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Post by davidc on Apr 27, 2011 12:45:57 GMT -5
The taxpayer has a natural gas lease paying a monthly royalty. The taxpayer is a few years away from retirement and doesn't need the current income so he is going to sign over the royalty payments for a set period of years to a charity. The charity will be getting the payments directly from XTO as well as getting the year end 1099. So my question is whether this could be deducted. My read of pub 561 says no but I'd love to be educated otherwise.
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Post by nancy65 on Apr 27, 2011 14:14:35 GMT -5
My opinion is that if he doesn't get the income, he doesn't get the deduction.
His "deduction" is that he doesn't have to pay tax on income he didn't receive.
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mwcpa
Senior Member
Joined: Jan 7, 2011 6:35:43 GMT -5
Posts: 2,425
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Post by mwcpa on Apr 27, 2011 18:16:44 GMT -5
does the taxpayer retain the ownership of the gas well..... many cases on the subject here....
you cannot separate the fruit from the tree....there seems to be an assignment of income issue....the Lucas case from all so long ago...
it's his income and then he gets a charitable deduction if the charity is a qualified one and he meets all of the other technical requirements....
do a google search for "assignment of income to charity" and you will get a ton on why this does not work....
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Post by commentator on Apr 27, 2011 19:46:05 GMT -5
I believe mwcpa is correct. The taxpayer gets both taxable income and a charitable deduction IF the charity is a qualified one and IF the taxpayer itemizes.
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rangerj
Junior Member
Joined: Jan 21, 2011 13:39:35 GMT -5
Posts: 242
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Post by rangerj on Apr 28, 2011 9:25:50 GMT -5
In addition to the above, the donation deduction will be limited to 20%, 30%, or 50% of AGI depending on the recipient organization. The assignment of the income would bypass these rules as well. The income has to be reported and then deducted to the extent allowed by code.
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Post by davidc on Apr 28, 2011 9:59:40 GMT -5
Thanks for setting me straight. I was assuming this wasn't allowable because of the incomplete interest not because of the assignment of income. Am I correct that if the taxpayer gave the entire lease permanently that both of these issues would no longer apply? I realize an appraisal would be required for form 8283.
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Post by commentator on Apr 28, 2011 10:23:23 GMT -5
Yes, if the entire interest were donated (ownership transferred to the charity) a deduction of the fair market value would be available (assuming the taxpayer's interest is at least a year old). Yes, an appraisal is likely to be needed.
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mwcpa
Senior Member
Joined: Jan 7, 2011 6:35:43 GMT -5
Posts: 2,425
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Post by mwcpa on Apr 28, 2011 10:25:40 GMT -5
if the ownership of the well is given to the charity then the value of the well may qualify as a charitable gift... yes, a qualified appraisal is needed.... if you intended to get back the well in the future from the charity the value of the gift may be diminished significantly.
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