About: Jeffrey A. Quinn

Recent Posts by Jeffrey A. Quinn

Quid Pro Quo Donations Scrutinized by IRS

The Tax Court recently issued a tough lesson to taxpayers in its Seventeen Seventy Sherman Street, LLC  (TC Memo 2014-124) decision, in ruling that a taxpayer received two items of property in return for its contribution of an easement, but failed to consider the value of all of the property received.  The result?  No deduction whatsoever with respect to the donated easement!  Failure to value all of the consideration received led to the conclusion that failure to prove the fair market value of the easements exceeded the value of the consideration received in return!

Capital Gains Rates

As the 2014 tax planning season comes upon us (just as the last extension date for filing 2013 returns comes and goes), folks should not lose sight of the advantageous way in which long-term capital gains are taxed.

  • 20% rate if the gains would otherwise be taxed at a rate of 39.6% if they were taxed as ordinary income
  • 15% rate if the gains would otherwise be taxed at between 15% and 39.6% if taxed as ordinary income
  • 0% rate if the gains would otherwise be taxed at a rate of 10% or 15%

Strict Substantiation Rules Govern Property Donations to Charity

Check the recent Tax Court decision in the Smith case (TC Memo 2014-203) before you get too cavalier with your tax documentation.

This chap donated about $27,000 (according to him) worth of household goods, clothing and electronic equipment in 2009 to a legitimate charity, the fact of which was not challenged.  The IRS and the Court, however, rendered none of the donations tax deductible because the taxpayer flunked the charitable contribution substantiation tests.

Despite the fact that the taxpayer had consulted a Salvation Army website which revealed estimated “low” and “high” values for used property, he nonetheless assigned values to his items which were considerably higher than the “high” values listed, and he did not take photographs of any of the items donated, nor did he introduce any evidence to establish their condition.

For noncash contributions in excess of $500, taxpayers are required to maintain written records with respect to each item of donated property, to include:

  • The approximate date the property was acquired and the manner of acquisition
  • A description of the property
  • The cost or other basis of the property
  • The fair market value of the property at the time it was contributed
  • The method used in determining the fair market value

No deduction is allowed for contributions of clothing or household goods unless such items are “in good used condition or better.”

Don’t Forget IRA-Required Distribution as Year End Approaches

The last quarter of the year is just around the corner, and those of you age 70-1/2 and older should be sure to withdraw from your IRA the “required minimum distribution” (RMD) lest you be subjected to the onerous 50% penalty if you don’t.

Taxpayers must begin RMD withdrawals no later than April 1 following the year in which they reach age 70-1/2, and by December 31 of each calendar year thereafter.

The amount of each RMD is computed separately for each IRA, if you have more than one account, though the aggregate total may be paid out from any one or more of your IRAs.

Section 83 Governs Tax on Property Received for Services

Section 83 provides that any person who performs services in connection with which he receives property may elect to include in gross income for the taxable year of the transfer the excess of the fair market value of the property over the amount paid for it, even in a case in which the property is subject to a substantial risk of forfeiture.

The election is made by filing one copy of a written statement with the IRS office with which the taxpayer files his return within a stipulated period of time, and, in addition, a copy of the statement is supposed to be submitted with the income tax return itself for the year of the transfer.

Recent PLR 201438006, however, provides a bit of leniency regarding the requirement to include a copy of the election with the tax return, noting that failure to submit another copy won’t affect the election’s validity.

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