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I own rental income property in different areas. I collect rent and manage the properties, income tax is paid, and tax returns

Los Angeles, CA |

always filed . I collect most of the rent in cash from tenants . I do not deposit the money because of a lawsuit I had . When I need to pay bills I buy US postal money orders . I did my taxes and the accountant did not understand my arrangement and implied that I was doing something illegal . I told him that if he understood my position me might do the same thing , but I was not there to discuss strategy with a bean counter so cursed him and left . Last time I checked it is not illegal to deal in cash . Do I have to create a bunch of LL C's just to do my business ? I like the cash method and have become used to it , and I think if more people utilized this method they would appreciate money more . I report the income and expense , do not evade tax , so whats the problem ? Must I open a bank account ?

Attorney Answers 4

Posted

It is difficult to respond definitively based solely on the facts that you have provided.

That said, I suspect that "the problem" - if there is one, and leaving aside the accountant's understandable suspicions about cash transactions - may be that you are inappropriately avoiding legal obligations that you have based on your earlier lawsuit..

This information does not constitute legal advice and does not establish an attorney-client relationship.

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Posted

You do not have to open a bank account. However, without one, you will always have a difficult time convincing anyone else, whether that is the IRS or the California Franchise Tax Board, or a licensed tax return preparer, that you are properly reporting your income and your deductions.

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1 comment

Jeffrey Anton Collins

Jeffrey Anton Collins

Posted

Bruce is correct.

Posted

You don't have to create formal entities, complex structures to own rental real estate. There are no rules in that regard. The starting point must be "what are you trying to accomplish?"

But here's the practical note - if you don't keep bank accounts, you may still want to keep organized your receipts, money orders, etc. to prove your expenses, if ever called upon to do so. And I'd recommend that you do file your tax returns, on time, and accurately.

Just words from a former IRS guy.

Tax Attorney J Anton Collins is a featured Tax Court and Criminal Tax Defense Attorney on Avvo. You may contact Attorney Collins directly at jcollins@jonescollins.com, or 877.376.2292, for more specific answers. This forum is merely for open, public discussion. Discussions in this open, online forum are not intended to create an attorney-client relationship. IRS CIRCULAR 230 DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full “covered opinion”. Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issues, transactions or matters addressed, discussed or referenced herein based upon his, her or its particular circumstances.

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Posted

I agree with the other attorneys. There is nothing wrong with dealing in cash, but unfortunately in today's economic climate, the IRS and FTB are always suspect of those dealing strictly in cash. Regardless of whether you organize well with receipts and track your expenditures with journals, having a bank account would help immensely should you be the subject of an audit. Moreover, if you have legitimate legal debts owed, your accountant is likely concerned that you are purposely avoiding a legal obligation, which he'd likely want no part of. Lastly, there are several areas that would require more detail before a definitive answer can be given. This answer is simply based on the high level facts you presented.

Best of luck,

Adam C. Aparicio

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