it
usually involves a bargain sale that is a disguised gift),
what you propose is clearly nothing like an arm's length
deal, and the price you propose is neither fair market value
nor (unless your mother is so generous as to throw in an
extra $100,000) the amount that actually changes hands.

The places that Dave Barry calls "Federal tennis prisons"
often end up being the lodgings of people who attempt
six-figure tax frauds. Forget it.

--
Chris Green

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johnye[at]hotmail.com says...

- quote -

It's not every day that someone admits that he wants to
cheat his own mother!

Your mother will only be able to depreciate the fair market
value (FMV) of the condo. Unless she pays cash, she will not
be able to buy the place for $250K if it's only worth $150K
because lenders don't want to be stuck with real estate. For
example, if the place appraises for $150K and the bank is
willing to lend 90% that would be $135K. If you still sell
it to her for $250K she will have to make a downpayment of
$115K.

The IRS may well come back later and say that the sales
price exceeded FMV so the true price was $150K and your
mother made a gift of $100K. That would mean if she later
sold it for $300K, her gain would be $150K.

(In all of my figures above, I left out the depreciation
recapture which will generate a tax liability.)

You need to speak to a real estate lawyer now. The
alternative is to eventually need a tax lawyer versed in
fraud.

Gary

--
You can probably X figure out X which letters to X delete to
derive my email address X.

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John Ye wrote:

- quote -

I'm sure the situation is "legal" in the sense that no one
is going to go to jail over it.

However, if the IRS were to look at the situation, I think
they would conclude that your mother's purchase of the home
was part PURCHASE (to the extent of FMV) and part GIFT (to
the extent of the excess). Obviously, she would not be
entitled to include the gift portion in her basis of the
house. And, she might owe gift taxes as a result.

MTW

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johnye[at]hotmail.com (John Ye) wrote:

- quote -

Transactions involving relatives are (quite rightly, for
reasons just such as what you propose) at special risk for
being scrutinized to determine whether they were in fact at
arm's length and for fair market value. Although usually
this kind of transaction goes the other direction (it
usually involves a bargain sale that is a disguised gift),
what you propose is clearly nothing like an arm's length
deal, and the price you propose is neither fair market value
nor (unless your mother is so generous as to throw in an
extra $100,000) the amount that actually changes hands.

The places that Dave Barry calls "Federal tennis prisons"
often end up being the lodgings of people who attempt
six-figure tax frauds. Forget it.

--
Chris Green

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I have a question regarding the legality about a method I
want to explore in selling my apartment condo in DC to avoid
capital gain taxes. I lived in my DC condo from 98 to Dec.
2002, which was my primary resident then, before I bought a
house in Maryland and moved out there. Then I have been
renting the condo to a tenant since then. I know that in
order to avoid capital gain tax, I have to sell the condo
within 3 years since I moved out and the gain has to be
under $250,000 for myself as a single. I am planning to do
that at the end of 2005 and privately sell it to my mom
since I owe her money (about 60K) for the down payment she
gave me for my house in Maryland. The condo was bought for
$75K with a initial $50K mortgage and I refinanced it for
$100K this year so the net mortgage is about $100K. I am
planning to sell it to my mom for $150K, which is the
current market value and the $50K profit is for paying back
to her. I thought that the $75K gain I get is still far
from the $250K I am exempted from taxes and wanted to
inflate the sales price to a higher number say $250K, to
help my mom from her potential gain taxes. So that my gain
on the paper would be $175K which is till tax free. And
because my mom is not going to live in the condo and is
going to keep it rent out, if she later on sell the condo
and say there is a $100K real gain, because she has an
inflated sales price to begin with, then on the paper, there
might not be a gain for her, and therefore, she might not
need to pay any taxes. My question is whether this is legal
on the paper and therefore, my method to help out my mom's
gain taxes would work. Thank you very much for your time
and answer.

Sincerely,

John Ye
08/27/2004

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