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Question about refunding a gift from a prior tax year

  • 1.  Question about refunding a gift from a prior tax year

    Posted 19 days ago

    Good morning, all –

     

    Let's say a donor requests a refund for a gift from a prior tax year.  It's under $600, so we wouldn't typically issue a 1099.

     

    The donor already claimed this gift on his previous year's taxes.  If he did this, would we have to issue a 1099 if we DO proceed to issue the refund (i.e. even though the gift was less than $600)? 

     

    Thanks so much for any feedback people are able to provide! 

     

    Michael Halverson, Ed.D.
    Senior Director of Advancement Services
    Loyola University Chicago
    T.
    312-915-7283 | C. 320-363-4987
    mhalverson@luc.edu | www.luc.edu/advancement

     

    150_email_150_31

     



  • 2.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago
    No 1099 is required for under $600.  I'd simply advise them in writing to seek guidance from their tax adviser.

    But just to remind you, given the change in the standard deduction barely 10% of people itemize these days.  So the odds are pretty long that this donor claimed a deduction for this gift.

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987






  • 3.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago

    Although, possibly going forward more people claiming a charitable deduction, with the (small) above-the-line charitable deduction put into place by the CARES Act?

     

    My US$0.02 worth; the usual disclaimers apply.

     

    Good luck!

     

    Alan

     

    Alan S. Hejnal   

    Data Quality Manager

     

    SNAGHTML5cbfa34

     

    Smithsonian Institution - Office of Advancement

    600 Maryland Ave SW Ste 600E

    PO Box 37012, MRC 527

    Washington, DC 20013-7012

    Voice: 202-633-8754 | Email: HejnalA@si.edu                                                                                                                                            

     






  • 4.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago
    We shall see.  But that is a $300 limit per tax payer.  Per year!  Still, no 1099 is required.  I just send a strongly worded letter.

    John H. Taylor 
    919.816.5903 (Cell/Text)

    Big Ideas; Small Keyboard





  • 5.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago
    I don't believe that a 1099 would be required in any case, even for the return of a gift of over $600. A refund of a donation doesn't qualify as "fixed" and "determinable" - basically, since you don't know whether the donor took a deduction for their gift, or what the amount of the deduction was, your refund to them is not considered income of the sort that must be reported on a 1099. A 1099 is only for income that is fixed and determinable. The Tax Benefit Rule does obligate the donor to report the refund, or the portion of it that qualifies as income, but the charity is not obligated to issue a 1099 for the refund. 

    Here are a few links you may find helpful. Consult your tax/legal advisers for specific guidance.

    https://www.irs.gov/pub/irs-wd/0704004.pdf (PDF link of a private letter ruling that references this issue)
    https://www.abqjournal.com/biz/28221635biz02-28-11.htm 


    Thank you,
    Isaac Shalev
    CRM Expert
    Sage70, Inc.
    (917) 859-0151
    isaac@sage70.com

    Schedule a 30-minute consultation now:







  • 6.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago
    I used to be confident about the lack of need for a 1099.  However, I subsequently read the following (just a small portion of a longer article on returning gifts) back in December 2018.  Perhaps the best advice is to ask your CFO whenever the amount exceeds $600:

    image.png
    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 7.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago
      |   view attached
    Okay - that is waaaayyyyy too tiny to read.  I am attaching the entire article!

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 8.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago
    TLDR - watch out for internet legal advice!

    Longer story:

    John, the snippet you posted sounded incredibly familiar to me, I was certain I had read it before. It also was odd to me that it appeared on a law firm's website, particularly since it advises a nonprofit to tell a donor on which line in the 1040 to report income. That flies in the face of everything I've ever learned about nonprofits not giving tax guidance to donors.

    So I looked through my history and found https://michaelrosensays.wordpress.com/2012/01/27/can-a-nonprofit-return-a-donors-gift/ and... it seems like the piece on the law firm's site is heavily based upon, and in some wordings identical, to this blog post. Notably, however, the guidance re the 1099 and the 1040 were not in the blog post. Indeed, Rosen, the author, goes into the issue in the comments, specifically stating that the charity has no obligation to report to the IRS on the returned donation.

    Someone self-representing as attorney Harvey Mechanic then states, in the comments, that "For refunds of donations where a deduction was taken in a previous year, the taxpayer would put that amount on line 21 of form 1040"

    My opinion - not a good look for this law firm, and indeed, I can't find the article on their site anymore. Ultimately, I trust Richard Hammar, a CPA who is probably the top tax adviser to churches and has written dozens of books on this subject, who says orgs don't need to send a 1099. But I don't run anyone's nonprofit, and of course the right thing is to check in with your CFO and your tax and legal counsel. Refunding donations is always complicated.



    Thank you,
    Isaac Shalev
    CRM Expert
    Sage70, Inc.
    (917) 859-0151
    isaac@sage70.com

    Schedule a 30-minute consultation now:







  • 9.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago

    Thank you, all, for your input with this!

     

    Michael Halverson, Ed.D.
    Senior Director of Advancement Services
    Loyola University Chicago
    T. 312-915-7283 | C.
    320-363-4987
    mhalverson@luc.edu | www.luc.edu/advancement

     

     






  • 10.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago
    All very interesting!  Here's another reference.  It seems to go both ways!


    A quick read suggests that if you know that a donor claimed a deduction for the gift, then you should issue Form 1099.  See paragraph #3.

    However, if you do not know this - or suspect the donor only received a "partial" tax benefit, then you shouldn't!

    I do know that at Duke University we frequently issued 1099s.  However, whether and when was not my call - that was determined by Counsel and the CFO.

    Perhaps the correct course of action is when in doubt, let your CFO decide :-).

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987







  • 11.  RE: Question about refunding a gift from a prior tax year

    Posted 19 days ago

    Thank you for the links. Our gift return policy may be out of alignment with this info. I am going to send to Legal and ask them to review.

     

    Aaron

     

    Aaron Forrest CPA

    Senior Director Gift and Donor Services

    University of Rochester Office of Advancement

    Larry and Cindy Bloch Alumni and Advancement Center

    300 East River Road

    Rochester NY 14627

    Office 585.275.2799 / Fax 585-273-4558

    Email aaron.forrest@rochester.edu

     

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