Car donation & state sales

[Bird Legs]

Situation: am working on a 2004 income tax return. Client donated car to charity on Dec. 31, 2004. Signed receipt from charitable organization. Client stated that the blue book value of vehicle was $1,800. said he looked it up.
I did a Google search on Kellys Blue Book, if car sold person to person. It stated the value at $1,095.

When I asked client about this he reaffirmed the value of $1,800. was correct.
What would be the proper response to this? Use the $1800. based on his value?

2: Client stated that he paid $33,000. in sales tax. I asked about this extremely high sales tax amount. He stated that they had bought a new house in 2004 and purchased
all new furniture & decorations etc.
Asked client if he had receipts to back this up, because there would be an audit. Response was, no problem, he had receipts.
Later found out that the $33,000. figure was not sales tax but gross purchases, including
sales tax, that client had made during year. He got this figure by totalling up his checks
that he wrote for the year. From this figure, then, to back out the sales tax paid.
Would it be the best just to call the client and tell him he needs to total the sales tax from the actual receipts he has or just forget it and use the chart?
By the way, this is a new client that just came in a few days ago.
Thanks for your suggestions.

[taxmandan]

New client

1. When I asked client about this he reaffirmed the value of $1,800. was correct.
What would be the proper response to this? Use the $1800. based on his value?

2: Client stated that he paid $33,000. in sales tax. I asked about this extremely high sales tax amount. He stated that they had bought a new house in 2004 and purchased
all new furniture & decorations etc.
Asked client if he had receipts to back this up, because there would be an audit. Response was, no problem, he had receipts.
Later found out that the $33,000. figure was not sales tax but gross purchases, including
sales tax, that client had made during year. He got this figure by totalling up his checks
that he wrote for the year. From this figure, then, to back out the sales tax paid.
Would it be the best just to call the client and tell him he needs to total the sales tax from the actual receipts he has or just forget it and use the chart?
By the way, this is a new client that just came in a few days ago.
Thanks for your suggestions.

Suggestion #1: Fire him as a client. Advise client that due to conflict of interest your will not be able to assist in the preparation of his tax return.

Suggestion #2: Give him back all of his paperwork, make sure he signs a receipt for the return of the papers.

[jainen]

Blue Book, sales tax

1) The car was obviously old so actual value could vary wildly depending on condition and local market. Since you don't know the specific car, you have no reason to doubt the person who did. That is exactly why the IRS now disallows Blue Book. Document your conversation and go with $1800.

2) To find the gross sales included in the $3300 total, divide by 1 plus the sales tax rate. Where I live it's 8.5%, so $33000 divided by 1.085 equals $30415, and the tax was $2585.

[Bird Legs]

Thank you

both for your responses.
Jainen, I did what you suggested. Take the total purchases and divide by 1.825%. The combined state & city sales tax is 8.25% where I am.
My problem with this is I do not know what all he has included in purchases. Prescription medicines? Groceries? Guess I will have to ask about it.
As far as the car, I do have all the info on the vehicle, including a picture. When I went to
inquire I included the zip code where car, client is located. What came up was:
Person to Person sale $990.00. Dealers asking price would be $1,415.
Client says the value was $1,800.
Again, thanks.
Additional info on car, 1985 Plymouth Colt 2 dr. Hatchback with 49,000 miles in excellent
condition, all power & A/C.

[Bees Knees]

My policy is not to use actual sales tax paid without actual receipts. The tables are provided for those who wish to guess. Otherwise, you need actual numbers.

[Lion]

How much info?

We don't audit our clients. If you feel your client is a liar, then fire him now, especially if a new client. Otherwise, tell him the new, more strict rules for car donations in 2005, and ask him again what FMV he can substantiate (not to you, to the IRS if requested) for 2004 and use his number. Likewise, ask him to total his state sales tax on his receipts and give you the total, or you will use the number from the IRS table. You can offer to add up his receipts for your hourly bookkeeping charge. (If he gives you a number much different from what you computed based on his gross purchases, you have another reason to fire this client before you invest too much more time in him.) Keep notes that numbers were provided by client. Probably a good time to use an engagement letter.

[Mark Goldberg]

Forest and trees

On the sales tax. Remember home furnishings aer not home building materials. They are not an addition to the table. So they get the table or the amount you figured. End of discussion.

On the car. You are lookin it up 11 months later. So the value you are going to get wlll be less than your client got assuming he looked in up in Dec 2004.
I used to say to my clients this is the blue book value. This means it is in this kind of condition. If it is in worse condition we need to adjust the amount down. If it was in that kind of condition we are set to go.

[Bird Legs]

Mark, you

are so correct on the fmv of the car. It does not seem possible that a year has already
gone by, but, it has. And the value would have been higher 1 yr ago. My brains are
getting too numb & stiff to do any original thinking.
Thank you.
Also, on the sales tax, he says he has receipts for the amouns given to me. These
amounts do include the sales tax, so will just adjust the total sales downward and
calculate the sales tax on that amount.