Posts tagged charitable tax deduction
Torched home not allowable deduction
Jul 26th
A federal court in Ohio has extinguished the charitable tax deduction hopes of an Ohio couple who donated their home to their local fire department so it could be burned as part of a training exercise.
The problem in this case was not the controlled arson issue that caught everyone's fancy, but rather basic tax law requirements in such pricey donations.
The court's finding means that James and Lori Hendrix of Upper Arlington, Ohio, now owe the IRS an additional $100,590 in tax, plus interest and penalties.
The problem with the donation the Hendrixes made back in 2004 was, according to the ruling by U.S. District Judge Gregory L. Frost, that the couple didn't submit a proper appraisal of their home to substantiate the $287,400 value claimed on their tax return.
Now they weren't so tax naive to ignore this requirement for gifts of $5,000 or more. The Hendrixes did indeed get an appraisal "to assist the owner in estimating the fair market value of the subject property."
In fact, that appraisal valued the home at almost twice the amount claimed on the Hendrix 2004 Schedule A.
The IRS, however, rejected that assessment, saying the document did not contain the expected date of contribution, the terms of the donation agreement between the couple and the city, the appraiser's qualifications (including background, experience, education, and any membership in professional appraisal associations) and the required statement that the appraisal was prepared for income tax purposes.
Frost ruled that the IRS' "evaluation of the appraisal's deficiencies is accurate" and that "substantial compliance" to the tax requirements "cannot salvage" the Hendrix case for allowing their deduction.
Basically, as has been noted here many times before, deductions demand documentation.
Tax Update Blog sums up the Hendrix case quite nicely:
The IRS isn't crazy about charitable deductions for authorized arson, but the
taxpayers made it easy for them here. Whenever you donate appreciated property
(other than publicly-traded securities) to charity, be sure to follow the IRS
property donation rules carefully. Burning your house may or may not be a good
idea, but letting a deduction go up in smoke is always a tragedy.
In addition to Tax Update Blog's take on the case, you can read more at TaxProf Blog and in the court ruling itself (the previous link is a PDF file; if you prefer HTML, here's the LEAGLE version).
Two couples, one case: The ruling also is probably being carefully reviewed by ESPN commentator and former Ohio State quarterback Kirk Herbstreit and his wife.
The Herbstreits also donated their suburban Ohio home to the local fire department. And they, too, filed suit after the IRS rejected their deduction claim.
However, their attorney, who also represented the Hendrixes, withdrew the Herbstreit filing last year, noting that both cases were so similar there was no reason to pursue both.
If the Herbstreits had batter donation substantiation and an IRS acceptable appraisal, I wonder if this fiery tax deduction issue will be heading back to court.
Related posts:
- IRS snuffs fire department donation
- House fire deduction flares up
- Deductions demand documentation
- Heat wave calls for cool charitable gifts
- Midyear tax tip #8: Get charitable
- Keep the giving going
- Year-end Money Moves 2009: Giving
- The 12 Tax Tips of Christmas: #4 Be Charitable
- Maryland tax tidbit: charitable checkoffs
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Universal Charity Vouchers. A Conservative Solution?
Jun 1st
By Adam Schaeffer
Robert VerBruggen of NRO believes that the only difference between allowing taxpayers to direct their own funds according to their individual preferences and having the government pool all tax dollars and distribute them according its collective preference is political, not principled. A mere technicality rather than a fundamental distinction.
Moreover, VerBruggen contends that it is dishonest to use tax credits instead of direct government spending.
If that’s true, why don’t we voucherize charitable giving?
The feds should eliminate the charitable tax deduction and send out the average (tax-forgiven) amount donated per adult to every citizen in the country to donate as they wish! Would this be more honest? Is there no fundamental difference between these two approaches?
Sure, some people would complain about how their tax dollars were being redistributed to, say, support abortion clinics or the Catholic Church or PETA. They would carp about how they, as taxpayers who earned that money in the first place, should be the ones to direct their money to the charity of their choice. They would complain that pooling the money and doling it out to people who didn’t earn it to use at their own discretion, according to some criteria determined by the government, is unfair and wrong. Are these just technicalities?
Is direct government spending on universal charity vouchers really no different than giving individual taxpayers the freedom to donate to the charities of their choosing?
Would universal charity vouchers be preferable to the individual tax deductions for charitable donations that we have today, from the standpoint of minimizing compulsion and social tension? To claim that school vouchers are equal to or better than tax credits on these grounds is to claim that universal government charity vouchers would be better than the system we have today.
“By letting citizens do the government’s job of allocating tax money to the preferred area,” VerBruggen insists, “politicians can avoid controversy, claiming they’re merely enabling ‘donations.’” He therefore concedes, “so maybe there’s something to Coulson’s argument about avoiding social conflict, if only because people mistakenly think there’s a meaningful difference between the two funding mechanisms.” While VerBruggen supports direct government vouchers, using “[tax expenditures] is a dishonest way to get them.”
VerBruggen seems pre-committed to charity vouchers. It’s the only honest thing to do. Anyone else on board with that?
Taxpayer Choice + Parental Choice = Education Reform That’s Constitutional
Mar 25th
By Ilya Shapiro
Arizona grants income tax credits for contributions made to school tuition organizations (“STO”). These STOs must these donations for scholarships that allow students to attend private schools. This statutory scheme broadens the educational opportunities for thousands of students by enabling them to attend schools they would otherwise lack the means to attend.
The Ninth Circuit held that the tax credit program violated the Establishment Clause because many of the STOs — as it happens, a decreasing majority — provide scholarships for students to attend parochial schools. Counsel for the defendants, including the Institute for Justice, asked the Supreme Court to review the case — and indeed to summarily reverse the Ninth Circuit, based in part on a 2002 case (Zelman v. Simmons-Harris) rejecting a similar challenge to a school voucher program. Cato filed a brief, joined by the Foundation for Educational Choice and the American Federation for Children, supporting this request.
Our brief argues that the funds received by STOs are the product of individual taxpayers’ “genuine and independent choice” — the touchstone by which the Court judges the religious neutrality of statutes allowing for taxpayer money to fund religious education. Moreover, the tax credit scheme is indistinguishable from similar charitable tax deduction programs that the Court has previously held to pass constitutional muster. While the Ninth Circuit reasoned that Arizona parents feel pressured to send their kids to parochial schools due to limited scholarships available for secular schools, it failed to consider that the share of STO money available to secular schools was nearly twice as large as the share of families choosing to send their children to secular schools.
Far from being an impediment to parental freedom, the autonomy Arizona grants to taxpayers and STOs is ultimately essential to it. More generally, should the lower court’s opinion be allowed to stand, the progress made to broaden the educational opportunities of students across the country will be stifled.
The name of the case is Arizona Christian School Tuition Organization v. Winn. The Court will likely decide before it breaks for the summer whether to take it up — and, indeed, whether to summarily reverse the Ninth Circuit.
2009 deductibility of Chile donations
Mar 11th
Have you filed your 2009 taxes yet? If you haven't and you contributed to relief efforts in the wake of the massive Chilean earthquake last month, you might want to hold off a bit longer.
The House yesterday approved a bill that would allow donations to groups providing aid to those affected by the Feb. 27 earthquake centered outside Concepción, Chile, to be counted as 2009 tax deductions as long as they are made by April 15.
News Update: Two strong aftershocks, measured at 7.2 and 6.9 magnitudes, stuck Chile this morning as the country's new president was being sworn into office. They were the strongest aftershocks to date.
The Chile donation bill, H.R. 4783, is similar to the emergency charitable contributions law enacted after the earthquake in Haiti.
In fact, this latest charitable deductions measure would extend the tax deduction time frame for deductible charitable gifts made in connection with the Haiti disaster. Donations to Haiti relief also could count as 2009 write-offs as long as they also are made by April 15. Under the earlier law change, that donation deadline was Feb. 28.
Hmmm. Sounds very familiar to my proposal in Chile & charitable tax deduction fairness for permanent
changes to charitable donations. I don't know if I should be pleased or
troubled that a majority of House members and I are thinking along the
same legislative lines.
Bipartisan support: H.R. 4783 was introduced by acting House Ways and Means Committee Chair Sander M. Levin (D-Mich.) and W&M ranking minority member Dave Camp (R-Mich.).
The bill, which passed with no opposition and by voice vote, was designated as an emergency measure. That means it doesn't have to
meet the House's "pay as you go" restrictions demanding that any lost
revenue be offset by funds from elsewhere.
H.R. 4783 is now in the Senate's hands.
Whether such extended donation deduction options really prompt additional aid is debatable. But the bill apparently has wide bipartisan support, so I expect the Senate to soon act on it favorably.
Related
posts:
- Chile & charitable tax deduction fairness
- Haiti donation deadline Feb. 28
- Congress OKs accelerated tax deductions for donations
to Haiti - Red Cross receipts for text donations
- Alabama tax tidbit (Haiti donations state deduction)
- Year-end Money Moves 2009: Giving
- The 12 Tax Tips of Christmas: #4 Be Charitable
- Keep the giving going
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