Monday, March 22, 2010

HIRE Act of 2010 - The Tax Man Giveth

On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act better known as the HIRE Act of 2010. (Do you wonder how many people it took, or how long it took them, to come up with the name for this legislation that would create the acronym HIRE?) This act relieves employers from paying the social security portion or OASDI portion of the employment taxes on wages paid during 2010 to qualified workers.

CAUTION: There is no relief from the employer portion of Medicare taxes or any of the taxes that are withheld from the employee.

The OASDI portion of the employment tax is the 6.2% of the FICA taxes assessed on wages up to $106,800 during 2010. The maximum OASDI tax an employer must pay on any worker is $6,621.60. In essence, an employer will not have to pay this tax on wages paid between March 19, 2010 and December 31, 2010 to a qualified worker.

A qualified worker is one that is:

  • Employed after February 3, 2010;
  • Provides a signed affidavit that he has not been employed for more than 40 hours during the past 60 days;
  • Isn't employed to replace another employee unless the other employee separated from employment either voluntarily or for cause (i.e., you can't fire the entire staff and then hire new ones simply to benefit from this new law); and
  • Isn't related to the employer.

The tax relief that is attributable to the first quarter of 2010 will not be refunded, but will be applied to pay other payroll taxes that are due for the second quarter. After that, the employer will simply not have to remit the taxes. (This gives the IRS enough time to draft the new Form 941. There simply isn't time before Form 941 is due for the first quarter of 2010.)

Wednesday, March 17, 2010

Lack of Required Statement Kills Charitable Contribution

Friedman, TC Memo 2010-45
In a recent Tax Court decision, a taxpayer forfeited his charitable contribution for several reasons but one of the reasons was due to an insufficient charitable contribution receipt. The receipt issued to the taxpayer failed to contain the statement that there were no goods or services provided to the donor in exchange for the contribution.

In 1995 Congress enacted IRC Section 170(f)(8)requiring a donor to obtain a qualifying charitable contribution receipt to claim a deduction for a contribution of $250 or more. A qualifying receipt must meet the following criteria:

1. The receipt must contain the amount of cash or a description of the property contributed.
2. The receipt must state whether or not the donee organization provided any goods or services in consideration, in whole or in part, for the contribution.
3. The receipt must contain a description and a good faith estimate of the value of any goods or services referred to in (2) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
4. The receipt must be addressed to the donor and obtained by the donor by the earlier of the date the donor files his tax return or the due date of the return (including extensions).

Additionally, legislation in 2006 added to the above requirements the need for the receipt to reflect the dates of the donations as well as the individual amounts of the donations.

Despite the fact that these changes in the law originated in 1995, an amazing number of charitable organizations still do not issue receipts with the wording required to make the receipt a qualifying receipt. Granted the law is not on the organization, but rather it is on the donor to have a qualifying receipt in order to claim a donation. However, donors believe that the receipts received from charitable and religious organizations will be qualifying receipts. Many discover in the course of an IRS exam that the receipt received from an organization is not qualifying and lose the corresponding deduction. There is nothing at this point that can be done for a donor. The donation is lost and the receipt cannot be corrected. At this point, an organization may lose a valuable relationship.

Despite being the law for 15 years, many organizations, including many religious organizations, are issuing receipts to their donors that are insufficient to claim a donation. Each year as my firm prepares tax returns for individuals, we see receipts that are insufficient to claim a donation and must be reissued prior to the completion of the return. Additionally, I have received calls from distraught church finance and business administrators wanting to know how to provide assistance to the member who has lost the deduction due to an insufficient receipt.

In order to make sure that an organization is not the one in the hot seat dealing with a distraught and angry donor, it should review all the contribution receipts for your organization and make sure the following wording appears on the receipt.

There were no goods or services given in exchange for the above contributions other than intangible religious benefits.

In the event the receipt does include the fair market value of the goods or services received, the the organization may include this statement:

There were no goods or services given in exchange for the above contributions other than intangible religious benefits and those goods or services so indicated on this receipt.