GET YOUR CHARITABLE RECEIPTS NOW!

Anyone who made a charitable contribution of $250 or more in 2005 should be checking to make sure they received back a qualified receipt from the charity. Without that receipt, the charitable deduction will be denied, even if other proof of payment is offered.

And you can't afford to wait until audit to get the receipt - the receipt must be obtained by the earlier of when you file your income tax return or the due date for the return.

How do you know if your receipt is in correct form? The receipt should contain the following information and statements:

(1) the amount of cash and a description (but not the value) of any property other than cash contributed;

(2) whether the donee organization provided any goods or services in consideration, in whole or in part, for the contribution;

(3) a description and good-faith estimate of the value of those goods or services, or, if the goods or services consist entirely of intangible religious benefits, a statement to that effect.

Most public charities will provide you with these receipts without request, but they may not all be on the ball and you may need to request one. Further, if the contribution is to a family-controlled charity, you will need to issue one through the charity. Note that contributions to split-interest (charitable lead and charitable remainder trusts) generally do not require this receipt.

Does the IRS get into the nitty-gritty of whether a receipt contains all the required information? Ask Betty Kendrix. She recently lost a case in Tax Court where some of her receipts did not include all the required language and thus was not allowed a charitable deduction. Betty Kendrix v. Commissioner, TC Memo 2006-9.

STATUTORY MERGER DEFINITIONS MODERNIZED

Under the Internal Revenue Code, the reorganization provisions generally allow corporations to merge or combine without incurring income tax. The nontax treatment generally also applies to the shareholders of the corporations who may be exchanging stock of one corporation for another as part of the transaction. These provisions are an exception to the general tax rules that provide when a taxpayer exchanges property with other property, this is treated as if the property they are giving up has been sold for the value of what is received.

One type of "reorganization" that qualifies for this treatment is an "A" reorganization (named after Code Section 368(a)(1)(A), which generally provides for nonrecognition in regard to "statutory merger" transactions). In regulations issued this week, the Treasury Department has modernized the definition of what type of mergers qualify as an "A" reorganization.

Some important provisions of the new Regulations include:

-provisions that corporate combinations involving a "disregarded entity" under the Code (e.,g., single member LLCs which have not elected to be taxed as an association) will not qualify as an "A" reorganization.

-clarification that the acquisition of control of one corporation by another, and then an election of the acquired entity to be a disregarded entity, while in substance similar to an "A" reorganization since all of the assets of the target end up owned by the acquiring corporation for income tax purposes, does not qualify for "A" reorganization treatment because the target entity does not cease its separate legal existence under local law (although the IRS may revisit this issue in the future).

-a combination transaction between a corporation and a partnership may give rise to "A" reorganization treatment where the resulting entity ends up as a disregarded entity owned by another corporation.

-combinations or amalgamations of corporations into one "new" corporation can qualify for "A" reorganization treatment.

Treas.Regs. Section 1.368-2(b), as finalized.

DID YOU MISS THE SALES TAX DEDUCTION?

The Treasury Department is reporting that many taxpayers who could have benefited from deducting state and local sales taxes did not do so on their 2004 federal income-tax returns. The deduction allows taxpayers to choose to deduct either their state and local income taxes or their sales taxes. In calculating the deduction, taxpayers can use their actual receipts, or they can figure the amount using Internal Revenue Service tables, plus the actual taxes they paid on motor vehicles, boats and certain other items. It is estimated that 1.1 million taxpayers were eligible to take the deduction, but did not.

Thefore, make sure you take the deduction on your 2005 return, and if you were eligible to take it on your 2004 return but did not, it is not too late to file an amended return to obtain a refund of tax.

The deduction has not been renewed by Congress for 2006, but there is hope that Congress may act to extend it.