Someone I know (not naming any names here) does this little thing that I think is at least dishonest, if not illegal. Is the following considered tax evasion?
The individual buys books at a discount store, usually for $1. He then types a list of the books with their retail prices and proceeds to donate these books to a local library. The library signs the sheet, indicating that these were the books donated, valued at retail. Individual then proceeds to deduct the retail value on his tax return.
Is this a tax code violation as I suspect it is?
Your donation is the lesser of- the FMV or your “basis” (usually what you paid for it). There is a special rule for donations of “appreciated property”, like that Van Gogh, but those books hardly count.
You would be expected to show your actual purchase price if there were a lot of them. Since he probably has not got audited, there has been no problem. Probably not audited as deductions don’t add up to all that much.
So, in the event of an audit, would he be required to provide the receipts for the original purpose? What happens if the receipts had been thrown away? How far does the IRS go to check up on this?
I think he does this with about 60-100 books a year–buys at $1, list price is roughly $20. So 100 books @ $20 average is $2000. I don’t have the tax instructions in front of me at the moment, but if he deducts $2000, I think he’s saved $560 of taxes in the 28% bracket for a cost of $100. Net profit $460.
It seems very unlikely he would get caught unless the potential auditor really checked up on the particular books he’s donating, but he’s also claiming it’s legal, which gets on my nerves.
(Are you a CPA by any chance? It’d be nice if the info came from an authority…)