Will IRS start reviewing real estate ownership for tax fraud?
June 27, 2019
The Internal Revenue Service (IRS) may expand its focus when looking for tax fraud. The shift may come as a result of a recent whistleblower case. The case involves a former chief tax executive who reached out to the agency to call out his employer for alleged tax fraud crimes.
What were the whistleblower’s claims?
The whistleblower stated his employer claimed an illegal tax deduction. The deduction involved the purchase of property. Instead of personally buying the property, the accused used a business entity to purchase the property.
The accused purchased the property at over twice its estimated value. The owner then allegedly deducted the $35.6 million premium he paid to purchase the prime piece of oceanfront property — a deduction that is no longer legal under the new tax law.
What was the crime?
The new tax law does not allow a tax deduction for real estate losses on personal property. However, there is a possible loophole. The loophole in question here involves deductions that are generally still legal for investment properties.
If the accusation moves forward, the IRS could potentially look back well past the general six years of tax return review. The IRS review is not confined by this time limit when dealing with tax fraud charges.
What can other taxpayers learn from this case?
This case may change how the IRS reviews tax returns. In the past, the primary focus was income. These allegations may result in the agency expanding its focus to include a closer review of deductions related to real estate.
The IRS is likely to audit those who are accused of similar crimes. Anyone that receives such notification is wise to seek legal counsel to better ensure their interests are protected.