Responding to the IRS

[ILLMAS]

Hello to everyone, I have a TP that because of his credit he could not buy a home under his name, so his parents put the mortgage under their name. TP has been making payments and takes the deduction on Sch A., now he recieved a letter disallowing the deduction because those amounts on Form 1098 were never reported to the IRS under his name. I was thinking of writing a letter explaining the reason and who was making the payments and providing copies of check showing it is coming out of the TP account to pay for the mortgage, is this sufiecient evidence or should I include something else, FYI parents do not take the deduction.

Thanks

[kcjenkins]

He's an "equitable owner", which is the term you need to use. A quick search here for that term will give you lots of info and cites to use in writing the letter.

[jainen]

>>I was thinking of writing a letter <<

There is pretty good authority for your position, but it is NOT statutory. The rulings are not even all favorable, nor do they necessarily set precedent that applies to your client.

I recommend your response stay carefully within the appropriate structure for appeal, making sure to observe time limits and other elements that protect your client's rights. Be exceedingly thorough in your documentation, with, for example ALL checks from the beginning of the mortgage, with bank statements and a full printout from the mortgage company, as well as the loan documents, credit report, certification from the parents, cash flow statement, and a couple dozen other things. You aren't going to turn it all in, but you just don't know what the IRS is going to demand. (For that matter, when you get the material together you may find it doesn't actually support the client's position after all.)

[samingeorgia]

Wouldn't the taxpayer have been better off to execute a parallel note to his parents? Then he could show the interest on Schedule A under the parent's names. They would report the interest, offset by investment interest on the bank loan. This, of course, assumes that they can itemize and that their itemized deductions are not limited by AGI.