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Thursday, December 18, 2008

To Hell and Back...


I recall hearing in the media a few years ago of a "kinder, gentler" IRS. I guess even it were possible for perhaps the largest and most aggressive collection agency in the world to be "kinder" and "gentler". . . this probably isn't the best case to point that out.

A few days ago the U.S. Tax Court reported Nicholas v. Commissioner, T.C. Summ. Op. 2008-155 (Dec. 15, 2008), where the IRS chased a religious couple literally to hell and back for a delinquency of $712.

As they did every year, the couple donated almost half of their income to charity; in 2005, they donated $43,637 of total income of $89,092. However, in 2005 their accountant made a mistake, listing all contributions as "cash" contributions, even though $4,906 was noncash. Discovering the error, the couple filed an amended return, filing a Form 8283 for the $4,906 noncash contribution.

The IRS apparently flagged the return, and disallowed the $4,906, claiming a delinquency of $712.

Fortunately, the Tax Court was less than impressed with the IRS, and allowed the full deduction. Here is a portion of the decision:
For the 2005 tax year Mrs. Nicholas maintained notes on envelopes and on other documents recording the types of asset,names of charitable recipients, costs, and estimated values of petitioners’ noncash contributions. In substantially all instances petitioners had a receipt and/or letter from the charitable recipient. As is typical with contributions of assets valued under $500, the charitable organization left it to the donor to fill out the items and values, which Mrs. Nicholas did. Although Mrs. Nicholas did not have receipts to substantiate the original cost of each item, she had been the purchaser and had recollection of the amounts. More critically, Mrs. Nicholas frequented garage sales and flea markets and had a keen sense of the value of her contributed items. The items contributed included books, CDs, used furniture and lamps, and similar types of items. Petitioners were avid readers and accumulated large volumes of books which they stored in their home. Many of the books concerned religious topics, and some were children’s books that petitioners regularly purchased for their children. On regular occasions, as books and other items accumulated, Mrs. Nicholas would make a trip to the Salvation Army or some other charitable organization and make a donation.
(Hat tip to Professor Caron's Tax Prof Blog for pointing this case out)

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