Did we just find a big effing hole in the 1%er's tax policy??? Read this ...

[elehhhhna]

From the CGI statement yesterday

"The reporting requirements on our tax forms, called 990s, can be misleading as to what is actually going on. Here’s why. When someone makes a multi-year commitment to the Foundation, we have to report it all in the year it was made. In 2005 and 2006 as a result of multi-year commitments, the Foundation reported a surplus of $102,800,000 though we collected nowhere near that. In later years, as the money came in to cover our budgets, we were required to report the spending but not the cash inflow. Also, if someone makes a commitment that he or she later has to withdraw we are required to report that as a loss, though we never had the money in the first place and didn’t need it to meet our budget. In other words, for any foundation with a substantial number of multi-year commitments, the 990s will often indicate that we have more or less money than is actually in our accounts."



WTF? This is ENRON accounting and makes no sense. Does the multi-year commitment entity DEDUCT the whole promised amount in the first year? If so this is lends itself to tax fraud. BIGTIME. Take the deduction then maybe pay them over the years? WHAT COULD POSSIBLY GO WRONG?!!!

[dems_rightnow]

1. They deduct they contributions as they are paid

They don't get an immediate deduction for a multi-year commitment.

[elehhhhna]

2. This is true for individuals but is it so for trusts and corp. entities?

I'm googling and it seems obscure to say the least -- and why would the charity report income it doesn't have? Makes no sense. What biz besides Enron reports income it has not received?

[Igel]

6. It's an asset and has to be reported as such.

And since it's a change, it has to be a capital gain or loss, or income or expense.

Whether private or non-profit, as soon as you're due some money it's booked as income. It remains an asset until it's written off as a loss or expense.

As an asset, it can be borrowed against or contribute to a non-profit's stability. It allows the non-profit to plan for the future with some certainty, even if they know from experience 20% of the donors renege.

Let's say you're University of Clearly Large Assets and somebody just pledge $30 million over 5 years, $6 million a year. That's an asset and it's booked as a receivable. They don't pay, it's bad debt that you have to write off. As they pay cash, it goes from receivable to cash.

Let's say you're sales for Urban Banana Republic and make a sale--$10k in codpieces. The store pays on terms--30 days, perhaps. You book that $10k as income when the clock starts ticking, perhaps upon shipment. It's a receivable. When the cash comes it you move it out from receivables to cash on the asset sheet, but the cash isn't income. The income was booked when you issued the bill.

Then, if the store doesn't pay or return the merchandise you have a bad debt and eventually have to write it off, otherwise your asset sheet is bloated and entirely misleading.

Note that for the business it's not an expense until they pay. Just as for the tax payer it's not a deduction until they pay. (I think an exception may be certain tax-sheltered funds that you can contribute today and pay later, but the money is then beyond reach for your personal use.)

[tularetom]

3. Maybe not

Also, if someone makes a commitment that he or she later has to withdraw we are required to report that as a loss, though we never had the money in the first place and didn’t need it to meet our budget.

If I make a "multi year commitment" and then later renege on part of it, the foundation will report the fact that I have reneged to the IRS who will then presumably examine my returns to see if I have eliminated the deduction for whatever part of the commitment I never actually made.

I suppose if a wealth donor wanted to scam the IRS they could simply make a side deal with Clinton's foundation to not report the withdrawal of the multi year commitment, but just based on what Clinton has written, it appears as though the government has that eventuality covered.

[AnotherMcIntosh]

5. "the foundation will report the fact that" someone "reneged to the IRS"? Really? On what form

do they report this? The IRS has every common event. Can you point to a reneged-type form?

[tularetom]

7. I didn't say that, I was quoting Clinton's own words

It would be possible for the Clinton foundation simply not to report the fact that the donor reneged on the multi year commitment.

Of course if this was discovered the donor as well as the foundation would be in extremely deep kimchee. If the Clinton Foundation is stupid enough to go along with one of their donor's lying to the IRS, they deserve whatever they get.

[AnotherMcIntosh]

8. I'm sorry.

I thought that certain words went beyond what was being attributed to another person such as Clinton.

Specifically,

"If I make a "multi year commitment" and then later renege on part of it, the foundation will report the fact that I have reneged to the IRS who will then presumably examine my returns to see if I have eliminated the deduction for whatever part of the commitment I never actually made."

[Jim Lane]

9. This would never arise, because the donor can't deduct a promise.

If you, as an individual taxpayer (all or virtually all of whom are cash-basis rather than accrual-basis taxpayers), make a multi-year commitment, and try to deduct the whole thing in the year of the commitment, the deduction will be disallowed, whether or not you renege.

Example: In January 2012 you pledge to give the Groundhog Foundation (a charitable organization) $10,000 every February 2 for the next ten years. You make the donations on February 2, 2012 and February 2, 2013. In March 2013 you file your 2012 return. The allowable deduction is not the $100,000 of your pledge and it isn't even the $20,000 you've already contributed. It's the $10,000 you actually contributed in tax year 2012. There'd be no need for the charity to report any "default" to the IRS because it wouldn't be relevant.

If, on your return for 2013, you try to deduct the next $10,000 payment, that's a legitimate deduction if you made the promised payment and straightforward tax fraud if you didn't.

[Mnemosyne]

4. It's the republicant way, loopholes. nt

[Egalitarian Thug]

10. Welcome to the morass of idiocy that is the U.S. Tax Code. n/t