Balance Due 1040

Technical topics regarding tax preparation.
#1
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We have this millionaire client at our firm. He’s a big fan of taxing millionaires at really high rates. Pretty outspoken on the matter too…and a little shady. We prepared his 2018 federal return (on extension) and e-filed it right before the deadline. He owed $175k. After we filed the return, and before he paid up, he received a lot of pressure, from the public, to put his money where his mouth is. The general argument leveled at him went something like this, “Hey, if you think millionaires should pay more in taxes, then just make a donation to the government!!!”

So, the guy writes a check to the “United States Treasury” as payee, for $175k. In the memo field of the check he writes, “Payment to the United States.” He holds up a $175k check at what amounts to a press conference, smiles at the camera, tells all the onlookers that he’s putting his money where his mouth is, and then he mails it in – to some P.O. Box in West Virginia that you use when making donations to the U.S. government. Shortly thereafter, he gets a tax notice from the IRS for the $175k he owes with his 2018 federal return. He brings the Notice to our firm and basically says, “I already paid it. I wrote a check to the government for $175k. You probably heard about it.” But like I said, he’s a little shady. So, we write a letter to the IRS explain the situation. IRS recently comes back to us and says he still owes the $175k.

I’m sure this situation is not unique. How have you guys handled similar things in your practices?
 

#2
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Jeff-Ohio wrote:I’m sure this situation is not unique. How have you guys handled similar things in your practices?


I'm going to say this circumstance is pretty darn unique.
The only thing I can line it up with is where a client has made a payment for an incorrect "type" of taxes and we need to apply it differently.
In that case, we'd provide evidence of the check being cashed and ask the payment be applied in the manner in which we would like it applied.
~Captcook
 

#3
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I've never had a client that put his money where his mouth was. The name of the payee part on the check was correct. He didn't indicate the year or the type of tax but unless there is an open balance they can apply it against, I would think they'd have to apply it to the 2018 Form 1040 upon his direction.

Rev. Proc. 2002-26 provides guidelines and, in the absence of a prior-year balance due, I don't know why he couldn't instruct the IRS in writing how that payment should be applied.

https://www.bradfordtaxinstitute.com/Endnotes/Rev_Proc_2002-26.pdf
 

#4
sjrcpa  
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Seems he made a donation to the US Gov't, in front of witnesses, and now has to live with it. There is no donation in lieu of taxes. We had that issue with the states a year or two ago.
 

#5
MWPXYZ  
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It would be interesting to know what you wrote in your letter to the IRS. How does one make a change in a black and white issue of intent? Such a letter would be useful to traders investors in real estate. If your letter writing in this case was successful you would be considered an esteemed author in tax circles!


You may have read "Waiving Penalties with Penmanship" , the principles of which may apply even if the original subject matter is not on point. It could be useful going forward. The article, if you missed it, was in the February 2004 AICPA Newsletter to, members in Small-Loco Accounting Firms.
 

#6
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Seems he made a donation to the US Gov't, in front of witnesses

How does one make a change in a black and white issue of intent?

Like I said, this guy is shady. His intent, all along, was to pay his taxes. He just wanted to make it look like he was some big generous guy making a “donation” to the country he loves so much (i.e. paying more taxes than he was lawfully required to pay)…that he wasn’t just one of these millionaires saying millionaires should pay more in taxes, but was actually doing it.

He was trying to make it look like he was paying more in taxes than the taxes he already owed. On the one hand, this causes confusion, because if an additional tax is not owed, then the $175k he paid couldn’t be a tax payment, right? If so, that would make his payment some kind of depsosit or a true donation. But then again, if he already owed $175k, and he more or less proclaims he’s paying “more taxes than he owes,” he is nonetheless saying that what he’s paying is taxes. In which case, wouldn’t his payment be viewed as a tax payment?
 

#7
MWPXYZ  
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He was trying to make it look like he was paying more in taxes than the taxes he already owed
He was trying to make it look like he was paying more than just taxes. He was successful.

"If so, that would make his payment some kind of depsosit or a truedonation."



"But then again, if he already owed $175k, and he more or less proclaims he’s paying “more taxes than he owes,” he is nonetheless saying that what he’s paying is taxes"
Perhaps, if his "audience" knew he owed $175K they would know he is talking gibberish.

The IRS hasn't heard his proclamations - they DID get a check in their PO Box in Parkersburg on the banks of the Ohio.
And, with the IRS, the left hand truly does not know what the right hand is doing. Have they sent a receipt with the proper wording about goods and services not being provided?
 

#8
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Easy.

Just tell him he has already paid his taxes. Now, the Treasury wants the unconditional gift he pledged mailed to the Cincinnati address in the 1040-V instructions.
 

#9
MWPXYZ  
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And of course they even charge interest and penalties on gifts made 180 days after pledging.
 

#10
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He was trying to make it look like he was paying more than just taxes.


It’s kind of semantics. He was trying to make it look like he was paying some amount above and beyond his legal income tax obligation. How one might label that “above and beyond amount” doesn’t matter much, since we’re talking about what he was trying to make it look it.

Now, the Treasury wants the unconditional gift he pledged


He didn’t make any pledge.
 

#11
Jake  
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This scenario is absolutely hilarious.
 

#12
Nilodop  
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Not to the millionaire client.
 

#13
MWPXYZ  
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since we’re talking about what he was trying to make it look it.


Not sure "we" are talking about that since that seems irrelevant. I'd be talking about the excuse for sending funds to an obscure PO Box . Which, BTW has a full address of:
Gifts to the United States
U.S. Department of the Treasury
Reporting and Analysis Branch 2
P.O. Box 1328
Parkersburg, WV 26106-1328

Furthermore, "These contributions are considered an unconditional gift to the government."

What excuse did you use in your initial letter to the IRS: client's medical condition, client's mental health, client's advanced age, the accountant gave the client the wrong address? Relying on the storyline, the IRS often sends a bill or two before they even read a letter from the taxpayer or his preparer, so maybe your initial letter just hasn't been perused yet.

Maybe look at Amos v. Commissioner, 47 T.C. 65, 69 (1966) and see if you can squeeze the gift into the voluntary payment category, depending upon what, if any, memo or directions the client supplied to the IRS with the payment. Some 7th Circuit cases involving Avildsen Tools and Muntwyler discuss the criteria in Amos.

OTOH, I may be missing the actual issue your narrative is trying to portray.

In any case, if this client asks what your favorite charity is, keep mum. He may send that charity a donation that has an uncanny resemblance to your fee.
 

#14
philly  
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The guy goes on record in front of the cameras. He states that he is making contribution or gift to the Federal Government and mails a check to the IRS PO box for contributions.

The 175K is a contribution/gift to the Federal Government and has nothing to due with the balance owed on his returns.
 

#15
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philly wrote:He states that he is making contribution or gift to the Federal Government...


Technically, the told them he was "putting his money where his mouth is". But I'm sure he was relying on the public to interpret this statement as he was going to pay above and beyond what he is legally required. i.e. He was representing to the public that the check was a donation to the U.S. Government.

Pretty sure this isn't a "true story" and is more of an exercise. But...ignoring the ethical ramifications of keeping such a client on with the knowledge you now have, isn't the question: can the payment be applied or moved to his 1040 balance due? If not, can it be refunded? If no and no, I would imagine client is S.O.L.
 

#16
CathysTaxes  
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If this is really true then he made a gift to the IRS and owes the money and hopefully he was dumb enough to say it to someone else who makes it public.
Cathy
CathysTaxes
 

#17
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Not to the millionaire client.

Yeah, no kidding. The word “unconditional” has been mentioned. The client alerted me to 31 USC 3113:

Government to be used to reduce the public debt—
(1)the Secretary of the Treasury may accept for the Government a gift of—
(A) money made only on the condition that it be used to reduce the public debt;
(B) an obligation of the Government included in the public debt made only on the condition that the obligation be canceled and retired and not reissued; and
(C) other intangible personal property made only on the condition that the property is sold and the proceeds from the sale used to reduce the public debt; and
(2) the Administrator of General Services may accept for the Government a gift of tangible property made only on the condition that it be sold and the proceeds from the sale be used to reduce the public debt.
 

#18
Nilodop  
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a gift of—
(A) money made only on the condition that it be used to reduce the public debt;
. Yes, they even have a form for it.

So are you saying that since he did not explicitly state that condition, they must return the gift?

Or is there an interpretation in which the meaning is that the only condition allowed is that one, so therefore the absence of any conditions is acceptable.?
 

#19
Nilodop  
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Current Contribution Methods
There are two methods of contributing to the Public Debt Reduction Fund. The first method is indicated in IRS instructions for Form 1040 and the Treasury website called treasurydirect.gov.

For 2010, the Instructions for Form 1040 stated the following:
How Do You Make a Gift To Reduce Debt Held By the Public? If you wish to do so, make a check payable to “Bureau of the Public Debt.” You can send it to: Bureau of the Public Debt, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. Or you can enclose the check with your income tax return when you file.11
The second method is specified on the treasurydirect.gov site under the topic “Frequently Asked Questions about the Public Debt.”12 This site states that “You can make a contribution online either by credit card, checking or savings account at Pay.gov.”13 Clicking on Pay.gov brings up a donor information form that allows the individual to make an online donation.
 

#20
Nilodop  
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https://www.pay.gov/public/form/preview/pdf/708094624

It's a simple form:
This account was established in 1843 to accept gifts, such as bequests, from individuals wishing to express their patriotism to the United States. Money deposited into this account is for general use by the federal government and can be available for budget needs.
 

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