While most of the country was transfixed earlier in 2012 by the sociological implications of the George Zimmerman case, some individuals engaged in study for CPA credentials might have considered the tax issues. Zimmerman is the man who made headlines for shooting an unarmed Florida teenager that Zimmerman claims is a case of self-defense. He is charged with second-degree murder.
His wife, Shellie Zimmerman, was arrested for allegedly lying at her husband’s bond hearing. She testified that she was not aware of how much money was raised from a website soliciting funds for her husband’s defense. At the center of this controversy is the tax subject fit for a sample CPA test. Prosecutors in the case claim that – at the time of Mrs. Zimmerman’s statement – the Zimmermans had about $135,000 available for Mr. Zimmerman’s defense. Potential tax implications for that money are numerous.
The source of funds is a website where many individuals provided contributions to Zimmerman. His attorneys acknowledge that $150,000 is now held in a trust fund for defense at trial. The original website is no longer used but a new one recently launched. In case the many donors to Zimmerman’s defense fund consider their acts as tax deductions, CPA review materials reveal otherwise. Contributions to a legal defense fund are not tax deductible.
Only donations to a bona fide charitable organization are eligible for tax deduction. These organizations are listed on the IRS website. That’s because they had to apply to the IRS for status as a charity. Some accountants specialize in helping organizations obtain classification as tax-exempt charities. The term “tax-exempt” doesn’t mean these operations are excluded from having to file reports with the IRS. In fact, some of the information studied in CPA exam courses address rules for tax-exempt organizations.
Charities have to satisfy a social benefit to a class of persons. A donation that helps a single individual is merely a gift. As recipients of gifts, the Zimmermans face no income tax consequence for the money they received for legal defense. They also are not going to obtain tax deductions as a result of using the money for personal legal expenses.
Another tax consideration is the impact on the donors. So far, the largest donation is $3,000. Most are in the range of $50 to $250. But, gift tax is payable by anyone giving the Zimmermans more than $13,000 this year. That is the annual gift tax exclusion for 2012. Any one person contributing more than that must file a gift tax return. This isn’t altered by the fact that money is held in a trust for the Zimmerman defense. Gift tax still applies whether the transfer is direct or indirect, therefore including gifts given in trust.
Plenty of factors in the Zimmerman case are relevant to CPA questions. The legal matters are certainly complex and the social issues are debatable. But accurate understanding of the tax elements is very clear.
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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