Masonry Magazine September 1974 Page. 19
TAXES
By MIRIAM. McD. MILLER
TICKETS TO CHARITY
It has probably happened to many a taxpayer who holds a season ticket to pro football games or to some concert series that he occasionally finds he will not be able to attend one game or one performance. Should he give the ticket to some worthy charity, and how much of a tax deduction can he take?
By pro-rating the cost of the single ticket over the cost for the season ticket, it may have cost him $3, but if he sold it as a single ticket it might be worth $5. Two questions to this tax matter were recently ruled on by the IRS: 1) how much could he take as a charitable deduction, and 2) what if no one used the ticket?
One provision of the Revenue Code stipulates that the amount of any charitable contribution of property shall be reduced by the amount of gain which would nor have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value at the time a contribution is made.
In the example given by the IRS, the donated ticket had not been held for over six months, so the IRS ruled that the donated ticket produced a deduction of $3, the cost of the ticket to the taxpayer. The Ruling did not address itself to a situation where the ticket was held over six months and had increased in value.
With regard to the effect of the ticket's not being used by a charity, the IRS ruled that fact would have no effect. The test is whether by the donation the taxpayer relinquished his right to use the ticket. He had done so here and hence was entitled to a charitable deduction of $3.
In its ruling on this matter, the IRS referred to an earlier ruling concerning ticket donations. In the earlier ruling, the taxpayer had purchased a ticket from a charitable organization for one of its fund-raising activities. However, the taxpayer had no intention of using the ticket when he purchased it, nor did he in fact attend the event involved.
The IRS had ruled that since the taxpayer accepted the right to admission, no part of the cost of the ticket was deductible. "The mere fact that the ticket to the concert was not used did not entitle the taxpayer to any greater right to a deduction than if he did use it." (Rev. Rul. 74-348.) For taxpayers who are kind enough to buy such tickets with only a charitable purpose in mind, let's hope that this ruling would not apply to tickets which clearly indicate on their face that a portion of the purchase price is a direct charitable donation.
EXTENDED VACATION
A steel manufacturer established in addition to a regular vacation plan an extended vacation plan that entitled each qualifying employee to not more than 13 weeks of paid vacation once in each five-year period. The company had the right to determine when an employee might take his vacation.
One very attractive feature of the plan was that upon vesting of an extended vacation, the emplovee's right to the 13 weeks of vacation pay beame nonforfeitable, even if his employment were terminated by reason of resignation or discharge; and in the event of his death, the sum would be paid to his wife or his estate.
In order to fund these extended vacations the company accrued a sum of money and deducted it from its gross income in the year accrued. The IRS commissioner stepped in and contended that the extended vacation plan was like any deferred compensation plan under Section 404(a) of the Code, and the accrued vacation pay could not be deducted until actually paid to the employee.
The tax court agreed with the company. An extended vacation plan was not, the court ruled, within the intendment of Code Section 404(a). The company was in order when it deducted the amounts paid or accrued for such vacations during a taxable year. (Latrobe Steel Co. v. Commissioner, 62 TC-No. 51.)
CIVIL RIGHTS ACT
An employment agency advertised for help in a newspaper and indicated a preference to sex that was not a "bona fide occupational requirement" for the position to be filled. It seems that the ad violated Section 704(b) of the Civil Rights Act of 1964. The IRS was then asked whether the cost of this advertisement could be properly deducted as a business expense by the employment agency.
After a thorough review of Internal Revenue regulations that prohibit business deductions which are considered to be in violation of public policy, the IRS ruled that the advertising expenses involved were deductible. (Rev. Rul. 74-323.)
LEGAL EXPENSES
Tax deductions are never very understandable. Why medical expenses have for so long been a part of the tax laws and legal expenses have only recently begun inching into the tax world would be hard to rationalize. Legal expenses were and are regarded as personal, nondeductible expenses. Of course, when legal expenses can be justified as being business expenses they are deductible.
Fortunately, in recent years the IRS and the courts have been permitting a liberal interpretation to Code Section 212(3) that allows a deduction for expenses incurred during the taxable year "in connection with the determination, collection or refund of any tax." Out of this section, taxpayers have been able to deduct the expenses of obtaining tax advice in connection with a divorce. But, the tax consequences of a divorce are in the present.
What about the tax consequences of estate planning? While the law is not fully settled on this point, it can be said to be leaning heavily in the direction of allowing a present tax deduction for the expenses paid for estate tax planning. However, there is no doubt that the duty will be on the taxpayer to prove that part of the fee he paid an attorney or other estate planner was attributable to the tax aspects of the matter.
Careful records must be kept of the amount of time that was spent by the consultant on the tax aspects of the estate planning. It would be better for a taxpayer to err on the side of over-documentation in order to insure deductibility of the expenses.