Terry D EA Posted August 1, 2013 Report Share Posted August 1, 2013 A former client contact me about donating equipment to my auto class. His business was an single member LlC closed two years ago. His accountant told him he could not donate the equipment because it was owned by the LLC and all assets were written off. I don't know all of the details about the closing or how the taxes were handled. I can assume this would have been a disregarded entity. This client was told to try to sell the assets before donating them and that would be the only way he would get any bebefit from the assets. I don't see how he can do that if he doesn't own them. None were converted to personal use or used as any repayment of funds he loaned the company. I bowed out of this donation because the way he wants to handle it makes little sense to me. Quote Link to comment Share on other sites More sharing options...
Randall Posted August 2, 2013 Report Share Posted August 2, 2013 Not sure what's going on here. If LLC owns the assets, who owns the LLC. I think they can be donated following proper ownership trail. But I agree with accountant, if they are 100% depreciated, there's no basis left for a charitable deduction. So if he could sell them for something (having a gain on disposition), then donate money, he would get the charitable donation. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted August 2, 2013 Report Share Posted August 2, 2013 Randall, in the example you gave isn't that a wash for the taxpayer? Sometimes a piece of equipment has more value in usefullness to the recipient than the actual resale cash value. I have donated a working ink jet printer (fully depreciated) to an elementary school, that could be used by the kids instead of selling it on Craigslist at $50 tops, and then donating $50. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted August 2, 2013 Author Report Share Posted August 2, 2013 The owner of the LLC is the same person who wants to make the donation. I agree with the accountant as well regarding the disposition of the assets. I don't agree with selling the assets for a profit. There is no mention of donating the money. The owner originally wanted to donate the assets for a charitable deduction. If he sells them he is keeping the money. That is what I don't agree with. He claims he was told this would be a way to recoup some of the funds he loaned the company for operations. To the best of my knowledge those loans were written off as well. Books closed, no assets transferred/converted to personal use so he the owner doesn't own them. It would be interesting to see how they were listed on the final tax return. Quote Link to comment Share on other sites More sharing options...
jainen Posted August 2, 2013 Report Share Posted August 2, 2013 >>I don't agree with selling the assets for a profit<< That's the standard advice for capturing a LOSS. For a profit, it might be helpful in some situations, such as he has capital losses to offset or needs a higher AGI for something. If the property was written off already, claiming a deduction for FMV would not be allowable and it would be subject to an additional 40% penalty. I don't know if I should ask why he is coming back to you, or why he left you. I guess both questions are relevant. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted August 2, 2013 Author Report Share Posted August 2, 2013 <<<I don't know if I should ask why he is coming back to you, or why he left you. I guess both questions are relevant.>>> Jainen you are perfectly fine in asking this question. I teach Automotive Technology at a local Career & Tech Ed Center. This former client is trying to donate the remaining equipment to my program and is not trying to return to me as a client. His first thoughts were to donate the equipment and take a charitable deduction on his personal return. I am not advising him in anyway as he is not my client and to be quite candid, I withdrew my engagement from him four years ago because he didn't want to comply with the employee vs subcontractor rules set forth by the IRS to which he has later suffered serious penalties for missclassification of employees. There were a few other things that I didn't want any part of as well. I want to be sure that if I take this donation that my school system and I are not part of any illegal acts or receive equipment from someone who technically or elsewise doesn't own it. I was never part of the formation of the LLC so and I am assuming this was single member LLC and if so it very well could have been a disregarded entity. I base my belief here on the fact that he would not answer my questions during the time of our engagement regarding the formation of the entity structure and how his son was involved who partnered with him in operations but not on paper. His son's wages reported on a 1099 were the wages the IRS went after. Just to add, I never have prepared any tax returns for him because of his indecision with the entity structure. If the LLC is taxed as a disregarded entity, the write-offs or loss from the equipment has already been realized by him and therefore he cannot make the donation as a chartiable deductible item. Again, I am not sure. My concern was his accountant has told him he doesn't own the equipment that the LLC did and it has been written off but, he should try to sell it first and if he can't then he should just donate it and cannot receive any charitable deductions for it. I totally agree with the later part but not the selling part. If he sells it, he is selling equipment that he doesn't own and profiting from it. To me, this falls under the same as donating it, how can he donate to my school something he doesn't own. Personally, it doesn't concern me how he does his business/personal taxes and I am not getting into that with him nor as I said am I advising him. Also, because of the previous attempts to thwart the IRS regs as I mentioned, I would not consider re-entering an engagement with hiim. Matter of fact, I think that under the ethics in circular 230, I could suffer greatly for doing so. Not sure but those are my thoguhts. I will reiterate, it is my school and program that I am concerned about. If he doesn't sell this stuff he wants to try to donate it to me in December. At this time, I feel like I should stay as far away from it as possible. 1 Quote Link to comment Share on other sites More sharing options...
jainen Posted August 2, 2013 Report Share Posted August 2, 2013 >>I want to be sure that if I take this donation that my school system and I are not part of any illegal acts or receive equipment from someone who technically or elsewise doesn't own it.<< I wouldn't worry about that, though you might ask your school attorney. The prospective donor already received professional advice that he can give it to you, whether personally or as an agent of the LLC you don't know or care. And you have no reason to doubt it,. Your receipt would not of course suggest a value, and his tax accounting is elsewise none of your business. So, go for it! 2 Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted August 2, 2013 Report Share Posted August 2, 2013 I agree. As long as your school does not put any value on their acknowledgment letter. It is totally irrelavant TO THE SCHOOL what his tax effect [if any] is. 1 Quote Link to comment Share on other sites More sharing options...
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