Can several siblings own a property without creating an official partnership

[Anonymous]

My 3 siblings and I own and rent out a property (in Florida) that we inherited from our parents 4 years ago. From reading around, it seems that we don't have to create and register an official partnership with an EIN, etc.  What I have been doing is using TurboTax Business program to create a fake 1065 return (which I won't to be filing) to calculate a Schedule K-1 showing 25% income and expenses for each of us to enter into a Schedule E on our individual tax return. I base this based on the following article posted last year in this forum.

https://www.irs.gov/pub/irs-drop/rp-02-22.pdf

I believe we can just transfer the information from the K-1 I generated by creating the temporary 1065 return to a Schedule E on our individual returns. Would this be OK as the consensus seems to be that we don't have to create an official partnership for jointly owned property used for rental?

[ThomasM125 · Accepted solution]

I can't opine on the legality of what you are doing, although the following passage in the link you shared supports your position:

The conservative thing to do would be to file a partnership tax return, but it is often handled in the manner you suggest.

[Hal_Al]

Q.  Would this be OK as the consensus seems to be that we don't have to create an official partnership for jointly owned property used for rental?

A. Yes.  

You will get differing opinions, in this forum too.  But I think the consensus, here, is that you don't need to file a partnership return. 

I have a similar situation (only one sibling) and we each file our half on a Schedule E. 

[Rick19744]

This situation, with limited facts, is not cut and dry.

At the end of the day, the decision to file a form 1065 for this activity rests in your risk tolerance.

Should any of the 3 siblings get audited, you open the door to the IRS questioning this activity.  IRS agents run the gamut on how they would want to handle this; correctly or incorrectly.  Regardless, this is time, energy and $$ spent by you to maybe prevail.

The revenue procedure you are holding your hat on, is just some brief internal commentary on when the IRS would entertain a ruling request.

There are numerous cases and the IRS always refers to the fact that a partnership for federal tax purposes is “broader in scope than the common law meaning of partnership, and may include groups not commonly called partnerships.”

The IRS will most likely take the position that co-owners actively and jointly pursuing a business activity are deemed a partnership for tax purposes.  

Not trying to create a panic, but the penalties for not filing a timely partnership return and related K-1's can be costly. 

The other issue you are facing is the fact that you have not filed a form 1065 in the past.

So depending on your risk tolerance, you can continue down the same path, or file a form 1065 that you indicate you are essentially completing already.  At some point, this will certainly close the statute of limitations on some of those "open" tax years.

[Carl]

While for rental property it is not required that you create a partnership, I am of the opinion that when you have 2 or more owners that are not married to each other and not filing a joint return, it's the better way to go. Besides, creating a partnership in FL is dirt cheap compared to some other states. In fact, it's less than $100 to create a General Partnership in FL, based on what I see right now at http://form.sunbiz.org/pdf/cr2e074.pdf

Also, the cost of registration as well as the cost of the TTX program and the filing fees can all be claimed by the partnership as a rental expense, if that's the only reason for which the registered partnership exists.