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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4187
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I donated over $14K last year to a state exempt non profit

Customer Question

I donated over $14K last year to a state exempt non profit in TX, but moved to OK last summer. I have taken this deduction for several years and now find they do not have a fed exemption status. I am being told conflicting information. Over $3500 rides on the answer. Can I take it for my IRS or not?
Submitted: 2 years ago.
Category: Tax
Expert:  Stephen G. replied 2 years ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Customer:

ok

Stephen E. Grizey :

No. Unfortunately.

Stephen E. Grizey :

What did they say?

Customer:

I cannot take the deduction?

Customer:

I have taken it for the last 4 years

Stephen E. Grizey :

They are not tax exempt in the eyes of the IRS

Customer:

but I lived in TX then

Customer:

oh great.

Customer:

that sux

Customer:

I am losing over $3500

Customer:

I

Customer:

I'm gonna cry

Stephen E. Grizey :

They can be in giant trouble for collecting contributions based on tax exempt status they don't have.

Stephen E. Grizey :

What did they say?

Customer:

I owe the IRS now, am paying it off, because they told me if i donated every penny of my 401 K that I would not have to pay taxes.

Customer:

so of course, you know that ending...

Stephen E. Grizey :

Well, once 3 years goes by you'll be safe for prior years.

Customer:

ok then

Stephen E. Grizey :

Who told you that?

Customer:

if they audited me and found that I owed the money I am paying off now, then they must have accepted or overlooked the donation.

Stephen E. Grizey :

What type of organization is it; what does it do?

Customer:

it is a church mission

Stephen E. Grizey :

Someone should put a stop to it;

Customer:

i will be talking to them.

Customer:

they have to get their chit together.

Customer:

and I am done.

Customer:

with them

Customer:

never again, not another penny

Customer:

they were friends of mine

Customer:

no longer

Stephen E. Grizey :

Wait, a church mission? Are they affiliated with a "real" church;

Customer:

AND, I am not even a Christian! I am a Jew. Go figure how stupid is that?

Customer:

yes, they are a church, but they have no physical building

Customer:

they are a mission

Customer:

they go to people, they go to other churchs

Customer:

they have been doing this for over 30 years

Stephen E. Grizey :

What is this a husband & wife deal where they formed a church?

Customer:

yes

Customer:

they broke off from their original church

Customer:

and went into the feild

Customer:

field

Customer:

I CAN spell.....just upset

Stephen E. Grizey :

Hang on a minute

Customer:

ok

Customer:

they preach at many churches as '

Customer:

as well as private and small groups

Stephen E. Grizey :

Churches are a different animal; initially, you didn't say the organization that you were supporting was a church; it is going to take me a few minutes to read over some rulings pertaining to situations similar to yours; if you can wait 5 or 10 minutes, I can do that; OK?

Customer:

OMG YES!

Customer:

THANK YOU !!

Stephen E. Grizey :

OK, here's the deal.............if the organization meets the definition of a Church, then they could be exempt from tax and contributions to them would be deductible under IRC 501(c)(3) without making a formal application. Evidently, that is what the organization you are referring to is counting one. Many of such organizations go through the formal application process just to make sure that their organization and activities qualify for tax exempt status under IRC 501(c)(3) & to assure potential donors that their contributions are deductible as charitable contributions.

Customer:

Yes, that is what they have told me.

Customer:

so I should be ok taking the deduction?

Stephen E. Grizey :

Well, not necessarily, but if you do, you should recognize that you are contributing to an organization that may not have gone through the application process as they were concerned that their activities and the way they handle their contributions may not qualify under 501(c)(3) and therefore they don't want to apply.

Customer:

I will not be making any more donations. I just need to get through this year.

Stephen E. Grizey :

I'm going to give you a link to an IRS Publication that summarizes these issues so at least you can be informed and know what the situation is and the risk you are assuming.

Stephen E. Grizey :

http://www.irs.gov/pub/irs-pdf/p1828.pdf

Customer:

ok

Customer:

so in other words, I can still be audited and have to pay.

Stephen E. Grizey :

Yes that is the risk,

Customer:

care to venture any guestimates on whether or not they will try that since all of this money is going to the IRS as garnishement for that last fiasco? :-)

Stephen E. Grizey :

I think if I were you, I would at least ask them why they haven't confirmed their status as a church by filing an application for the tax exempt status with the IRS

Customer:

they have told me they just haven't done it. no time, no money, they were told by their sources that it wasn't necessary and that with the TX exemption that was all they needed.

Customer:

so that was all they did

Customer:

as far as I know, no one has ever really asked them what I have

Customer:

and they have never been questioned.

Stephen E. Grizey :

After you read the IRS summary publication, you'll see what I'm referring to; personally, I'd be careful about donating to an organization without a confirmed tax exemption.

Customer:

I see no overt deceit in these people...

Customer:

but no more of my money is going there.

Customer:

that is a guarantee

Customer:

ok, just one more question and it is a guess on your part, I would imagine

Stephen E. Grizey :

Those organizations that qualify under the automatic provisions will not be listed on the list of the qualified organizations published by the IRS, just so you know that.

Customer:

what do you think of the odds of my doing this one more time, and getting back over $5K that will all go to them? If I don't use the deduction (and I really did give them all that money), I will only get back about $1800.

Stephen E. Grizey :

You want me to tell you what the chances are that you'll be audited, ZI bet?

Customer:

of course....since they get the money, will they audit for more?

Stephen E. Grizey :

What do you men it will all go to them?

Customer:

like I said earlier, the IRS is garnishing all my refund.

Customer:

to pay off my earlier mistake

Stephen E. Grizey :

oh, them meaning the IRS

Customer:

which also involved the mission

Customer:

yes

Stephen E. Grizey :

what was the issue earlier?

Customer:

I gave all my 401K to the mission

Customer:

and they told me it would not be taxed if I did that

Customer:

and it was

Customer:

so I found out 2 years after the fact,

Customer:

and had to pay plus penalties and interest

Customer:

started paying that off last year

Stephen E. Grizey :

Did you withdraw it first & then turn it over to them?

Customer:

yes

Customer:

it was what they told me was the way to go, to avoid taxes

Stephen E. Grizey :

That's the problem

Stephen E. Grizey :

You did it the wrong way

Customer:

they honestly thought that was what I should do

Customer:

wonderful

Stephen E. Grizey :

Sure they did;

Customer:

they were as surprised as i was...

Customer:

or they are good actors.

Customer:

either way I am devasted

Customer:

devastated

Customer:

and broke!!

Stephen E. Grizey :

the problem with these "little churches" is that some of the donation money is used to support the people who organized the "church";

Customer:

I can see that happening

Stephen E. Grizey :

That's the essence of it; there's a whole industry around telling people how to start their own church; it really isn't legitimate but they are hiding under the Constitutional provision of separating church and state.

Customer:

ok, so you have been quite carefully avoiding giving me your opinion, I am going to assume you cannot do that.

Customer:

I will just have to make up my own mind, which obviously, has been bad in the past!

Customer:

lol

Stephen E. Grizey :

If it is separate; one can't tax the other................so crooks jump on that & give everyone a bad name; that's why legitimate charities claiming to be churches file the 501 c 3 applications.

Customer:

yes

Stephen E. Grizey :

By the way, if you get audited on this, which could happen,it won't just be the year being audited, they will go back 3 years, or for any "open" years that the 3 year statute applies to (returns are open for 3 years from the time they are filed).

Stephen E. Grizey :

what opinion are you referring to? what you should do? is that what you mean?

Customer:

yes

Stephen E. Grizey :

Well, I told you what I would do, so it isn't too much of a stretch to figure out what I think you should do;

Customer:

I should not take the deduction

Customer:

right?

Stephen E. Grizey :

I would have to know more about exactly what they are doing; what they have done, etc. before I would recommend to any client that they DONATE money to an organization without the formal 501(c) (3) letter; In your case, I'd probably take the deduction but not donate any more money.

Customer:

ok!

Stephen E. Grizey :

What year did you give them you 401K money?

Customer:

I will do that

Customer:

I will never give them another penny!

Customer:

08

Customer:

2008

Stephen E. Grizey :

Answer this; the 401K distribution was taxable, but you should have received a deduction for it too, which probably needed to be carried forward if it was too much to deduct all in one year?

Stephen E. Grizey :

Did the IRS disallow the charitable contribution deduction for that year?

Customer:

I did take the deduction, and am not sure how it all worked, because I was not doing my own taxes then. I have moved and have everything in storage, no way to get to it, and cannot research, I have since stopped using that man.

Customer:

I have been surrounded by bad advice for many years.

Customer:

I feel like I have been swimming in molasses

Stephen E. Grizey :

How much did the 401K contribution amount to?

Customer:

over $37K

Stephen E. Grizey :

Well, I can't tell you what to do, but even if you aren't using that preparer, you should be able to get a copy of however the adjustment wound up; you probably have additional carryforward contribution deductions that remain unused;

Stephen E. Grizey :

If the IRS allowed the deduction, then you are in a much stronger position to continue claiming it for 09, 10, & 11

Stephen E. Grizey :

If they disallowed it, they would have had to give a reason & then, if you claim it in 2011, when it was previously disallowed, you could be subject to substantial additional penalties.

Customer:

they just disallowed the $401

Customer:

401K...sorry

Customer:

and I didn't cont to claim it...

Customer:

I am just paying what they said I owed on it.

Stephen E. Grizey :

So the botXXXXX XXXXXne is, at some point, you need to find out exactly what the deal is & probably get some help to figure it all out.

Customer:

i had to talk to the IRS and work out a deal to pay it off

Customer:

for that year.

Customer:

nothing else was said, and should not go anywhere else....

Customer:

they accepted my other year's deductions

Customer:

without a problem

Stephen E. Grizey :

Was the 401K withdrawal and the related contribution deduction claimed in the same year or did none of it get reported because you thought the 401K withdrawal was exempt

Customer:

and my preparer has been diagnosed

Customer:

sorry

Customer:

the 401K was withdrawn and claimed in the same year

Customer:

I did report it as a deduction to the church

Customer:

I used my receipt...

Stephen E. Grizey :

So there would have been no reason to claim the charitable contribution as a deduction.

Customer:

huh?

Customer:

I reported and turned in, the withdrawal, the contribution, and took the deduction

Customer:

thinking it was tax exempt

Stephen E. Grizey :

I thought you said the adjustment was because the IRS came in and said the 401K was taxable and therefore you owed all that money

Customer:

yes, they said it was 'income' and that I had not paid taxes on it, so I owed taxes on it

Customer:

plus penalties and interest

Stephen E. Grizey :

Then you didn't report it, right?

Customer:

I hadn't reported it as income, I reported it as tithe

Stephen E. Grizey :

the 401K

Customer:

ye

Customer:

yes

Customer:

it was how my preparer did it

Stephen E. Grizey :

so you took the deduction but left the income off your return, is that what you are saying?

Customer:

yes, I suppose that is how he did it...

Customer:

yes

Customer:

so I was seen to have had that much more income and had to pay taxes on it

Stephen E. Grizey :

If the IRS increased your income by 37K, they also would have used up more of the contribution which would have been limited by your AGI

Customer:

I am thinking they took that into consideration and came up with the deal I am working to pay off now...

Stephen E. Grizey :

tell me this, how much in additional tax did they assess, not including penalties and interest, approximately?

Customer:

it was the additional $37K I think...it was a long time ago. and the part i owed was near $10K when I started

Customer:

I do not understand taxes, I do not read all that very well

Customer:

I tried for several months to get my tax guy to call me and let me know what I was supposed to do....

Customer:

I was scared....

Customer:

and I didn't understand it all

Customer:

I ended up just calling the IRS and talking directly to them

Customer:

and working out the deal I have now

Customer:

I think $8K was my total without the extras

Stephen E. Grizey :

Well, I'm sure you don't want to mess around with this, but I have to tell you, you should have a new guy check the status of this whole out; since you are overpaid forXXXXX I file for an automatic extension & get someone to sort this out for you; you may have carryforward charitable contribution deductions from 2008 due to limitations of how much you can claim in one year & you should know what the IRS allowed and didn't allow for 2008 before you file 2011; either you are entitled to a larger refund, or you shouldn't claim the deduction in 2011 because the penalties of going against something that has been settled in 2008, are much higher than what you were charged before.

Customer:

but if I don't try to change anything, and am not taking any thing from back then, why would that matter? I am confused....

Stephen E. Grizey :

That's the best advice I can give you, plus look at that publication I gave you the link to;

Customer:

this $14K is from last year alone....

Customer:

oh...

Customer:

ok

Stephen E. Grizey :

I can't explain it any better and it is a confusing situation; you couldn't possibly be expected to understand how it all ties together;

Customer:

I really appreciate your time, sir. you have done fine. thank you so much.

Stephen E. Grizey :

You don't want to do something opposite to what was agreed to in 2008; there's an "intentionally disregard of the regulations penalty" plus civil criminal penalties (meaning money not jail) that could cost you many times what the benefit of the deduction is.

Stephen E. Grizey :

Please remember to click on the green "ACCEPT", or the "smiley face" as appropriate; that is the only way we get credit for our work, even if you are on a subscription plan. Feedback, if you have time and bonuses, where you think they are warranted, are always most appreciated. Before or after you ACCEPT, I will be happy to answer any additional follow-up questions you may have. Thanks again for using our service.

If you'd like to contact me again, in the future, just ask for "Steve G" at the beginning of your question.

Customer:

I do not think I am going against anything from 08.

Customer:

again thank you

Stephen E. Grizey :

OK, good luck

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4187
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 2 other Tax Specialists are ready to help you

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Stephen G.
Stephen G.
Sr Financial & Tax Consultant
3651 Satisfied Customers
Extensive Experience with Tax, Financial & Estate Issues