Saachi is a CPA who works for a large CPA firm.During the tax season, she also p
ID: 2419624 • Letter: S
Question
Saachi is a CPA who works for a large CPA firm.During the tax season, she also prepares about 50 returns for a fee after hours.She uses this extra income to take a vacation each year in Florida.Mrs. Doering, one of her clients, delivers a shoebox full of receipts and other tax related documents each year.Mrs. Doering does not understand anything about finances or tax data.When doing the return, Saachi adds $200 of charitable contributions to Mrs. Doering’s claimed deduction since Mrs. Doering did not have any receipts in the shoebox.Saachi believes that Mrs. Doering must have some charitable contributions and that $200 is a good estimate.Saachi tried two times to contact Mrs. Doering to ask if she had any contributions but Mrs. Doering never called her back. Saachi decided to just claim the $200 deduction and mailed the returns to Mrs. Doering for filing.Saachi did not discuss with Mrs. Doering the fact that she took this deduction.Is Saachi in violation of the SSTS?
Explanation / Answer
As per SSTP rules, charitable contributions/giftd can be taken as deduction, if an assessee/client maintains the data regarding the charities. Acknowledgement of the contribution must state that ‘no goods or services were received in exchange for the donation.’ Without that statement, the deduction is invalid.
Donation of goods less than $250 – A charity probably won’t fill in the details of the donation for you, but they will give you a receipt with the date, location, and name of the organization. If asked by the IRS, you need to substantiate the donation with a list of items and their fair market value (FMV) at time of donation. It is up to you to determine the FMV of items, and you can do that by using guidelines from organizations such as Goodwill or the Salvation Army. Keep a record of how you determine the FMV. (Note that for donations less than $250, the charity is not required to provide a receipt, but your records will substantiate the donation.)
Hence in the given case, the deduction is less than $250, deduction can be allowed without receipts if client can have substantiate records of donation.
Since the question is silent about availability of records, the CPA shouls not have deducted $200 while filing income tax return.
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