Website design By BotEap.comA client, Mal Manley, fills out his client questionnaire from the previous year and in it provides information for the preparation of his individual income tax return. The IRS has never audited Mal’s returns. Mal reports that he made more than 100 relatively small cash contributions totaling $24,785 to charities. In recent years, Mal’s charitable contributions have averaged around $15,000 per year. For the prior year, Mal’s adjusted gross income was approximately $350,000, approximately 10% higher than the prior year.

Website design By BotEap.comRequired: According to the Statements on Tax Services Standards, can you accept Mal’s information about your charitable contributions at face value? Now suppose that the IRS recently audited Mal’s tax return two years ago and denied 75% of that year’s charitable contributions deduction because the deduction was not substantiated. Suppose also that Mal indicates that, in the previous year, he contributed $25,000 (instead of $24,785). How do these factual changes affect your earlier decision?

Website design By BotEap.comIn accordance with the Statements of Tax Service Rules, face value information on the tax claimed may be accepted unless it appears incorrect, incomplete, or inconsistent. You should also be sure to inquire about the information provided by the taxpayer if it appears to be contradictory or exaggerated. In Mal’s case, the information he claims to have provided is inconsistent with his charitable contributions from previous years. The previous year, Mal reported 100 small charitable contributions totaling $24,785, while in the previous two years, Mal only averaged $15,000 in charitable donations per year. In addition, the 60 percent increase in charitable contribution from the prior year does not accurately reflect Mal’s 10 percent increase in adjusted gross income.

Website design By BotEap.comWith the assumption of a denial of 75 percent of Mal’s prior reported contributions by the IRS, the situation changes to one where more documentation must be requested to support the charitable contribution claim. The earlier denial of such an overwhelmingly large portion of the claimed contributions allows for the reasonable assumption that this year’s claims may also be overstated. In these types of situations, especially given the recent increase in contribution claims, one should not hesitate to request receipts or any other possible documentation for most of the contribution claims.

Website design By BotEap.comAssuming that Mal indicates that he contributed $25,000 and not $24,785 in the previous year, this would not affect previous decisions based on Mal’s charitable contributions.