So I received a letter from the IRS...

[ua_guy]

The IRS sent me notice of an audit and they'd like me to pay them $2600. The feel that my 2011 1040 was incorrect because I claimed a mortgage interest deduction. In fact, I claimed 50% of the total deduction because my unmarried partner claims the other 50% on his.

I believe the discrepancy is because the bank only sends mortgage interest tax forms to the primary borrower if they are unmarried, so their automatic auditing system probably flagged my return because it saw a deduction for mortgage interest but no accompanying form from our bank that confirms I paid into a mortgage. I am listed as a borrower on the mortgage, I am listed as a joint owner and tenant in common on the deed, and my name is also listed on the property tax bill. I also have records of bank transfers showing that I pay half the mortgage every month to my partner who then transfers the full amount to the bank.

I need to respond to them contesting the bill, but I'm not exactly sure of the documentation I need to support my position.

I believe when we consulted a lawyer before purchasing the house, they advised us to take the deduction like we do and it seems like a pretty common practice with unmarried partners who jointly own property.

Any thoughts/advice?

[jIM_Ohio]

The IRS sent me notice of an audit and they'd like me to pay them $2600. The feel that my 2011 1040 was incorrect because I claimed a mortgage interest deduction. In fact, I claimed 50% of the total deduction because my unmarried partner claims the other 50% on his.

I believe the discrepancy is because the bank only sends mortgage interest tax forms to the primary borrower if they are unmarried, so their automatic auditing system probably flagged my return because it saw a deduction for mortgage interest but no accompanying form from our bank that confirms I paid into a mortgage. I am listed as a borrower on the mortgage, I am listed as a joint owner and tenant in common on the deed, and my name is also listed on the property tax bill. I also have records of bank transfers showing that I pay half the mortgage every month to my partner who then transfers the full amount to the bank.

I need to respond to them contesting the bill, but I'm not exactly sure of the documentation I need to support my position.

I believe when we consulted a lawyer before purchasing the house, they advised us to take the deduction like we do and it seems like a pretty common practice with unmarried partners who jointly own property.

Any thoughts/advice?

Contact a CPA or Tax Attorney. Do not go to IRS alone

[bjl584]

I had something similar happen to me last year. I took everything to my CPA and she fixed it for me. It was a clerical error on the IRS side of things. I did nothing wrong. They wanted me to pay $1600. But, in the end I owed nothing. It cost me $30 to have my CPA take care of it for me. Money well spent to say the least.

[JoeP]

Contact a CPA or Tax Attorney. Do not go to IRS alone

Agreed. I had a similar issue, and my CPA gave me solid guidance and we resolved the issue in a matter of days once the IRS got the faxes they needed.

[TBH]

I also own a home with my domestic partner. We were advised to include a letter with our schedule A each year stating that we own the home jointly and explaining who is taking the deduction. My partner always declares our child as a dependent and gets whatever deductions and tax credits accrue because of the kid. He files as head of household, and the IRS considers him a single father. I declare the house and anything related to the house because I have a home office so I can deduct a portion of our utilities, etc. So even though my partner's name is listed first on the mortgage company's documents, I just include a letter saying "I own this house jointly with [my partner's name and social security number] and in the year in question I paid all expenses related to the house so I'm taking the deduction and he's not." Then the IRS can go pull up his record and verify that we're not both taking the deduction.

I am reasonably sure we're doing this right, and we've been doing it this way for many years without being audited. Knock wood!

I suspect you'll be fine in the future if you both included a similar letter stating that you own the house together and share expenses equally and are therefore each taking half the allowable deduction. I'm not really sure how to contest the current bill, however. And of course I'm not an expert so consult a professional blah blah blah.

One bummer is that we can't really file electronically because we have to include this letter each year. Maybe there's tax software that allows for that but I haven't found it. The past few years, I've done my taxes online on the IRS.gov site's fillable PDF forms, and then I print them out and mail them in.

[MonkeyMama]

You definitely do not need a CPA. Well, I will give you free advice.

Fax back a note to the IRS that you split the deduction 50/50. Provide name and social security # of other person. Fax is the quickest way to resolve. You can write a nice letter or just scribble this on the notice. "Quick resolution" is not their thing - so they might send you a letter in 6 months that "okay they understand and nevermind."

My experience for the last 2 years or so is whoever is producing these notices does not know what the hell they are doing, but if you use the fax # provided on the notice it will 100% reolve it (reaches more intelligent life). At least this sounds like a reasonable notice - you just need to clarify the situation. It's a simple notice generated because the mortgage tax form did not match your tax return. It's really no big deal.

(This is not an "audit" - for a true audit it is wise to get representation or advice. But this is just a simple "records don't match" notice).

[MonkeyMama]

P.S. TBH's advice to include a note on your tax return is a good idea. I would do that going forward, with the other person's name and social security. That said, the IRS is so sloppy these days they don't tend to read those notes. I would do it and it will be helpful, but it won't ensure that they will never send you a similar notice in another year.

[ua_guy]

Thanks for the replies so far.

We will probably consult a CPA just to confirm our suspicions, or be totally surprised. The angering piece is that the IRS is unclear on its own rules with regards to joint property ownership.

I am hoping that simple documentation can clear this up and that no money is owed.

[SmartSpender]

DIY Ineligible

I dont envy your situation, but do not take this on yourself - If you've ever been to a DMV you know how difficult government agencies can be to deal with and how they are sometime prone to error. You'll sleep well at night knowing your CPA can take care of the situation for you, but the point Im sure you're making is that you dont want to come out paying a bunch of money=. You may consider checking into your employer to see if they have a type of group insurance that will cover the cost of a CPA - or even attorney who can handle tax law. That's where I would start anyway.

Smart Spender

[disneysteve]

IRS is unclear on its own rules with regards to joint property ownership.

Actually, the IRS is unclear on its own rules about a lot of things.

Every year at tax time there are news stories about calling the IRS help line, asking the same question multiple times and getting a different answer each time depending on who answers the phone.

[Petunia 100]

Thanks for the replies so far.

We will probably consult a CPA just to confirm our suspicions, or be totally surprised. The angering piece is that the IRS is unclear on its own rules with regards to joint property ownership.

I am hoping that simple documentation can clear this up and that no money is owed.

A CPA just gave you free advice.

[kork13]

It's nice having a legit CPA on the boards here who is willing to give some free advice occasionally (we all love you MonkeyMama ), but as an aside, do you know of a good resource for finding a good CPA locally? I know for financial planners, a good place to find them is through NAPFA.org, but is there a similar resource for CPA's? Is there a centralized online listing, or is it mostly a "phone book and word-of-mouth" sort of thing?

[GrimJack]

The best documentation is your canceled checks. The IRS just needs to be reassured that you qualify for the deduction; if you respond to the letter enclosing a copy of the letter sent to the address on the letter with an explanation of the circumstances along with copies of the your checks you should do just fine. If there is a fax # fax a copy of the front page of the letter, and your documentation. Ask them if they need any more information and if so what. The person working your case wants to close it as badly as you do. You are not the only person who is in this situation - it comes up a lot.

The original letter to you contains all the information needed so that your correspondence will go to the person/group working your file. I want to step out of character a little here; I work for the IRS and can not recommend that you do anything and nothing I say should be taken as official IRS policy but sending the information I mentioned is the easiest way to start. If they need more they will ask for it. Read the letter you received carefully all the way to the end, it will tell you what you need to do. We are the 'kinder, gentler IRS'.

[KTP]

The IRS is so cute with these tax due letters...just makes you want to hug them.

We received a letter from them a couple of years ago requesting $94,000 and giving us a nice envelope to mail back a check (how thoughtful)! It turns out they did not look at the basis for some stock option exercises, even though I had included all of the paperwork. I think our gain from the options was around $5,000 but they wanted $94,000 in tax because they used zero basis for the cashless exercise.

I think you can handle this thing with MonkeyMama's advice.

[ua_guy]

Update: I got all my documentation together, and my partner's return showing the partial interest deduction for the jointly owned property, and the statements showing we are both on the mortgage. I mailed it and faxed it October 21 before it was due to the IRS on 10/30.

I received a paper letter from the IRS yesterday (more than a month later... 11/25) to let me know they received my materials. Ha!

They also said they'll notify me in writing within the next 60 (sixty) days once they get around to reviewing what I sent and will let me know if they plan to "take any action". They also advised paying the amount requested right now, or else they'll add additional interest and penalties if they don't agree with my assessment.

I'm pretty sure they can go **** themselves...the IRS is a joke.