Accountant Did Not Make Tax Returns On Rental Property

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Strongback

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Myself and my wife have rented out the first house we bought for the last 5 years. We registered with the PTRB 5 years ago, made the yearly payment and kept a rent book.

The revenue has written to me to inform me my small business and me personally are being audited by the revenue. A lot of companies similar to mine are recieving audits at the moment. I have no issue with the audit and from the early years of the business I am probably due some tax back as I didn't inform myself enough to ensure I claimed all my tax entitlements. My accountant for the business is as straight as they come.


My problem is my wife looked after the rental property and used her families accountant(different accountant from the one who does my business taxes) to file tax returns. I have asked my wife to request the property tax returns as the Revenue want to look at my business and personal financial affairs. It turns out the accountant never made a property tax return. His excuse is we had no tax liability as the mortgage is greater than the rent, maintenance costs etc. We gave him P60's, mortgage records and the value of the rental income every year for 4 years.

I am very annoyed about this as I have always kept my tax affairs in order. Would anybody know what the likely repercussions may be for not making property tax returns even if no tax is owed.

At the moment I am very angry and have good mind to report the accountant to the revenue and seek legal advice. I don't want to go over the top though if this is not viewed by the Revenue as a problem.

Any advice would be greatly appreciated. My own accountant is on holiday until next Tuesday so I can't get advice from him until then. In the meantime this is playing on mind which I don't need at the moment.
 
Relax. You need to get a few things straight in your mind first of all.
1) what is a property tax return? Rental income is known as Case V income and is returned on your income Tax Return Form 11 each year.
2) are you jointly or separately assessed. Do you make one return for each of you or one joint return.
3) rental income is assessed on a calendar year basis, you need to get the rent less interest x 75%, and all allowable rental deductions and see if you have an issue.

You can report the accountant to Revenue if you want they will not care. If the accountant told you that you have no liability because the repayments are more than the rent then perhaps your wife needs a new accountant.
 
Joe_90 said:
Relax. You need to get a few things straight in your mind first of all.
1) what is a property tax return? Rental income is known as Case V income and is returned on your income Tax Return Form 11 each year.
2) are you jointly or separately assessed. Do you make one return for each of you or one joint return.
3) rental income is assessed on a calendar year basis, you need to get the rent less interest x 75%, and all allowable rental deductions and see if you have an issue.

You can report the accountant to Revenue if you want they will not care. If the accountant told you that you have no liability because the repayments are more than the rent then perhaps your wife needs a new accountant.
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The accountant did not submit Form 12 any year.

1. What I mean is tax on rental income - Form 12.
2. Assessed separately but own the house jointly.
3. I am aware of how rental income is assessed, maybe I should have made that more obvious in the OP.

When I get the file from her accountant I'll decide how I should proceed with a response to his incompetence. Safe to say he will never cast his eye on any books to do with me again.

I will know very soon what the Revenue think.

BTW I'll relax when I have this sorted out.
 
The accountant did not submit a Form 12 any year!

This is pretty serious, you will have a lat filing penalty of 10% of the total tax bill each year to start with.
 
Joe_90 said:
The accountant did not submit a Form 12 any year!

This is pretty serious, you will have a lat filing penalty of 10% of the total tax bill each year to start with.
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It's not clear exactly what the set up is here - the OP seems to have already decided who's to blame and seems more interested in blowing off steam and getting a pound of flesh, than actually getting to the root of the issue...

It is a bit unclear what the setup is for the OP's tax affairs, but from what has been posted so far it appears:

  • The OP has a Ltd Co (probably a contractor of some sort if he's being audited as part of a project).
  • As a prop. director, he is a Form 11 filer.
  • He and his wife are separately assessed.
  • His accountant prepares his company's and his own personal income tax return.
  • His wife has a different accountant.
  • Neither accountant has declared the rental income source on either individual's return.
  • Somehow, this is deemed to be the wife's accountant's fault, but to my mind the OP's accountant isn't smelling of roses here. He should know of the property's existence (a standard question you ask every client surely), and made it his business to ensure that his client (the OP) was declaring if/as necessary.
It's quite possible there's no additional liability here - depending on level of interest and other deductibles.

Also, if the OP's wife is a Form 12 filer (as the OP seems to think from his previous post), it's most unlikely she'd be subjected to a penalty.

What I'm not clear on however, is what exactly the wife's accountant did do, if he didn't file any Form 12's?!?

OP, can you clarify?!
 
mandelbrot said:
It's not clear exactly what the set up is here - the OP seems to have already decided who's to blame and seems more interested in blowing off steam and getting a pound of flesh, than actually getting to the root of the issue...

It is a bit unclear what the setup is for the OP's tax affairs, but from what has been posted so far it appears:

  • The OP has a Ltd Co (probably a contractor of some sort if he's being audited as part of a project). Small consulting engineer and Ltd Company
  • As a prop. director, he is a Form 11 filer. Yes
  • He and his wife are separately assessed. Yes
  • His accountant prepares his company's and his own personal income tax return. Yes
  • His wife has a different accountant.Yes, her tax is dealt with generally by her employer, she has a public sector job. She used her family accountant for assessing and making returns on tax due on the rental property only. She is a director of my ltd company but has no shares and receives no income from my company.
  • Neither accountant has declared the rental income source on either individual's return. Correct
  • Somehow, this is deemed to be the wife's accountant's fault, but to my mind the OP's accountant isn't smelling of roses here. He should know of the property's existence (a standard question you ask every client surely), and made it his business to ensure that his client (the OP) was declaring if/as necessary. Ok, I will be discussing this with my accountant, he knew there was a rented house, I told him my wife was looking after the rental tax on it. Her accountant was made fully aware my accountant was not making a return.
It's quite possible there's no additional liability here - depending on level of interest and other deductibles. The rent does not meet the mortgage repayments before interest/maintenance is calculated in

Also, if the OP's wife is a Form 12 filer (as the OP seems to think from his previous post), it's most unlikely she'd be subjected to a penalty.

What I'm not clear on however, is what exactly the wife's accountant did do, if he didn't file any Form 12's?!? He did nothing, no Form 12's returned. He is saying it will be ok as there is no liability, I think he let the returns slip because he didn't see the Revenue being too bothered. He was very slow in responding any time we contacted him. I am sure I will receive the blame for this as that is how the Revenue works but it does seem very unfair. Are accountants actually accountable for making returns if instructed? Ultimately my real concern is how is the Revenue going to deal with this, will I be fined? I hate bringing this into an audit as my accounts otherwise are in good shape.

OP, can you clarify?!
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.....
 
If your accountant is filing your Form 11, then both them and you have the obligation to ensure its correct.

3. I am aware of how rental income is assessed, maybe I should have made that more obvious in the OP.

.
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Your share of the rental income goes on your return. Your wife's accountant can't make a Case V return for you separately to your Form 11.

I don't see how you are blaming your wife's accountant here. The fault lies with yourself and your accountant. Without the figures for rent ect it's not possible to advise on how much it may cost you.
 
1. Do up the rental income computations
2. State that your wife looks after the rental property and declares the income on her return - as you are assessed jointly this will have no impact on your taxable income
3. You should however have stated on your returns that you do own a rental property but that you have NIL income from this property (because all the income is taxed under your wife's name)
4. At worst (and this will only happen if the inspector is having a really bad day), you might get a fine for incorrect completion of tax returns but this is very unlikely to happen IMO
 
DB74 said:
1. 3. You should however have stated on your returns that you do own a rental property but that you have NIL income from this property (because all the income is taxed under your wife's name)
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I thought that if you own a rental property jointly, then each owner has to declare their half of the income on their return? Perhaps I'm wrong here, but look at it from Revenue's point of view where one owner pays tax at 20% and the other pays tax at 41%. If the person who pays tax at 20% declares the entire rental income, then Revenue has lost out.
 
Joe_90 said:
If your accountant is filing your Form 11, then both them and you have the obligation to ensure its correct.



Your share of the rental income goes on your return. Your wife's accountant can't make a Case V return for you separately to your Form 11.

I don't see how you are blaming your wife's accountant here. The fault lies with yourself and your accountant. Without the figures for rent ect it's not possible to advise on how much it may cost you.
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My wife's accountant made no return. My wife's accountant would register any income from the rent if there was any. The issue here is there was no return made by anybody. If my wife's accountant made the return it would be recorded meaning everything was declared. Her accountant put this on the "backburner".

I do not require advice on how much I may owe in tax. I am interested in the type of penalties there are for not making a return and how this will reflect on the rest of my audit.
 
Andarma said:
I thought that if you own a rental property jointly, then each owner has to declare their half of the income on their return? Perhaps I'm wrong here, but look at it from Revenue's point of view where one owner pays tax at 20% and the other pays tax at 41%. If the person who pays tax at 20% declares the entire rental income, then Revenue has lost out.
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AFAIK there is nothing to state that this has to be the case. In fact Revenue have been treating every husband-and-wife rental income as a separate partnership and have been looking for a Partnership Tax Return Form 1 to be filed for each year that the properties have been owned. If Revenue are therefore going to determine every husband-and-wife rental income as a separate partnership then they have little comeback if the partners decide to allocate the profits in whatever ratio they decide. It is not up to Revenue to decide in what ratio the profits are to be shared. What if one partner does all the work involved in renting the property, are they not entitled to a bigger share of the profits than the other partners?
 
Strongback said:
My wife's accountant made no return. My wife's accountant would register any income from the rent if there was any. The issue here is there was no return made by anybody. If my wife's accountant made the return it would be recorded meaning everything was declared. Her accountant put this on the "backburner".

I do not require advice on how much I may owe in tax. I am interested in the type of penalties there are for not making a return and how this will reflect on the rest of my audit.
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Who's under audit - presumably it's your company, and you personally as director? Not your wife, since you are separately assessed?

In which case, since you're saying that she's the one who is to return the rental property, and since she's not a self-assessment annual filer, can this whole thing not be resolved by simply filing the Forms 12 for the last 5 years? There's no penalty / surcharge applicable (yet) to any tax liability, as it arises on a balancing statement rather than through the self assessment system.

There only becomes a potential liability, IF there's net rental income greater than €3,174 in any of the 5 years - because then she would actually have become a chargeable person and obliged to file a Form 11.

I think you're both worrying and angering excessively over this issue.

IMHO if you've got a small one man contracting company, you may have much bigger fish to fry with Revenue in areas like company expenses, mileage & subsistence etc...
 
mandelbrot said:
Who's under audit - presumably it's your company, and you personally as director? Not your wife, since you are separately assessed?

In which case, since you're saying that she's the one who is to return the rental property, and since she's not a self-assessment annual filer, can this whole thing not be resolved by simply filing the Forms 12 for the last 5 years? There's no penalty / surcharge applicable (yet) to any tax liability, as it arises on a balancing statement rather than through the self assessment system.

There only becomes a potential liability, IF there's net rental income greater than €3,174 in any of the 5 years - because then she would actually have become a chargeable person and obliged to file a Form 11.

I think you're both worrying and angering excessively over this issue.

IMHO if you've got a small one man contracting company, you may have much bigger fish to fry with Revenue in areas like company expenses, mileage & subsistence etc...
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Thanks for the advice and maybe I am overly annoyed, I just didn't need to find this out going into an audit.

I'm a little bigger than a one man band, have an office that isn't my house and have a good array of clients so I'm not the one man band contractor working for one company and piling in the subsistence and and expenses. I have a company car so no mileage claimed. I'm not too worried as I have unclaimed expenses over the years and never claimed subsistence unless I actually incur real costs.

I did some work for a high tech company and was taken aback about how much the guys working there, who were essentially employees although working as limited companies, were claiming in expenses/subsistance/mileage. One guy said to me he claimed 17% of his gross in mileage/subsistance/etc.
 
One other thing is that it is up to each taxpayer to file his or her own return which details ALL sources of income for that particular year so if the rental income is to be split by giving you some of the profits then that is unfortunately your fault (and your accountants) for not including this income on your own return. You cannot have one return for one type of income and another return for rental income, it all goes on the one form.
 
DB74

I agree with the last post.

I would have to disagree with you on the split of rental profits. The fact that revenue chooses to treat property owners as a partnership is only their method of dealing with them.

I can't see any basis for allocating 100% of the rental income to one property owner on the basis that they do more work that the other.
 
Joe_90 said:
DB74

I agree with the last post.

I would have to disagree with you on the split of rental profits. The fact that revenue chooses to treat property owners as a partnership is only their method of dealing with them.

I can't see any basis for allocating 100% of the rental income to one property owner on the basis that they do more work that the other.
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People who are engaged in a partnership are always free to agree on how the profit/loss is to be split between the partners.

The fact that the partnership involves rental income from a property jointly owned is irrelevant.

The existence of a partnership is a question of fact, and there's a body of case law around that.
 
I guess we will have to disagree on that point, I don't deem co owners of property to be in a partnership.
 
Joe_90 said:
I guess we will have to disagree on that point, I don't deem co owners of property to be in a partnership.
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It's not about what you or I deem it Joe - if the facts indicate it, then it's a partnership!

Not all co-owners of property are necessarily in a partnership, but many joint owners of let property will be. Particularly if you can't say they are acting independently of each other in generating the income from the letting.
 
mandelbrot said:
It's not about what you or I deem it Joe - if the facts indicate it, then it's a partnership!

Not all co-owners of property are necessarily in a partnership, but many joint owners of let property will be. Particularly if you can't say they are acting independently of each other in generating the income from the letting.
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What is the definition of a partnership when it comes to rental income? I jointly own a rental property with my husband and we each make a tax return declaring 50% of the income each year (we're separately assessed, both taxed at 41%). We've never been requested to file the partnership tax return referred to in an earlier post above.
 
Joe_90 said:
DB74

I agree with the last post.

I would have to disagree with you on the split of rental profits. The fact that revenue chooses to treat property owners as a partnership is only their method of dealing with them.

I can't see any basis for allocating 100% of the rental income to one property owner on the basis that they do more work that the other.
Click to expand...

I would assume revenue would see a split to the person liable for the lowest tax an avoidance tactic. That how it was put to me by an accountant.
 
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