I have a client who belongs to a Church where

[erchess]

all the business owners do free or reduced price work for poor people. My client is a garage owner who I mentioned in another post. I am thinking of suggesting to my client and the church that they change their ways.

I think that business owners who feel sorry for someone should refer that someone to a committee of the Church. No business owners should be on the committee. The committee should use church funds (either from the general budget or special offerings) to pay business owners their normal fees for services. Obviously the business owners should report the income from these transactions in the usual way. They should continue to write off their donations to the Church in the usual way. It just seems like to me that everyone except the IRS wins here. Oh it also occurs to me that if the Church wanted the pastor or one designated person who does not own a business could make the decisions.

I thought I would ask for opinions here before I open my admittedly very large mouth and insert my equally large foot.

[jainen]

Little Buddy

>>I am thinking of suggesting to my client and the church that they change their ways.<<

Don't do it, Little Buddy. I know the last two weeks of tax season are rough, and the Resurrection puts all kinds of crazy thoughts in your head. Believe me, this is not the time to try to reform a church!

[Zee]

From the deductible contribution standpoint, it sounds like a good idea to me although (as Janien indicated), it might be difficult to get the church to accept the recommendation. It might help if you point out that the deductibility might increase gifting to the church. But, the issue does create a second question. Are the beneficiaries of "free" personal services or goods taxed? For example, is the recipient of a "free" home from Habitat for Humanity taxed on the value of the home?. Assuming these are "needy" folks and taxed, how would they pay for the taxes?

[Bees Knees]

The receipt of a gift is never taxable (IRC §102). A non-profit organization or any individual can build you a house, fix your car, or buy your groceries because you are poor and in need, or for any other reason, and you never have to pay tax on the value of the goods and services you receive. An exception to this is if you win a TV game show or prize (Letter Ruling 20060012). Another exception is if your employer gives you a gift [IRC §102(c)]. In these two instances, the gift would be taxable income to the recipient.

Nothing in the original post indicates that this would be a taxable gift to the recipient. One has to wonder why you would suggest that a group of charitable givers should not provide services free of charge to those in need. Are you a scrooge? Or is your entire life blinded by tax law?

There are more things in life than tax deductions. Yes, I know that a garage owner gifting his time and services to fix a car for someone in need is not going to get a charitable contribution deduction. But so what? If you make him charge the church for the services and collect income, he pays income tax AND self-employment tax on the income. Taking a charitable donation deduction on Schedule A for donating the proceeds back to the church is not going to make it a wash.

Your suggestion not only puts a damper on the joy one receives in “giving,” you also increase his tax liability.

[Zee]

The receipt of a gift is never taxable (IRC §102). A non-profit organization or any individual can build you a house, fix your car, or buy your groceries because you are poor and in need, or for any other reason, and you never have to pay tax on the value of the goods and services you receive. An exception to this is if you win a TV game show or prize (Letter Ruling 20060012). Another exception is if your employer gives you a gift [IRC §102(c)]. In these two instances, the gift would be taxable income to the recipient.

Nothing in the original post indicates that this would be a taxable gift to the recipient. One has to wonder why you would suggest that a group of charitable givers should not provide services free of charge to those in need. Are you a scrooge? Or is your entire life blinded by tax law?

There are more things in life than tax deductions. Yes, I know that a garage owner gifting his time and services to fix a car for someone in need is not going to get a charitable contribution deduction. But so what? If you make him charge the church for the services and collect income, he pays income tax AND self-employment tax on the income. Taking a charitable donation deduction on Schedule A for donating the proceeds back to the church is not going to make it a wash.

Your suggestion not only puts a damper on the joy one receives in “giving,” you also increase his tax liability.

Bee Knees-

You're correct. At best, the situation would create a "wash". It isn't a good idea.

Thanks for the reply on the taxability of the "gift". I was certainly aware prizes won on gift shows, etc. are taxable. It does seem "odd" to tax a prize show award, and not other gifts. It seems like all these issues create other tax planning questions. In certain situations, is it possible to plan a change in character of a transaction from a taxable transaction to a gift? For example, debt forgivness situations?

[Bees Knees]

In certain situations, is it possible to plan a change in character of a transaction from a taxable transaction to a gift? For example, debt forgivness situations?

Debt forgivness in the case of a relative such as a parent forgiving the debt of a son or daughter would be considered a gift, not subject to income tax on the debt forgiven.

The reason is it is reasonable to conclude that a parent would gift money to a son or daughter. It is not reasonable to conclude that a mortgage company is going to "love" a customer enough to decide it wants to gift the remaining debt to the customer.

[jainen]

What about these guys?

>>It is not reasonable to conclude that a mortgage company is going to "love" a customer<<

What about these guys?

http://lovemortgage.com/

[Zee]

It is not reasonable to conclude that a mortgage company is going to "love" a customer enough to decide it wants to gift the remaining debt to the customer.

I believe there was a song, or at least part of the lyrics, "What's love got to do with it?" I don't think a gift of the forgiveness of debt would be disqualifed because the gifting party "hated" the the recipient (maybe a son in law).

Let's assume a Katrina victim has lost there home with no potential whatsover for any recovery (the taxpayer can't work and has no funds, etc.). Also assume the home was purchased on a contract for deed with an unrelated third party. The third party would most likely have a deductible bad debt, but either can't benefit from the bad debt deduction or chooses to be a good citizens and simply "gift" the forgiveness. Maybe I should add they "love" the taxpayer as well.

[jainen]

the operative word

>>gift the remaining debt to the customer<<

I think the operative word is not love, but customer. A transfer arising out of a business relationship is taxable. A gift occurs within a personal relationship.

[erchess]

Thanks to all who responded.

I think that I understand now WHY my idea would be at best a wash from the point of view of the business people.(I was overlooking SE Tax and the fact that making a donation of a dollar does not save any taxpayer a whole dollar in taxes.)

I also know enough about the Sociology of Religion and have enough practical experience in Churches to realize that getting a Church to change its behavior is about like getting 500 cats to march in a parade.

I am not a scrooge. I personally give gifts for which I get nothing except the great pleasure of giving. However, I try to get the maximum tax advantage I legally can for my clients and myself.

I will admit to fuzzy thinking, but I don't think the Resurrection has anything to do with that. The problem is that while I have received extensive and careful training in the skill of taking what someone did and cranking out their tax filings, I am entirely self taught when it comes to the skill of advising them on their future behavior or even when it comes to a theoretical understanding of taxes.

I'm going to take the Personal and Business tax courses in the accounting department of my local community college this summer and fall. Does anyone have an opinion as to counting them toward my EA Renewal? It's not the end of the world if I have to take other courses for EA Renewal.

[Snaggletooth]

North Carolina State

Erchesse, last year I took 16 CPE credits at the Asheville Rennaissance in your home town, sponsored by North Carolina State. It was their "intermediate" course, and was very reasonably priced. You are too far advanced for their "beginner" course.

Got to meet several NC tax preparers while I was there, from places such as Marion and Spruce Pine. Last year it was the Monday after Thanksgiving. I might go back this year.

Check it out...

Regards, Ron Jordan, Manchester, TN

[Bees Knees]

I think the operative word is not love, but customer. A transfer arising out of a business relationship is taxable. A gift occurs within a personal relationship.

What is the difference between a personal relationship and a business relationship?

One is based on greed. The other is based on love.

Love's got everything to do with it. Love makes the world go round. All we need is love. This is not just another silly love song.

[GIMoe]

Love's got everything to do with it. Love makes the world go round. All we need is love. This is not just another silly love song.

I guess you can say that Love is in the air. Now I will just Stop...in the Name of Love.