Childs Charitable Contributions

[OldJack]

Either scenario, the nice lady at NATP got it correct, and you are nit picking the answer because the citation may or may not apply.

Have we beaten this issue to death yet?

I agree that we have made a mountain out of a mole hill with code §73(b) since NATP should not have cited the section. NATP was given the fact that this offspring was a 22 year old adult in the very first sentence of the question. True, NATP was asked to expand on when it might be deducted and code §73(b) could be applicable in a minor child case but that was not made clear as there was no cite of code §73(c) from NATP.

Again, my main point in this thread was not code §73, rather that one opinion is only one opinion regardless of who gives the opinion. Its not rocket science to conclude that many opinions are usually better then one (unless of course the one opinion is mine).

After all, NATP was asked if the parents could deduct the charitable contribution. A more appropriate code cite from NATP should have been the code cite posted in this thread from Bees Knees:

"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.

[Bees Knees]

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.

I think you are making a mountain out of a mole hill. If Section 73 does not apply to this case because the child is an adult and no court has awarded the parent parental rights and duties, then the parent would clearly not be able to deduct an expense incurred by another taxpayer, and the NATP answer is correct. If Section 73 does apply because the adult child is disabled and under the supervision and care of the parents, then the NATP answer is correct.

Either scenario, the nice lady at NATP got it correct, and you are nit picking the answer because the citation may or may not apply. The code gives no further explanation as to what constitutes parental rights and duties. It does not say a court order is needed. There are no regs to explain it. Therefore, your assumption that a court order is needed for Section 73 to apply is no better supported than the position NATP took in assuming Section 73 to apply, which is all irrelevant anyway since either way, the parents cannot claim the charitable contribution deduction.

…unless the child first gifts the money to the parent under a legitimate gift arrangement, and the parent in turn makes the contribution.

Have we beaten this issue to death yet?

[George Boutwell]

If the amount involved was more than the rodent's patootie we have in this case, it would be worth more than just a theoretical debate. If the parents get audited, it's not likely to be over the last $500 in charitable contributions, and if that amount is claimed it's just something to concede so that the larger issues can be won.

[erchess]

The bottom line

that I take away from this discussion is that whether the parent may claim the child's contribution in this case is open to debate. I question the wisdom of deducting $500 when whether one may do do is open to debate. If the amount were large enough I would take the questionable deduction and stand by for a court fight.

[George Boutwell]

Insisto Viaticus

Tax reference materials are generally arranged by Code section, because almost every question can be plugged in to one or more of them. Learning how the Code is organized and arranged, is the first major step to expertise in research.

Almost every question -- but not quite all of them. That's why comprehensive references have information listed under such topic headings as "Who Is The Taxpayer," the question here.

Many of those questions revolve around a determination of the facts. If the issue goes before a judge, IRS's lawyers can question the taxpayer and bring out a lot of facts that have not been otherwise DISCLOSED. See the related post about what happens to practitioners, not when they take an unreasonable position, but when they take an undisclosed position (even when they don't recognize that one exists).

There is no penalty for not disclosing all the facts on an Internet message board, or in a phone call to NATP. The purpose of asking in both places, should be to seek suggestions on additional questions that the practitioner needs to ask the client, before IRS gets a chance to do it.

In this thread, there are still many more unknowns than knowns. What does the son do with his paycheck? How does the money get delivered to the church? How much money do the parents give the son? How do they do it -- cash, or bank deposit? Do the parents attend church with the son?

A lot of this is basic accounting and auditing procedure, leading to the discovery of facts to which the law will then be applied. Follow the money, as the late, great Senator from North Carolina would say.

[jainen]

Don't misunderstand

>>My main objective in continuing this post was simply to point out that one opinion from NATP was no better or as good as opinions expressed by many on this professional tax forum<<

Don't misunderstand what I am about to say -- Old Jack and I are still safely on opposite sides of the question in the original post.

But we are both alike bothered by uncritical reliance on NATP research (and, for that matter, this forum as well). There are some serious problems with the single citation, and there are other issues raised by the NATP answer. Nice lady notwithstanding, any advice has to be considered in context with all the facts and the client's purposes.

[OldJack]

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.

Well.. I think you are misinterpreting code §152. The title of the code section is "Sec. 152. Dependent defined". I see no definition of child in that section but there is the definition of a dependent. And, code section 151(c)(3) defines a child for purpose of exemption:

quote= >>Sec. 151. Allowance of deductions for personal exemptions
(3) Child defined
For purposes of paragraph (1)(B), the term "child" means an
individual who (within the meaning of section 152) is a son,
stepson, daughter, or stepdaughter of the taxpayer.<<

However, the fact still remains that the NATP code §73 is not applicable since the issue is not about the status of dependent nor exemption, rather it is about:

quote= >> Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

-HEAD-
Sec. 73. Services of child<<


And for code §73 to apply it is about parental right and duty. A parent has no right or duty for an adult offspring unless so stated by a court even if qualified to claim as a dependent and/or exemption.

My main objective in continuing this post was simply to point out that one opinion from NATP was no better or as good as opinions expressed by many on this professional tax forum. If I had to chose a debatable opinion, I would go with the majority opinion of tax pro's on this forum.

[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.

[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.

[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.

[equinecpa]

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

[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).

[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.

[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]

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.