Thank you to all who have responded to this posting. Your replies have certainly been helpful, though not yet determinative.
I particularly appreciate @Natalie Kolodij ‘s reminder that the IRS is likely to use a totality of the circumstances test, and also appreciate @Eamonn McElroy ‘s reminder that the tax doctrine of “Constructive Receipt” might be applied. For reasons cited in my individual responses to them, I am convinced that applying a test based on the “totality of the circumstances” as to who bears tax liability for the rents I’ve collected, will establish that the rents belong to the individual owners of these apparently abandoned properties. Further, it seems clear to me that, the tax doctrine of “Constructive Receipt” cannot apply to me in regard to the rents I’ve collected because I have only temporary control over the rents. As a matter of WA law, a previously absent property owner who returns to find their property rented out, can evict the tenant I’ve placed in their property and can demand all the rents accrued during my possession. “Constructive Receipt” also does not apply to the absent property owners because they have not received the rents collected from their property, nor do the owners know about or have reason to know about the rents collected, because none of the owners have authorized me to rent out their property.
@John P , I appreciate your cautionary words. You have identified a real problem in your comment, “I bet that the IRS will find a way to say it is taxable income to YOU regardless of how you tell the story.” It is a potentially significant problem for me that judges too frequently allow their basic gut feelings to play a deciding role in how they rule. However, the fact that my situation is odd, unusual or just seems wrong at a gut level does not affect what the law actually requires. Despite the fact that the idea, “Someone has to pay tax on these rents” is the basic instinct of most observers regarding the rents that I have accumulated, as a matter of law that sentiment is only applicable if there is a law, regulation, or court case that establishes my tax liability. The controlling law or case must be cited. Even the IRS does not prosecute individuals based only on what it thinks should be the law, they are required to cite an actual law, regulation or previous decision. My bet is that the IRS cannot say the rents I’ve collected are taxable income to me, -even if they want to. It will be at least ten years before these unspent rents can be considered my income. WA law is clear that rents collected on property owned by another person must be disgorged (paid back) to that owner -upon request. They are not my rents. The question is, can I borrow them?
Though I appreciate all your input, what is most needed is a controlling statute, regulation, court case or tax decisions regarding who, if anyone, must pay income tax on rents collected from apparently abandoned real property, and what, if any, are the tax consequences to me, as current manager of these properties, if I borrow those rents.
The basic advice I’m receiving in this post is that what I’m doing appears dangerous, and specific Tax questions should be answered by a CPA, and legal questions should be presented to an Attorney. Eventually, after educating myself as much as reasonable, I will consult those paid professionals. In the meantime, we have multiple CPA’s and Attorneys here on Bigger Pockets. If the issues were clear or routine one of them would have been likely to reference a controlling statute or decision. I suspect no one has cited a controlling law because similar matters have seldom or never been previously litigated. For that reason, even paid professionals are likely to offer limited authority on the issues.
For anyone reading this, is interested in the subject matter, I will repost the substance of my questions in a different format and provide a link below. My situation is very similar to that of a property manager who encounters a situation where the owner of a property suddenly disappears and leaves the property manager without an account or address at which to deposit the rents. In that case, what are the property manager’s responsibilities? When, if ever, do the rents he collects monthly belong to the property manager. Can the property manager borrow those rents? Perhaps phrasing the issue that way will result in reference to a controlling law.
