Childs Charitable Contributions

[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]

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.

[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]

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.

[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]

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.

[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?

[OldJack]

Uh-uh. 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.

Uh-Huh. The check was not written by the fat lady and in the case we are discussing the kid wrote the check so its the kids deduction.

[jainen]

the fat lady

>>the parent can't claim the deduction even if the parent gave the money to the kid<<

Uh-uh. 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.

[OldJack]

A taxpayer can deduct medical expenses paid on behalf of a dependent [Section 213(a)]. There is no similar language in Section 170(a)(1) for charitable contributions.

I agree with Bees Knees. All this talk about dependent's gross income or disability is irrelevant. Only the taxpayer that actually made the contribution can deduct the contribution. If the kid made the contribution the parent can't claim the deduction even if the parent gave the money to the kid with intent/instructions for the kid to make the contribution. As Bees says.. thems the rules.

[George Boutwell]

From IRS Publication 501

Disabled dependent working at sheltered workshop. For purposes of this test (the gross income test), the gross income of an individual who is permanently and totally disabled at any time during the year does not include income for services the individual performs at a sheltered workshop. The availability of medical care at the workshop must be the main reason for the individual's presence there. Also, the income must come solely from activities at the workshop that are incident to this medical care.

A “sheltered workshop” is a school that:

Provides special instruction or training designed to alleviate the disability of the individual, and

Is operated by certain tax-exempt organizations or by a state, a U.S. possession, a political subdivision of a state or possession, the United States, or the District of Columbia.

[erchess]

>
I tend to be hard of hearing and usually misunderstand when clients explain this sort of thing. So I would ask the parents if what really happened was they just gave the young man $500 to put in for the tithe, since most of his own money is used up by the shared housing costs. I have a remarkable record for being right about that kind of guess.

We all know that money is "fungible" However, I may have failed to understand the impact of that on this case. I would have said that as long as the parents' support expenditures on the dependent are sufficient that the donation COULD have been made from their funds, then if everyone involved so agrees, we can say that for tax purposes the donation WAS made from their funds.

On the other hand, your point about the distinction between a minor child and a grown even if disabled child is a good one. So is the point someone made about this child not being able to be a "Qualifying Relative".

[New York Enrolled Agent]

Question - is this child really a dependent? Clearly, he cannot be a qualifying relative due to the gross income test. You say he is disabled but works. To be a qualifying child for purposes of §152 at age 22, the child must be disabled and satisfy the definition in §22(e)(3). (caps added)

3) Permanent and total disability defined.
An individual is permanently and totally disabled if he is unable to engage in ANY substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require.

It appears the threshold is quite high. I'm just curious if the conditions are satisfied.

[jainen]

that kind of guess

>>contributions made by minor children to churches to which the parents also donated were routinely included in the parents' contributions<<

I don't see any problem with this. Technically the minor can't own anything anyway, so unless the donation is being made from a trust (though most trusts wouldn't allow it) the parents are probably giving the child the money in the first place.

However, it's a different story with a legal adult, even if he meets the definition of disabled qualifying child for tax purposes. Those contributions were made from the dependent's earnings and aren't deductible by the parent.

I tend to be hard of hearing and usually misunderstand when clients explain this sort of thing. So I would ask the parents if what really happened was they just gave the young man $500 to put in for the tithe, since most of his own money is used up by the shared housing costs. I have a remarkable record for being right about that kind of guess.

[George Boutwell]

King James Meets Internal Revenue Code

Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s, except what you give God you can let your parents deduct, even if it comes out of your earnings.

Or something like that.

Disabled or not, if the kid is old enough and competent enough to do some work and go to church, the money came out of his pocket and not his parents'.