Most of us read the story about the unnamed Illinois man who donated a suit to a local Goodwill store with $13,000 of cash inside. The 80-year-old gentleman realized his error some time later. Searches by Goodwill employees and the man’s family have been unsuccessful in finding the money. If the man has to simply write off his situation as a lost cause, he will probably have some tax preparation questions about his loss.
Goodwill officials believe that the suit may have ended up at a regional warehouse in Iowa City. Alternatively, some fortunate shopper may have purchased the suit from the Goodwill store where the man donated his bundle of clothing. Presumably, any purchaser will return the cash because the widely distributed story revealed that it represented the man’s entire life savings.
If the money remains missing, a registered tax return preparer search will not relieve much of the pain. The cash is clearly not deductible as part of the man’s charitable donation. An amount exceeding $250 requires written acknowledgement from the charity. Goodwill surely did not provide this mandatory receipt because it did not benefit from the money and cannot legitimately confirm acceptance. RTRP study reveals that evidence other than written receipt by the charitable organization is not acceptable for taking a deduction.
In addition, tax preparer training is unlikely to provide sufficient support for deducting the money as a casualty loss. Proving the actual loss is the greatest obstacle. A tax return preparer has only the word of the taxpayer. Perhaps a family member is witness to the man having placed the specific amount of money in the suit. A few words of caution are reasonable if claiming this as a casualty loss. An IRS examiner or Tax Court judge may require significant substantiation of the financial loss. However, the circumstances do appear to meet the tax class definition of a loss that is sudden and unforeseen.
As long as the suit isn’t returned, tax preparer work for the man will at least deduct a fair market value for the item as a charitable donation. Of course, this presumes that he has sufficient deductions to itemize. Taking a casualty loss deduction for the cash also adds to itemized deductions.
But the man even needs to meet a few qualifications for his clothing donation. First, according to IRS requirements, donated items must be in good used condition or better. Further, if the entire value of donated property exceeds $500, the tax return must include Form 8283. Completion of this form necessitates having the charity name and address, date of contribution, description of the donated items, and method used to determine the value of donated property.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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