I have a theoretical question based on something something I've been reading...
Taxpayer is in possession of and has been renting vacant and abandoned properties for a few years. When discovered by the taxpayer, the taxes on these properties had not been paid for at least 2.5 years and the owner of the property could not be located with considerable effort. His state of residence allows him to clean up the properties and rent them as they are abandoned.
Rental agreements state the owner of record or the taxpayer may cancel the rental agreement at any time. Rental revenue goes into segregated accounts, the legal owner of which is the taxpayer. Property taxes and maintenance are paid from these accounts. When improvements are necessary, the taxpayer offers the tenants discounted rent to make the improvements. The taxpayer's state has a 6 year statute of limitations to claim past due rent, and because of this he has not taken any money out of the segregated account.
The taxpayer argues that as he is not the legal owner of the property, none of the rental income is taxable to him.
I believe he is the beneficial owner of the property and should be reporting the rental activities. Depreciation taken on only the improvements he or his tenants paid for.
What say you?