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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I have a situation as follows, and do not know how to handle

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I have a situation as follows, and do not know how to handle it:

In 2010, I liquidated $50k from my mutual funds/ira accounts in order to make a donation to a non-profit organization that has its headquarters in the USA, however as I live in Israel, I directed this donation to the branch of the organization here, by wiring the funds that were liquidated to my bank account directly to the branch's bank here in Israel.

Now (without going into the details), I am being given back a large part of this donation.

1) The first question is, if I receive this refund to my US bank account, do I need to pay taxes on this "income"?

2) if I receive this refund to my Israeli bank account, do I pay tax, and where?

3) Can I report the part of the donation that isn't being refunded as a tax deduction since my only proof of the donation is a wire transfer to the bank of the organization in Israel?

4) Because the branch is itself in Israel, can I still claim this donation since technically the donation was made to an "International" company?

Essentially, I want to know how to save paying double taxes both for me and the non-profit organization, and what are the tax laws concerning giving donations to an international branch of an organization, as well as tax laws concerning receiving refunds of donations given.

1) The first question is, if I receive this refund to my US bank account, do I need to pay taxes on this "income"?
If your tax liability was deferred at the time you made contribution into your IRA account - it is your taxable income at the time of distribution regardless how distributed funds are used. So - for income tax purposes the amount of distribution is recognized as your taxable income and you should receive the reporting form 1099-R from the payer.

2) if I receive this refund to my Israeli bank account, do I pay tax, and where?
If funds are transferred into US bank account or abroad has no effect on income tax obligations.

3) Can I report the part of the donation that isn't being refunded as a tax deduction since my only proof of the donation is a wire transfer to the bank of the organization in Israel?
You may deduct the amount you gifted to qualified charitable organization. o become a qualified organization, most organizations other than churches and governments must apply to the IRS and receive a determination letter.

4) Because the branch is itself in Israel, can I still claim this donation since technically the donation was made to an "International" company?

You can ask any organization whether it is a qualified organization, and most will be able to tell you. Or you can find it on the Internet at www.irs.gov/app/pub-78. You can also call the IRS to find out if an organization is qualified. Call 1-877-829-5500. (For TTY/TDD help, call 1-800-829-4059.)

As long as that is a qualified organization - you may claim a deduction.

 

You may be able to deduct contributions to certain Israeli charitable organizations under an income tax treaty with Israel. To qualify for the deduction, your contribution must be made to an organization created and recognized as a charitable organization under the laws of Israel. The deduction will be allowed in the amount that would be allowed if the organization was created under the laws of the United States, but is limited to 25% of your adjusted gross income from Israeli sources.

 

Customer: replied 6 years ago.
Thank you LEV.


1) What I do need clarification on is - Do I need to pay tax on the money given back to me by the charitable organization? Is it classified as income by the government? Or is it a refund which is non-taxable?

Essentially the issue here is that I do not want to pay taxes twice: Once for capital gains tax on the sale of the investments, and Twice on the money being refunded to me by the organization.

2) Lastly, I am in good relations with the charitable organization, so I want to do what I can to prevent them from paying any unnecessary taxes ... what are the tax ramifications for them on this and how should I request the refund in a way that removes any of their potential losses?

3) And if I understand correctly -- If I do in fact need to pay taxes on this refund as an income, you are saying it will not make a difference whether that money is deposited to my Israel Bank account or my US Bank Account, tax implications are the same? Do I understand correctly?


Thank you for you assistance.


Do I need to pay tax on the money given back to me by the charitable organization? Is it classified as income by the government? Or is it a refund which is non-taxable?
If you previously deducted charitable contribution and all or part of that contribution is paid back you - that is a recovery of previously deducted amount- and should be included back into your taxable income.

2) Lastly, I am in good relations with the charitable organization, so I want to do what I can to prevent them from paying any unnecessary taxes ... what are the tax ramifications for them on this and how should I request the refund in a way that removes any of their potential losses?
Charitable organization generally are not taxed on contributions.

3) And if I understand correctly -- If I do in fact need to pay taxes on this refund as an income, you are saying it will not make a difference whether that money is deposited to my Israel Bank account or my US Bank Account, tax implications are the same? Do I understand correctly?
That is correct - as long as that is your taxable income - it should be reported on your tax return regardless where you keep funds. If you have a foreign bank account - there is additional reporting requirements.

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Customer: replied 6 years ago.
Thank You LEV,

One last thing - what form on next year's tax return should I use to report this refund Income?

I appreciate your quick answer and appreciate your knowledge.

Thank you for your help.

If the refund or other recovery and the expense occur in the same year, the recovery reduces the deduction or credit and is not reported as income.

If you receive recoveries that were deducted in previous years - there are relatively complex rules how to determine taxable part - see for details IRS publication 525 page 22 - http://www.irs.gov/pub/irs-pdf/p525.pdf