IRS Offers Tips for Year-End Giving

IRS Offers Tips for Year-End Giving

by | Dec 15, 2011 | Archives

WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Reminders
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
·  Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
·  Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
·  For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2011 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
·  For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
·  The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
·  If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
·  And, as always it’s important to keep good records and receipts.


IRS.gov has Additional information on charitable giving including:
·  Publication 526, Charitable Contributions.
·  On-line mini-course, Can I Deduct My Charitable Contributions?


IRS Tip IR-2011-118
Taxpayers Wrongly Deducted $700M for Investment Theft Losses

Taxpayers Wrongly Deducted $700M for Investment Theft Losses

by | Nov 28, 2011 | Archives

WASHINGTON, D.C. – More than $697 million a year in deductions for investment theft losses may have been erroneously claimed by taxpayers, according to a new government report, resulting in a revenue loss of over $41 million to the Treasury.

The report, by the Treasury Inspector General for Tax Administration, reviewed a sampling of tax returns filed for tax year 2008. The Internal Revenue Service estimated that more than 19,200 taxpayers filed returns for tax year 2008 claiming a total of more than $8 billion in property income casualty and theft loss deductions.

TIGTA conducted its review to assess the IRS’s efforts at ensuring the validity of the investment theft loss deductions claimed by taxpayers. The number of investment theft loss victims as a result of Ponzi schemes increased significantly in tax years 2008 and 2009 in the aftermath of such notorious cases as those of Bernard Madoff, Allen Stanford and others.

With the potentially large number of victims filing tax returns claiming these losses, IRS officials issued guidance to minimize both the administrative burden on the agency and the burden on the victims of Ponzi schemes.

Based on a review of a statistically valid sample of 140 electronically filed returns for tax year 2008 on which taxpayers reported an investment theft loss deduction, TIGTA estimated that 1,788 out of 2,177 taxpayers, or 82 percent, may have erroneously claimed deductions totaling more than $697 million. The potential revenue loss estimate of $41 million was conservative as it only represented electronically filed tax returns for one year, TIGTA noted.

“The IRS did a good job of addressing the tax implications of Ponzi scheme losses and providing guidance to affected taxpayers,” said TIGTA Inspector General J. Russell George in a statement. “However, our review identified that some taxpayers may be erroneously claiming investment theft loss deductions. Revenue losses associated with potentially erroneous deductions could be substantial.”

TIGTA made four recommendations in its report, including revising the Form 4684 to include specific information supporting key eligibility requirements, establishing a compliance initiative project to measure noncompliance for investment theft loss claims, and analyzing processes and historical data to determine the changes needed in the IRS’s processes and forms. IRS management agreed with TIGTA’s recommendations and said they plan to take the appropriate corrective actions.

The IRS’s response indicates that the erroneous investment theft loss claims were not simply mistakes either. “We have investigated promoters of abusive investment theft loss schemes and the taxpayers who participated in such schemes,” wrote Faris R. Fink, commissioner of the IRS’s Small Business/Self-Employed Division. “To maximize these compliance efforts, we have worked closely with other impacted IRS business units and our internal counsel.”

BY MICHAEL COHN
ACCOUNTING TODAY