What I'm looking at, is when the sell the property the sale will of course be split 50/50. My method accounts for the total of all depreciation taken by (what will be) both parties. So long as the depreciation is recaptured, the IRS will not care (to a certain point) who recaptures it. (There are things that "could" raise flags and "make" them care.)
Depending on the circumstances, it may or may not raise flags. Is there of possibility of audit? Yes. That risk may be low - but it's never zero.
If dad claimed all the income, then dad was correct to report it. However, this would probably have been better to deal with as a 1065 partnership if anything, from the very start. Unfortunately, that didn't happen.
