According to an article in the New York Times, the amount of tax evasion committed by real estate partners is huge, amounting to billions of dollars of potential tax revenues lost every year.

Jerry Curnutt, a former specialist in partnerships for the Internal Revenue Service made the claim even though the means for detecting such evasion are relatively simple and easy to use.

As evidence, he pointed to a statistical report recently released by the I.R.S. that indicates cheating on the reporting of real estate partnership gains is rapidly rising.

“Nationally, in 2005, at least $20 billion of gain from real estate tax shelters was unreported,” Curnutt said, “and in New York State, the epicenter of the business, the figure may be as high as $5 billion.”

IRS figures show that there were nearly 1.3 million real estate partnerships, with more than 6 million partners in 2006, with more than 80 percent of reported partnership income going to taxpayers with annual incomes above $200,000.

Curnutt claims that tens of billions of dollars of real estate gains are either not reported or are misreported as long-term capital gains, which are taxed at a lower rate.

Congress-which demands that employers, banks and other institutions verify the wages and major deductions taxpayers report-allows real estate partnerships to report their income independent verification, except for audits. Last year, the IRS audited only one in every 386 real estate partnerships.

Because real estate partnerships typically report little or no profit for the 20 years or more that the property is being depreciated, audits of real estate partnerships are effective only if done in the year that property is sold or traded since that is the only time that partnerships report an income, Curnutt says.

Tags: real estate partnerships, real estate tax evasion, real estate tax filings, real estate taxes

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