![]() The business relationship to the taxpayer of the individuals being entertained, including the names and titles of the people being entertained. The business purpose of the expense andĤ. The amount of expense (including receipts)ģ. In order to take a tax deduction for meals and entertainment expenses, the tax code requires that the expense be substantiated as follows:ġ. So the disallowance of the deduction in this case had less to do with the fact of the value of the donation than with the taxpayer’s technical compliance with the law concerning its substantiation.īoth of these cases point out the imperative importance of complying with the rules for substantiating a charitable contribution. Many of us find this case troubling because the real estate in question was subsequently sold for an amount in excess of the deduction claimed. Furthermore, the Mohameds failed to attach to their 20 tax returns an appraisal summary. Mohamed is a certified appraiser, the tax laws provide that a qualified appraiser cannot be the donor or taxpayer claiming the deduction or the donee of the property.Ģ. The taxpayer’s self appraisal of the properties was not a qualified appraisal. Upon audit, the IRS disallowed the deduction for two reasons:ġ. Mohamed, a real estate broker and certified appraiser, donated six properties worth at least $18.5 million to a charitable remainder trust in 20. In Joseph Mohamed, Sr., TC Memo 2012-152, the Mohameds lost charitable contribution deductions of over $18 million because they did not follow the strict requirements for substantiating noncash donations over $5,000. If the acknowledgement fails to provide the required information, the deduction will most likely be denied. Therefore, the IRS does not have to look any further than the written acknowledgement. Moreover, the IRS disallowed a corrected letter from the Durdens’ church because the revised acknowledgement was received after their 2007 tax return was filed. Because the taxpayers’ receipt from their church did not contain the required statement regarding whether goods or services were provided, the deduction was disallowed. Note that the above documentation must be in the taxpayers’ possession by the time the tax return is filed. A list of any significant goods or services received in return for the donation or language in the acknowledgement that expressly states the donor received no goods or services from the charity. Amount of cash or a description of any property contributed, andĤ. In order to be deductible, the tax court held that the following factors must be present on the acknowledgement:ģ. The IRS disallowed the deduction because the written acknowledgement from the church failed to contain certain language required by law. The donations were made by check and the Durdens produced copies of the cancelled checks upon audit. ![]() Durden donated around $22,000 to their church during tax year 2007. David Durden, TC Memo 2012-140, highlights this fact. Two recent IRS decisions stress the importance of meeting the strict substantiation requirements for claiming charitable contribution deductions. ![]() If you file Schedule C and have reported losses for the last few years, please be aware that you may be an IRS target. The IRS has always scrutinized taxpayers’ side ventures and presumes that an activity is carried on for profit if it made a profit during at least three of the last five tax years, including the current year. An activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit. In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. These include hobby losses for schedule C filers, charitable contributions, meals and entertainment expenses, and passive activity v. The IRS is focusing on certain areas as well. With summer well underway and tax season behind us, we thought it would be a good idea to alert you to the fact we are seeing an increase in IRS audits for all types of entities, including the following:
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |