It was somewhat of a coincidence that they had already worked in commercial real estate, but when a husband and wife inherited another real estate property, they needed tax help.
While the property – considered a gift – should have had a $0 tax basis, the IRS assessed the couple a tax bill of $254,000 (before interest for late payment). Making matters worse, the two did not immediately respond to the IRS after receiving their notice.
The government saw the $650,000 gain they made from acquiring this commercial property, but there was an issue with the transaction and their documentation.
While the onus was on the husband and wife to act, they ignored several attempts by the IRS to contact them. Luckily, they decided to reach out to John Barucci, an experienced tax consultant.
The First Step Of Tax Help: Take Action!
Whether personal or business-related tax problems, the first mistake people make when they receive notices is ignoring them and/or taking no action. Burying the notice under their pillow, the couple put themselves at much greater risk of triggering an audit, and that’s exactly what happened.
It can’t be overstated: The biggest issue was the lack of communication.
John’s first step was setting up the couple’s audit. In the event that they would owe the IRS, each passing day would increase their debt, as interest would build (and you thought credit card interest rates were high!).
If you’re selected for audit such as this one, you must be able to prove that an asset or proceeds aren’t taxable. It’s never the IRS’s responsibility to research the situation and make a decision.
After scheduling their IRS review, John immediately began working with the husband and wife to review the case and prepare the relevant documentation to prove that their newly acquired real estate was in fact a gift. Demonstrating this would keep the asset from being classified as a taxable gain.
Uncovering The Issue That Led To Their Costly Tax Problem
With the couple’s help, John tracked down the documents they originally filed after acquiring the real estate. The couple had the rules governing inheritance and gifts, but did not structure the transaction properly or provide the right information to the IRS.
Seeing this issue, John helped them re-document the transaction and accurately complete the necessary tax forms. With swift tax help from a knowledgeable advisor, the couple proved that the commercial property acquisition was an inheritance. As a result, the IRS withdrew the hefty tax bill, and the couple owed the government no money.