"I would suggest you seek legal advice, as if your state taxes personal income it "will" have an impact on state requirements also, and one or both of you could very well be in violation of state tax laws for all we know."
Carl has a good point here.
I am not sure I have all the details, but it seems likely that what you are describing is the intention to commit tax fraud. You do not want to be on the wrong side of this. - " Would there be a problem if we do not report the rental income even though he said he will not report it either? "
Most tax issues can be handled by Enrolled Agents and CPAs. However, when it comes to instances of criminal activity, there is no client confidentiality between you and us Enrolled Agents and CPAs; that confidentiality can exist only between a real attorney who also knows about taxation (obviously, only a few attorneys specialize in tax).
You may find that you will need to file amended returns for the last several years. These amendments might well cause the IRS to contact your father-in-law - and I suspect at that point, you will need legal representation to try to resolve a situation that might be very unpleasant.
Go get some qualified professional advice.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
