Christian Posted October 1, 2016 Report Share Posted October 1, 2016 A client I have is quite a generous giver. Some years back he had a field audit as a result of his generosity. This past year (2015) he gave away large sums and in doing his extension I noted his concerns over setting off another audit. He instructed me to use only a figure of 35% of his adjusted gross income for his charitable giving for the year fearing using more might trigger an audit. His total charitable giving (all subject to the 50% rule) is beneath 50% of his adjusted gross income so he cannot carryover any to 2016. I would appreciate any opinions on whether using the full 50% amount might be a cause for audit concerns. His AGI is around $148,000 and his status is single. Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted October 1, 2016 Report Share Posted October 1, 2016 You shouldn't fear an audit if the rest of your return is fine and you have all the documents for the donations. 8 Quote Link to comment Share on other sites More sharing options...
Christian Posted October 1, 2016 Author Report Share Posted October 1, 2016 I am much of that opinion. He has his records which are considerable and complete. My feeling is he will increase his percentage and leave it at that. I fully understand his concern as no one wants to sit down with two IRS auditors out of Richmond for a half a day or so. 2 Quote Link to comment Share on other sites More sharing options...
RitaB Posted October 1, 2016 Report Share Posted October 1, 2016 48 minutes ago, Christian said: A client I have is quite a generous giver...His AGI is around $148,000 and his status is single. 40 minutes ago, Abby Normal said: You shouldn't fear an audit if the rest of your return is fine and you have all the documents for the donations. 32 minutes ago, Christian said: I fully understand his concern as no one wants to sit down with two IRS auditors out of Richmond for a half a day or so. I understand both sides of this one. The real question is where has he been all of my life... 9 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted October 2, 2016 Report Share Posted October 2, 2016 8 hours ago, Christian said: A client I have is quite a generous giver. Some years back he had a field audit as a result of his generosity. This past year (2015) he gave away large sums and in doing his extension I noted his concerns over setting off another audit. He instructed me to use only a figure of 35% of his adjusted gross income for his charitable giving for the year fearing using more might trigger an audit. His total charitable giving (all subject to the 50% rule) is beneath 50% of his adjusted gross income so he cannot carryover any to 2016. I would appreciate any opinions on whether using the full 50% amount might be a cause for audit concerns. His AGI is around $148,000 and his status is single. If, for some reason he gets audited, YOU may be on the hook. Think about it. The first item requested in an audit are bank statements. If you are willing to gamble, submit the return with an incorrect amount on Sch. A. Since you KNOW he gave more, you are in violation of Circular 230 if you report a number you know to be incorrect. The question is: "How lucky do you feel, with a client that has been audited for this in the past?" Your call. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted October 2, 2016 Report Share Posted October 2, 2016 An audit of charitable contributions rarely requires bank statements unless the donations are directly debited. Receipts (with the required disclaimers, of course) or cancelled checks/credit card statement if under $250 per donation. 4 Quote Link to comment Share on other sites More sharing options...
michaelmars Posted October 2, 2016 Report Share Posted October 2, 2016 just make sure none of the items are subject to 30% limitation and you are good to go. I have clients that give millions over their income [neg income due to real estate depr] and never had an issue. 3 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted October 2, 2016 Report Share Posted October 2, 2016 I agree with Joan and Michael, and I have clients whose fact patterns are similar to Michael's. I also have some wealthy elderly clients with only investment income who are now giving away large sums of money to universities and places of worship that also well exceed their AGI. I report the actual full amount of contributions that are documented, and if the AGI limitation creates a carryover, then that is what is reported. 3 Quote Link to comment Share on other sites More sharing options...
RitaB Posted October 2, 2016 Report Share Posted October 2, 2016 Ok, let's talk about the odds that Christian would be penalized for helping Generous Single Guy pay more tax, at the request of GSG. I'm going with exactly zero. 5 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted October 2, 2016 Report Share Posted October 2, 2016 It sounds like you're also going for GSG !! 4 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted October 3, 2016 Report Share Posted October 3, 2016 On 10/2/2016 at 1:00 AM, joanmcq said: An audit of charitable contributions rarely requires bank statements unless the donations are directly debited. Receipts (with the required disclaimers, of course) or cancelled checks/credit card statement if under $250 per donation. Every audit we have helped with in the last 5 years, including one that started 4 months ago, have required bank statements regardless of what was being audited. It is an audit requirement. I guess my level of gambling is not as high as others... Quote Link to comment Share on other sites More sharing options...
RitaB Posted October 3, 2016 Report Share Posted October 3, 2016 5 hours ago, Jack from Ohio said: Every audit we have helped with in the last 5 years, including one that started 4 months ago, have required bank statements regardless of what was being audited. It is an audit requirement. I guess my level of gambling is not as high as others... Don't sell yourself short. And let us know if any preparer gets hit with a penalty for any return where the tax was UNDERPAID on the original return. If preparer did something egregious like putting self-employment income on Line 21, we understand a preparer penalty for that one. 3 Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted October 4, 2016 Report Share Posted October 4, 2016 On 10/02/2016 at 4:32 PM, RitaB said: Ok, let's talk about the odds that Christian would be penalized for helping Generous Single Guy pay more tax, at the request of GSG. I'm going with exactly zero. I believe the IRS could care less if a deduction was omitted and more tax was owed. But on the other hand, if the omission was to create less tax or a higher refund such as EIC, they could come knocking on your door. Same for the taxpayer who wants to inflate income to max EIC. I turned one of those away a couple years ago, funny how his income from odd jobs put him right at the EIC peak. 3 Quote Link to comment Share on other sites More sharing options...
Christian Posted October 4, 2016 Author Report Share Posted October 4, 2016 He chose to go with his lower figure. His deductions are actually lower than previous years. Since he chose not to use some of his available deductions I don't see the Service assessing me a penalty on any audit. He made a personal choice even though I advised him he could use all his charitable deductions if he desired. 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted October 4, 2016 Report Share Posted October 4, 2016 30 minutes ago, Christian said: He chose to go with his lower figure. His deductions are actually lower than previous years. Since he chose not to use some of his available deductions I don't see the Service assessing me a penalty on any audit. He made a personal choice even though I advised him he could use all his charitable deductions if he desired. You should refresh yourself on what Circular 230 says. "...know or should have known..." is a key phrase. You are responsible for the accuracy of the return you sign. No matter what the taxpayer says or does. Quote Link to comment Share on other sites More sharing options...
OldJack Posted October 5, 2016 Report Share Posted October 5, 2016 It is true that on audit the agent is required to allow additional deductions presented when proven on audit. I have gotten audits to "no change" or refund presenting deductions during the audit. 1 Quote Link to comment Share on other sites More sharing options...
joanmcq Posted October 5, 2016 Report Share Posted October 5, 2016 Jack, I've never had bank statements requested for a Sch A audit. Bank statements have been requested for Sch C audits, but only when under reported income is suspected. If generous guy was audited again on charitable and passed no change, if any more audits come up you can request that it be withdrawn. 1 Quote Link to comment Share on other sites More sharing options...
Christian Posted October 5, 2016 Author Report Share Posted October 5, 2016 This has been a fascinating discussion and I really am thankful for being in the company of so many great tax professionals. I have what may be the trump card that being that large sums he gave were in cash for which he has receipts. Rather than see his beloved taxman of some twenty five years be assessed a penalty the requisite amount of these would sorta disappear. Many thanks for all your input which is much appreciated. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted October 5, 2016 Report Share Posted October 5, 2016 1 hour ago, Christian said: This has been a fascinating discussion and I really am thankful for being in the company of so many great tax professionals. I have what may be the trump card that being that large sums he gave were in cash for which he has receipts. Rather than see his beloved taxman of some twenty five years be assessed a penalty the requisite amount of these would sorta disappear. Many thanks for all your input which is much appreciated. "...know or should have known..." regardless of the existence of receipts. I guess the word "integrity" has changed definitions since I was in High School? Quote Link to comment Share on other sites More sharing options...
BHoffman Posted October 5, 2016 Report Share Posted October 5, 2016 5 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted October 5, 2016 Report Share Posted October 5, 2016 My associate once told an appeals officer and his peer reviewer, "I have no independence with my clients, if I did, my client would fire me and find someone else to help them cheat", they both agreed with him. 3 Quote Link to comment Share on other sites More sharing options...
SaraEA Posted October 6, 2016 Report Share Posted October 6, 2016 (edited) Let's not take this "known or should have known" mandate so seriously. Schedule A itself is optional, so I assume the various components in it are each optional in their own right. If you can have $20k in qualified mortgage interest or state income tax withholding and still choose to take the standard deduction (perfectly legal), why can't you have $20k in charitable contributions and choose to claim half of them? In your case, though, where the client has the right documentation, encourage him to take the tax break he deserves. Tell him you will take his foolproof receipts to any audit and he won't have to worry himself about it. Tell him that one of our presidential candidates declared himself a "genius" for knowing how to work the tax code and that claiming documented contributions is a "no brainer." Seriously, teach him that those carryovers last for five years, and who knows if he'll need them in that time. This discussion reminds me of a problem raised in my Master's program. Many Jewish people give large sums to their synagogues and in return receive preferential seating and other social perks (just like in the BC days). Students wondered if the full amount of their donations counted for the deduction because they got something in return. There were a bunch of IRS agents in the course, and they all agreed that never in a million years would they get away with digging into the intent of the donation. The only thing they were taught to watch for was tuition to religious school disguised as a donation. Your client has nothing to worry about. Edited October 6, 2016 by jklcpa removed political reference 3 Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted October 6, 2016 Report Share Posted October 6, 2016 I think SaraEA summed it up perfectly. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted October 6, 2016 Report Share Posted October 6, 2016 So therefore, by citing specific instances we can totally erase the purpose and effects of Circular 230? Just ignore it because "the chances are very slim..." I guess my definition of "Professional" is different than some of the dictionaries in use in this profession. Schedule A today, Schedule C tomorrow, Schedule E after that.... Quote Link to comment Share on other sites More sharing options...
BHoffman Posted October 6, 2016 Report Share Posted October 6, 2016 3 Quote Link to comment Share on other sites More sharing options...
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