Periodically our tax department shares current IRS areas of focus.
Here are 3 they recently shared that the IRS has been looking at over the past few years.
1. Charitable Contributions
Regardless of amount, no deduction will be allowed for cash contributions unless the donor maintains either a bank record, including a cancelled check or credit card statement, or a receipt, letter or other written communication from the donee, indicating the donee’s name and the contribution date and amount (1). Contributions of $250 or more must be substantiated by a contemporaneous written acknowledgement from the donee organization. The written acknowledgement must include:
- The amount of cash contributed, and a description of any property contributed,
- A description and a value of any goods or services received in exchange for the contribution, and if applicable,
- If the donee provides any intangible religious benefits (2).
Failure to provide this specific statement to the IRS on request can result in a denial of the deduction.
Similar substantiation requirements also exist for all noncash contributions.
2. Use of Automobile in a Business
Any use of an automobile in a trade or business must be substantiated by some type of a written automobile log, account book or a diary. The log must include the date of business use, the client involved, where traveled and the number of business miles traveled. Also required is the total number of miles that the automobile is driven in the current year (3). This is used to determine the business use percentage of the automobile.
Upon examination, lack of this documentation can result in automatic denial of the auto deduction.
3. Foreign Assets
In addition to the Report of Foreign Bank and Financial Accounts (known as FBAR) that has been around for many years, the IRS now has an additional form (Form 8938) that must be filed with a taxpayer’s income tax return if certain conditions are met. The FBAR is a separate form that is now due April 15 of each year (six month extension allowed) and is required to be filed by any U.S. person who as a financial interest in any financial account in a foreign country, if the total value of those accounts exceeds $10,000 at any time during the calendar year (4).
Form 8938 is required when an individual holds an interest in specified foreign financial assets during the tax year if the aggregate value of all the assets exceeds an applicable threshold amount (5). The threshold amount depends on the individual’s tax filing status and whether the individual lives in the United States (U.S.). For example, the lowest threshold amount for an unmarried taxpayer living in the U.S. occurs when the total value of specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
Failure to file this form when necessary can result in penalties up to $10,000 and greater.
If you have questions about these topics or other tax subjects, contact your Welch & Forbes tax specialist, or contact Ed Sullivan, Vice President, at 617-557-9800 or firstname.lastname@example.org.
(1): Code Sec. 170 (f)(17)
(2): Code Sec. 170 (f)(8)
(3): IRS Publication 463
(4): 31 CFR Reg. 1010.350
(5): Code Sec. 6038D
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