Memorial Day

Memorial Day is a time for remembrance, a reminder of the price so many men and women have paid for our precious freedom. It is also a time to admire the bravery and dedication of those who serve our country, and to be grateful for their selfless contribution as they protect our national security.

This meaningful day has resonance for many of us. Like you, I recognize the effort that our service members give every day – and the families that support them while they are at home and abroad.

I will be thinking of the men and women who serve our country on this Memorial Day.

               

Sincerely,

Jennah Purk

President

Purk & Associates, P.C.

Improper substantiation equals zero deduction

Recent Tax Court case illustrates importance of strict compliance with charitable deduction substantiation rules

Religious teachings often include illustrations of the dire consequences that befall those who fail to follow certain rules. A recent Tax Court case illustrates the harsh tax price a taxpayer paid for a minor rule infraction for contributions they made to a church.

The facts are simple. The taxpayer claimed a deduction for $25,171 for donations made by various checks, all but $317 were for amounts of $250 or more. In accordance with standard procedure, the church provided the taxpayer with a letter shortly after the year of the donations, acknowledging the donations and the amount, but the letter did not include a statement that the church did not provide any goods or services to the taxpayer in exchange for the donations. The taxpayer was audited by the IRS. They produced the cancelled checks and the acknowledgment letter. The IRS examiner disallowed all but $317 of the donations, citing the Internal Revenue Code section that requires the statement noted above to be in the acknowledgment letter for donations of money of $250 or more. The taxpayer then provided a second letter from the church which included the statement. The IRS still disallowed the deduction, citing the Code and pertinent Regulations which require that the statement must be furnished by the donee before the taxpayer files their tax return, or before the extended due date of the return, whichever is earlier.
Thus, for lack of a simple sentence the taxpayer lost $25,000 of the contributions they made to a church. They lost at the IRS exam level, they lost at the Appeals level, and now they have lost at the Tax Court level. And that's where the tax story will almost certainly end, the only consolation being that the taxpayer only had to undergo three levels, unlike the nine in Dante's Inferno.
The following link provides the applicable rules. http://tinyurl.com/y65oc8 

SIGN OF THE TIMES

Eddie Quigg

A recent Tax Court case could be a poster child for a sign of these tough economic times. Essentially the facts involved a couple that sold their apartment house and bought a single family residence they intended to rent out. They continued to own and live in a separate residence. On their tax return they reported the sale of the apartment house and the purchase of the single family residence as a transaction that qualified as a section 1031 exchange, deferring the gain on the sale of the apartment house, claiming that the apartment house and the rental residence were qualifying like-kind properties.
The problem arose when they were unable to rent the residence despite documented attempts to do so, and eight months later, due to economic exigencies, they sold their primary residence and moved into the rental residence. The IRS nixed the deferral of gain on the apartment house, claiming that the unrented residence was not qualifying property due to its ultimate use as the taxpayer's personal residence.
Luckily for the taxpayers, the Tax Court sided with them, holding that the couple's efforts to rent the property, and its conversion to personal use only as a last resort, did not disqualify the residence as like-kind property. Of course the payment of legal fees to defend their position probably lessened the taxpayer's joy of their victory over the IRS.

Welcome to our blog

Hi and welcome to the Purk & Associates, P.C. Blog

First, a little information about the firm and the bloggers, which can be found at this link.

Why you should read this blog, a numbered list, because as accountants we are required to use numbered lists:

1. We provide information about current business and tax topics gleaned from our experience and from our search of the world-wide web--this saves you time and money.
2. To provide a forum to acquaint you with the people at our firm on a professional and personal level through these blog posts.
3. Perhaps most important, to communicate with our clients.