Childs Charitable Contributions

[George Boutwell]

The parent is simply making the donation through an intermediary or agent. It's no different than passing your envelope down to the end of the pew for the fat lady to put in the basket.

And how is it different from the congregation raising $50,000 to give one of the parents, to pay for uninsured medical expenses? No one gets the medical deduction, because it's not a gift to the one who uses it to pay the hospital?

[erchess]

NATP helped me out

Do you happen to have a cite for me to refer to?

In this particular circumstance the child is actually 22 but disabled. He works and received W-2 compensation of approx $4,000. Child's tithes were $500.00.

I couldn't find anything relevant in my research software and I chose to use my free research question for 07 on this issue. Here is what I got back.

Thank you for using NATP's research services. I have summarized your question below and provided an answer based on the facts you presented.

Your question was:

The Facts: Taxpayer has a 22 year old disabled child who qualifies as dependent child. Child earned approximately $4K in a sheltered workshop. Child is not required to file a return. Child made $500 in contributions to church. 1. In this set of facts may the parent deduct the child's contributions on the parents' SCH A? 2. If not, would there be any set of facts in which a dependent child's charitable contributions may be deducted by a parent? For example, what if the child's only source of income was an allowance paid by the parent? What if the child had other sources of income but made charitable contributions out of the allowance paid by the parent? I would like response by email. I would like citations, especially for scenarios in which the parent may deduct the child's charitable contributions. I would also like general advice on what search terms might have turned up these citations in my research software. I would like acknowledgment of the email asap but I don't mind waiting a couple of days for a good answer.

Here is the answer:

As long as the contribution is made in the name of the child the parent cannot deduct as Schedule A contribution. If the child gives the money to the parent so it goes in as the parents contribution that would be fine. I took the question to our research meeting to see if there was anything that I could be missing. There is nothing that would give the parents the right at any age to take the contributions made by the child. In Code Section 73(b) this explains amounts received because of services rendered by a minor child are taxed to the child. All expenditures made by a parent or a child which are attributable to amounts includible in the gross income of the minor are considered to have been paid or incurred by the child. This applies not only to expenditures which qualify as business expenses but also to the expenditures such as charitable contributions made by the parent in the name of the child and our of the child's earnings.

[equinecpa]

Wow! I thank-you ever so much for pursuing this discussion and pursuing a resolution. I hope I can return the favor someday.

[erchess]

You're very welcome

But I learned something too and it's an issue that used to come up regularly in my practice at storefront firms but thankfully has not come up since I hung my own shingle. The NATP will now charge me merely $22 per opinion which is in my opinion next to nothing for an opinion of this calibre. Keep in mind that I can email or call back on this set of facts an unlimited amount of times without incurring a fee. For example if I read about a court case somewhere I could ask the nice lady to explain to me how the court case did or did not change anything. I will be calling her back for search engine terms because I am quite sure that I could have found this answer in my software if I had known how. Of course searching for evidence of a positive (you are taxed on this or you may deduct that) is easier than finding proof that this is not taxable or you can't deduct that. Oh and I will get another free question in 08 and the one I burned here would have been no good for questions asked after 12/31/07.

[OldJack]

>>The NATP will now charge me merely $22 per opinion which is in my opinion next to nothing for an opinion of this calibre.<<

What did the NATP caliber opinion say that you didn't first read here?

[erchess]

Well for one thing

the NATP opinion gave me a code cite. For another, followup with the nice lady from NATP gave me the search engine terms she used, which will help me learn to use my new research software. Also please note that while I did burn my only freebie opinion at NATP, I did not actually spend any money on this opinion.

The bottom line however was that a bulletin board was not going to convince me that what I was taught at two different firms was incorrect and yet the issue has come up often enough in my work that I felt it was in my best interest to burn my freebie. This is a great bulletin board but it is only a bulletin board and if I rely on it without verifying what I read here I have not done my due diligence. Asking a bulletin board when I am self employed is not at all the same as asking my superior or a designated peer when I am an employee. It's not even the same as asking my partner if I had one.

[jainen]

it's worth $22

>>the NATP caliber opinion<<

I thought it was a very weak response. First of all, it was unsourced--"our research meeting" isn't much of an authority. The one code section cited, 73(b), concerns earnings and related expenses. The opinion states that it also applies to personal expenses paid out of earnings, but the code itself doesn't say so and they don't support that interpretation with anything else. The question wasn't about earned income anyway.

In this forum nobody has argued the substance-over-form doctrine more than myself. I was accordingly somewhat uncomfortable with NATP's suggestion that an otherwise non-deductible transaction "would be fine" if it were done indirectly to disquise the actual source of funds.

The tax code is so complex that anytime someone says "There is nothing," you know they are just being lazy. There's all kinds of ways a child's tax position is commingled with the parent's. Sometimes the child's income can be reported right on the parent's return, and in all cases the parent is liable for the tax if the child doesn't pay. The parent gets the education credit for tuition paid by a dependent child. And so on.

I say the child can act as an agent or nominee for the parent in making the donation, but NATP didn't consider that theory. Just as well--I don't think it's worth $22.

[erchess]

Bear this in mind about research

If the answer to a tax question is positive (the income is at least arguably taxable or the deduction is at least arguably allowable) cites are much easier to come up with. I am sure that if NATP had told me that the parent might get by with claiming the child's charitable contributions, they would have given me a code cite and court opinion or IRS scrivening to back up their opinion.

[jainen]

We have nice ladies

>>to back up their opinion<<

I agree that tax questions can be hard to document with an exact precedent. That's why the clients come to us.

I'm not exactly sure of what "scrivening" is, but "scriveners" are mere copyists. I believe the tax code is available for direct use like any other law.

So what do you think of the actual NATP answer, besides the nice lady who helped you with future research? From your own perspective, erchess, do you agree that 73(b) relates to your question in a definitive way? How about their primary problem in their first sentence, that it's "in the name of the child," so if you can get around the nomenclature "that would be fine"? How about my pointed objection to that approach?

We have nice ladies on this forum too, you know.

[erchess]

Well

I will admit that their opinion could be better sourced. I still think that the inherent problems in proving a negative excuse this fault.

But you don't site a line of code or a court case or anything else that is on point. I personally find your "child as agent for the parent" to be a very slender reed especially since I don't see specific citations. I agree that the commingling of funds between parent and child is a common practice but many common practices are wrong. The problem is that if the IRS should question the deduction, defending the client's position beyond the IRS Appeals Division would not be cost effective. Before I would write the return your way, I would make sure the client understood that we might lose on Examination. For the most part, my clients would rather pay a little extra now in order to minimize the risk of having to pay more later.

[OldJack]

As I understand the code cited, it has to do with expenditures from proceeds for services, provided by the child, received by the parent. This so called child was said to be an adult and I don't recall any proceeds for services stated as being controlled by the parent. I expect "disabled" was referring to a physical condition and not a mental condition where he is unable to decide what to do with his money.

>>In this particular circumstance the child is actually 22 but disabled. He works and received W-2 compensation of approx $4,000. Child's tithes were $500.00.<<

Truth is NATP gave you only one persons opinion whereas here you got several at a much lower price.

Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

-HEAD-
Sec. 73. Services of child

-STATUTE-
(a) Treatment of amounts received
Amounts received in respect of the services of a child shall be
included in his gross income and not in the gross income of the
parent, even though such amounts are not received by the child.
(b) Treatment of expenditures
All expenditures by the parent or the child attributable to
amounts which are includible in the gross income of the child (and
not of the parent) solely by reason of subsection (a) shall be
treated as paid or incurred by the child.
(c) Parent defined
For purposes of this section, the term "parent" includes an
individual who is entitled to the services of a child by reason of
having parental rights and duties in respect of the child.
(d) Cross reference
For assessment of tax against parent in certain cases, see
section 6201(c).

[equinecpa]

Do you want me to muddy the waters some more? The child is autistic...

[erchess]

Old Jack and others

I paid nothing in cash for the opinion. I did use up the one and only "freebie" that I get for calendar year 2007. Future opinions will cost me around $22 each and I won't buy unless I need one for a client. Given that my average charge for a return is $250 and my charge for advice and audit assistance is $50 an hour, I can afford all the $22 opinions I need. And in 2008 I will get another "freebie".

Autistic covers a lot of territory in terms of functionality. Some autistic individuals do things like graduate from college and hold down jobs in the real world. I am uncertain whether any live independently. Equine, how functional is this child and how independently does he or she live? I'm curious, but on my view of the law, this question is moot.

And btw the way I read the code section cited in the NATP opinion, the section is on point and upholds their view. On that view of things, it does not matter whether the child is a minor or handicapped or whatever. In an earlier post on this thread I stated that I have claimed donations made by minor children on parental Schedule A. I was following the instructions of superiors at two different firms. I am grateful to have encountered this thread before I had the chance to do likewise since hanging my own shingle.

[OldJack]

And btw the way I read the code section cited in the NATP opinion, the section is on point and upholds their view. On that view of things, it does not matter whether the child is a minor or handicapped or whatever.

The NATP code cite has nothing to do with this case since this "child" is clearly an adult whereas the code is clearly for a child. Note §73(c) where the defined "parent" has to have "parental rights and duties " for this code to apply. A parent has no rights or duties for an adult offspring unless a court has awarded such rights. Therefore, code §73 does not apply to this case and NATP was incorrect to cite it, but then they had to give you something since that is their job. I'll bet the researcher for NATP doesn't have as much tax experience as you do.

[New York Enrolled Agent]

2 comments:

Old Jack - I agree with most of what you posted but I'm not sure I like your version of "child". Child is defined in §152(f) as a son, a daughter, stepson or stepdaughter or an eligible foster child of the taxpayer. The son is a child even though now 22 years old.

I failed to see where the ORIGINAL poster mentionned the wages were from a sheltered workshop. Perhaps I missed it (I'll apologize in advance if I overlooked it) but it came from a DIFFERENT poster and yet was part of the question to NATP. The wages may very well have been from such a workshop but I don't think assumptions like that should be made.

If the wages are from the sheltered workshop and the post from G.B. states they are not included in gross income, then §73 does not seem relevant (no gross income) except to the extent that an analogy can be made. And we all know analogies are not always valid.