Posted by Nick on February 08, 1999 at 21:21:20:
In Reply to: Re: Signing lease! Help needed posted by John E. Marre on February 06, 1999 at 19:09:07:
: Good point to bring to the attention of the readers.
: Another point to beware of:
: There are "brokers" who work for angecies which are connected to building owners (aka: landlords). (I can speak only for NYC, but wouldn't doubt this happens elsewhere) You pay a "broker's" fee of some percentage of the annual rent and the landlord actually gets the largest portion of the "fee". More often than not, a "broker" engaged in this type of business will refuse to give you contact with the landlord for fear of you finding out what's going on.
: As was suggested: get another broker. Maybe you should consider another apartment too.
: No sense in paying a landlord the extra money (which is also illegal, but can happen).
Are there any court cases that have addressed this situation? It seems to me that what's going on here can be looked at two ways: First, the "broker" is really an employee of the landlord. The landlord really gets the "commission" as an illegal fee, and pays part of it back to his employee. Second, the "broker" could be considered to receive the full amount of the commission and then pay part of it to the landlord. In both instances, I see a real tax problem. In the first case, the landlord would have to report the full "commission" in income and then deduct what he flips back to the broker. But this payment might be non-deductible if illegal under NY law. In the second case, the "broker" would report the full amount of the commission in income and then try to deduct what he pays to the landlord. Again, if illegal under NY law, the payment might be non-deductible. The result in both cases: the landlord/"broker" team (sort of like the teams that play 3-card monte on the streets) has to pay tax on the full amount of the "commission," but loose a deduction. Result: an extra-high tax rate on these payments. If the housing court (or whatever court in NY would handle the issue of the legality of the payment) made the appropriate factual findings, the tenant might find it worth his while to give a call to the new and improved and without a doubt much more user-friendly IRS.
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