Small Business Reading Room

Thursday, June 24, 2004

Automobiles as charitable donations under scrutiny

Current law allows deduction for the "fair market value" of automobiles donated to charity for taxpayers that itemize on form 1040, schedule A. This deduction must currently be backed up by an appraisal in person or by using a widely circulated used car-pricing guide. The price must be calculated for a car in similar condition and in the market where the owner used the vehicle. The IRS alerts on this subject illustrate the fact that the IRS sees abuse of this system.

But all that may be about to change.

The Wall Street Journal(home) Tax Report for June 24th indicates that the Senate and House have different solutions to the problem. Expect either one to be opposed by charitable groups and the used car auctions.

The House version of the current tax bill requires a qualified appraisal if the taxpayer is claiming a deduction of more than $250.00. The Senate Bill would allow a deduction of the amount of money the car was subsequently sold for. In other words, the taxpayer could only deduct what the charity got, not what he gave. This would apply to donations claiming more than $500. If the charity keeps the car for its own use, then full market value would be allowed.

This bill is likely to pass sooner rather than later since there are some other issues that MUST be resolved by this congress. They are amending the law to get rid of some export subsidies that have been declared illegal by the World Trade Organization

Some other items of interest in these bills:

  • Allowing the IRS to hire private bill collectors

  • Taxpayer choice to deduct state income tax OR state sales taxes.

  • Increase disclosure and penalties regarding tax shelter schemes.

  • Reduction in capital gains rate for gold and other precious metals.

  • Allow deduction of legal fees from certain awards from lawsuits.

  • Expansion of the "kiddie tax" to age 18.


Wednesday, June 23, 2004

IRS Resource for the International Tax Payer

For a nice collection of information on the special tax requirements of the international community, visit our friends at the IRS through their website-

Here’s a summary of some of the topics you can expect to find there:
Classification for U.S. Tax Purposes— This section will help you determine if you are a "Foreign Person" or a "United States person" for U.S. tax purposes.
Essential Concepts of International Taxation — The income sourcing rules determine which income is taxable to a foreign person and which income qualifies for the foreign tax credit and the earned income exclusion of U.S. persons.
Taxation of Nonresident Aliens — Explains how income that is subject to U.S. income tax is categorized and taxed, what forms to file, and who must file.
Tax Treaties— Information on how to research tax treaties that may allow residents of foreign countries to be taxed at a reduced rate, or to be exempt from U.S. income taxes on certain items of income they receive from sources within the United States including information on claiming tax treaty benefits.
Taxpayer Identification Numbers (TIN) — Information on the various types of taxpayer identification numbers that are issued by the IRS or Social Security Administration including who needs one and where to get one.
News and Events — This section provides the latest news on international taxes. Of particular interest is a section on IRS form 8802, Application for United States Residency Certification.

- Russell P. Rozanski

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Delaware Intercorp, Inc.
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Newark, DE 19711-3258

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