Saturday, August 19, 2017

Keep It Believable

Our protagonists this time are the Ohdes from West Virginia. The issue concerns charitable contributions. The Ohdes claimed they made dozens of trips to Frederick, Maryland and donated over 20,000 distinct items in 2011.

Half of this would have been clothing. There was furniture. There also were over 3,000 books.

They did at least get that minimalist Goodwill receipt that says:
Goodwill does not return goods or services in exchange for donations of property.”
The receipt doesn’t provide detail of the items, their count or their condition, but at least it is a start.

At the end of the year they entered this information into TurboTax.

And according to TurboTax they donated over $146,000.

You know what else?

They should have expected the almost-certain notice from the IRS. Donate a piece of real estate and a $100,000-plus donation makes sense. Donate 20,000-plus items of men’s and women’s clothing – and not so much.

There are rules for noncash donations. The IRS knows the scam. The rules tighten-up as the donations get more expensive.

If you donate property worth $250 or more, you have to get “contemporaneous written acknowledgement” (CWA). This does not mean the same day, but it does mean within a reasonable time. The CWA must include a description of the property.  That Goodwill receipt should be adequate here, as it has pre-printed categories for
·      Clothing
·      Shoes
·      Media
·      Furniture
·      Household items
Go over $500 and there are more requirements. In addition to a description of the property, you also have to provide:

·      How you acquired it
·      When you acquired it
·      How much you paid for it

That Goodwill receipt is no longer enough. You are going to have to supplement it somehow. Some tax practitioners advise taking photographs and including them with the tax records for the year.

Go over $5,000 and you get into appraisal territory, unless you donated publicly-traded stocks.

Where were the Ohdes on this spectrum? Their lowest donation was $830; their highest was $14,999.

They were therefore dealing with the $500 and $5,000 rules.

What did they have?

They had that lean and skinny receipt from Goodwill. You know, the receipt that is good enough for $250 donations.

But they had no $250 donations.

They had a problem. Their paperwork was inadequate. It would help to have a sympathetic Court.

Here is the Court:
Petitioners claimed large deductions for charitable contributions of property, not only for 2011 but also for years before and after 2011.”
Where was the Court going with this?
 For 2007—2010 they claimed deductions in the aggregate amount of $292,143 for noncash charitable contributions."
Are you hearing skepticism?
For 2012-2013 they claimed deductions in the amount of $104,970 for noncash charitable contributions.”
Yep, skepticism.

The Court had a whole range of options to bounce the deduction.
Petitioners did not maintain contemporaneous records establishing any of these facts.”     
That is one option.

Stay within the lines and the Court might cut you some slack.  Deduct half a million dollars over a few years and …. Let’s just say you had better make a lot of money to even get to the realm of possible.
Many of those aggregate dollar figures are suspect on their face.”
The Court spotted them a $250 deduction.

Leaving approximately $33 grand in tax and over $6 grand in penalties.

Keep it believable, folks.

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