Tag Archives | deductions

Arranging a tax-deductible fire

By on August 22, 2012 in Deductions, Politics, Tax Advice

Ever want to help support your local fire department? Several taxpayers over the years have done just that, by allowing the fire department to use their house for training purposes, including–yes–burning down the house.

Why would someone do that? Well, for the tax benefit! No kidding. The idea is that you get to deduct the fair market value of the house as a charitable contribution. And, hey, if you’ve been planning on demolishing that structure so you can build something else, well, all the better–right?

Wrong, says the IRS. Several taxpayers have been unsuccessful in trying to claim this deduction, including the case earlier this summer of Upen and Avanti Patel, who claimed a $339,504 charitable contribution for letting the Fairfax, Virgina, fire department raze their house. The Patels bought the house planning to demolish it. The IRS’s successful stance was that the Patels did not give away the property; they only allowed the fire department to have use of the structure for training purposes, which was at best a license or a partial (nondeductible) gift.

You can read law professor Paul Caron’s tax blog summary if you’re getting your inner tax geek on.

One interesting note: The Tax Court’s decision was 9-8, indicating that someone trying this may not necessarily see their deduction goes up in flames (sorry!) In fact, former Oregon Republican gubernatorial nominee Chris Dudley got a lot of heat (double-sorry!!) when The Oregonian reported during his campaign that he’d reported a $350,000 charitable contribution after the local fire department burned down his house back in 2004. He replaced the house with an 8,500-square-foot mansion.

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Is a zygote a person? Ask your tax guy.

By on November 4, 2011 in Creative, Deductions, Politics, Tax Planning

More than a half-dozen states are considering constitutional amendments, ballot measures or legislation that would declare a fertilized human egg (think back to your high school science classes and the word, “zygote”) to have the legal rights of a person.

I’m not going to get into the logic of this. Oh, heck, sure I will—it’s nuttier than a filbert orchard. The effect would be to outlaw abortion as murder, regardless of circumstance. An amendment to the Mississippi constitution that’s on a November 8 ballot would ban birth control methods such as IUDs and morning-after pills. This is stuff you’d expect to read about happening in the most backward of fundamentalist countries.

But hey, my job is to look at things from a tax standpoint. If a fertilized egg has the legal standing of a person, wouldn’t it logically follow that that tiny group of cells would qualify as someone who could be listed as a dependent on a tax return—just like any other person? And if that’s the case, then of course tax pros such as myself should start asking our clients during tax-season interviews if they are pregnant and if so, when they conceived, so we can determine if there was a potential deduction as of December 31 in the previous year.

(Let’s leave aside the inconvenient fact that most fertilized eggs actually never implant in the uterus. We’re not going to let reality get in the way of potential tax deductions.)

Wait wait, you say—federal law doesn’t recognize an infinitesimally small mass of 100 or 8 or four cells as a human being. No problem! Tax professionals already deal with many areas in which one set of rules apply for state income tax filings and another for federal. For example, same-sex couples in state-recognized domestic partnerships can file a joint state tax return at the state level even though they are barred from filing jointly at the federal level.

No reason we can’t have little Billy Blastocyte appearing as a qualifying deduction on state returns while being invisible on the federal return.

Not sure how we’ll handle the requirement that every “person” listed on a tax return have a Social Security Number.

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It’s A Food Delivery System! It’s A Deductible Medical Device!

By on February 17, 2011 in Internal Revenue Service

When is a breast pump a medical expense instead of just a mother’s helper? When the IRS says it is.

bigger breast pump1 150x150 It’s A Food Delivery System! It’s A Deductible Medical Device!Reversing years of its own rulings, the IRS said last week that nursing mothers can treat breast pumps and other breastfeeding supplies as medical expenses.

The practical effect is that people with pre-tax flexible spending accounts (FSAs) can now use that money for those costs, and the expenses can also be applied toward the deduction for un-reimbursed medical expenses for folks who itemize on their tax returns.

Why the change now? The Service isn’t saying. Maybe someone noticed Michelle Obama’s campaign to promote breastfeeding, and a Harvard Medical School study reporting that health care costs in the US could be cut $13 billion annually just by having infants fed breast milk in their first six months.

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