June 22, 2018

Tax Case Shows It’s Better To Give Than To Receive Notification of an IRS Audit

The Bible says God loves a cheerful giver, and the U.S. Tax Code says a cheerful giver loves the charitable contribution deduction. But according to the outcome of the recent case Durden v. Commissioner, the Tax Court hates both God and cheerful givers.

According to an article in The Tax Adviser, here's what happened.
In 2007, the Durdens claimed a charitable contribution deduction of $22,517 for cash contributions to their church. Most individual contributions exceeded $2501.
First off, the Durdens are sinners because the Bible says, "When you give […] do not let your left hand know what your right hand is doing, so that your giving may be in secret." It's hard to maintain that your left hand doesn't know what your right hand is doing when the Department of the Treasury knows what your right hand is doing2.
Regardless, $22,517 is a lot of shekels, so the IRS called BS under the assumption that no one believes in God to that extent during a recession.
Upon questioning by the IRS, the Durdens produced a letter from their church acknowledging the contributions, as well as canceled checks supporting the amounts of the claimed deduction.
Suck it, IRS, and pony up some of that filthy lucre! Wait. What?
The IRS declined to accept the [church's] acknowledgment [of the contributions] on the grounds that it did not contain the required statement under Sec. 170.
What required statement under Sec. 170?
For donations of $250 or more […] the donor must obtain a contemporaneous written acknowledgment […], stating the amount of the contribution [and] whether the donee provided goods or services in consideration for the donation […]. If goods or services received consist solely of intangible religious benefits, the contemporaneous documentation must contain a statement to that effect.
So the church secretary didn't write "goods and services provided in consideration for these donations consisted solely of intangible religious benefits" on the Durdens' annual giving statement. Fortunately, the Durdens didn't have oil miraculously appear in empty jars that they borrowed from their neighbors because that would probably be considered a tangible religious benefit.
So what did the Durdens do?
The Durdens subsequently obtained a second written acknowledgment from their church with the required language.
Problem solved. Right? Nope.
The IRS [and the Tax Court] disregarded it because it did not meet the contemporaneous written acknowledgment requirement of Sec. 170(f)(8)(C), which defines contemporaneous as [something different than what they got]3.
So the Durdens had to pay about $7,500 in additional taxes because they were unlucky enough to get singled out for an audit, and their church treasurer failed to conform with the minutiae of the tax code. Either that or God hates them.
And always remember, when giving a large cash donation to your church, write a series of checks with different dates and with the amount of each check not exceeding $249. That's a better loophole than buying indulgences or premarital butt sex.
1This is important later on.
2They're also sinners because Mr. Durden covets his neighbor's ox.
3In this case "contemporaneous" means the earlier of the date of filing or the extended due date, including extensions, of the return4.
4You're welcome, nerds.

Related articles

Going Concern is Not Immune to the Michael Jackson Circus

1.michael_jackson_71246050015.jpgWe’ve been able to avoid the whole Michael Jackson debacle up until now. We couldn’t, in good blogging conscience, avoid this particular story.
The estate of Michael Jackson is probably going to have to turn over at least $80 million to the IRS and they get to cut the line right to the front to collect.
“As in a bankruptcy case, Jackson’s creditors will jockey for first crack at his fortune. But the estate’s initial obligation will be to pay the late star’s taxes, said Beth Kaufman, a Washington-based attorney specializing in estate tax issues. ‘There is no question that the U.S. government has first priority,’ she said.
Oh, and the Service is not going to take the royalty rights to She Loves You or I am the Walrus either:

To settle his tax bill, the executors of his estate may have to sell or borrow against lucrative but hard-to-value assets or ask the IRS for a multi-year extension. That could allow the estate to pay the tab over time with earnings from Jackson’s share in rights to songs by the Beatles and his own music — prized properties whose value will likely make the estate’s tax bill only bigger. “The government is not going to take a Beatles record as payment. They want to be paid in cash,” said Roy Kozupsky, a veteran estate lawyer in New York who has worked on behalf of several wealthy clients.

Reportedly, Jackson still made $40 million a year from his ownership of the recordings. This will no doubt make the calculation of the tax bill more complicated and thus, we’ll continue to be saturated with all the excruciating details about this story that we just don’t want to hear.
Death and taxes: Big IRS bill looms for MJ estate [AP via TaxProf Blog]

UBS Names Needed so We Can Pay for Healthcare Otherwise We’ll Have to Print More Money

obama_point.jpg“Rich people, I want your money.”
No, seriously. Hand it over.
We’ve covered the failure (so far) of the IRS to get UBS to name names on 52,000 Americans and we’ve heard some good suggestions but maybe chocolate isn’t what the Service is interested in.
The House passed a pricey healthcare proposal yesterday and B to the O wanted it to be “budget neutral” which means, “We’re in a deep hole you clowns. Don’t make it deeper.”
Charged with said task, they went to a cocktail party got to work and came up with a solution that they super-duper rich will foot the bill via taxes. That means, IRS, get your shit together, because Nancy Pelosi has had enough of rich people, that aren’t her, not paying their fair share of taxes. Swiss bank account holders beware, here are the gory details that you’ll be getting in on if your name gets dropped:

Under the $1.2 trillion plan passed by the Democratic-controlled House of Representatives, the wealthiest 1.2 percent of U.S. households would have to pay an additional $540 billion in taxes over the next 10 years via an income surtax of between 1 and 5.4 percent. For the super-elite, those in the top 10th of 1 percent (and presumably the type of taxpayers who have Swiss bank accounts), that works out to an additional $280,000 a year in taxes on an average annual income of $2.3 million a year, according to the Tax Policy Center.

So basically it looks as though the IRS needs to close the tax gap because…wait for it…there’s shit to pay for! We’re not slapping healthcare on the Federal Reserve credit card, no, no. Right here and now we start paying for stuff out of our own pockets. So get on these Swiss banks and get the names because they’re avoiding their patriotic duty.
Obama’s self-defeating war on the wealthy [James Pethokoukis/Reuters]