Discussion:Charitable Deduction or Non-business bad debt
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Discussion Forum Index --> Tax Questions --> Charitable Deduction or Non-business bad debt
Pframpton60601 (talk|edits) said: | 30 December 2008 |
| My client gave over (prepaid) $30,000 to a qualified 501c for 12 months worth of tuition for his son. The son attended 2 months worth of classes and then withdrew. The organization did not return the money, even when approached via legal means. The client then let them have the remainder of the cash.
If my client gave the qualified organization the money in return for certain services, services which were then not performed. Would this qualify as "non business bad debt"? Or would the 10 months where tuition was paid but no service was obtained in return qualify as a "charitable contribution"? Would the client need to get another written acknowledgement from the qualified organization stating that 2 months were tuition while 10 months were where no services were provided. In essence, 2 months of benefits were obtained, but 10 months (amounting to $25,000) of benefits were not. Which way should I go with this? Thanks! | |
| 30 December 2008 | |
| your client is just out the money - no extra deduction is allowed | |
| 30 December 2008 | |
| I'm assuming this was a private school? My child attends one as well and it is usually stipulated in the contract that you sign whether or not the money will be refunded after classes start or not. And then it is at the discression of the school --IOW -- if the child was expelled...the school's policy is probably to not refund the money period...they were doing their job, the child was not doing his...not their fault.
Therefore -- not a deduction. | |
Justin2271 (talk|edits) said: | 30 December 2008 |
| I'm not sure that I would immediately blow this off.
If you gave $100 to a charity for an auction, but the actual value of the goods received was only $25, then you would qualify to deduct $75 as a charitable donation on your tax return. Why would this not be the same? I certainly wouldn't take the deduction unless you could get something written from the organization though. | |
Death&Taxes (talk|edits) said: | 30 December 2008 |
| Slight difference. You knew you were overpaying for the item at the auction; here you paid for 30K of education, but blew it off yourself. | |
| 30 December 2008 | |
| I agree with D&T, but I would want to see the contract before I gave up completely. | |
Death&Taxes (talk|edits) said: | 30 December 2008 |
| Curious phrasing: "The organization did not return the money, even when approached via legal means. The client then let them have the remainder of the cash." Now that can be construed to mean, 'we know we are going to lose if we sue, so why waste the money? we don't have any proof to show the school caused the boy to drop out.' | |
| December 31, 2008 | |
| I think in most cases schools have a no-refund policy when students voluntarily withdraw. The reason is that they have already made commitments to teachers, purchased supplies, made downpayments on excursions, etc. for the full school year. I would guess no contribution is involved here -- the full amount is tuition and fees unless the contract says otherwise. | |
Justin2271 (talk|edits) said: | 31 December 2008 |
| Some good points people are bringing up. I would agree that the full amount is tuition and fees. | |
| 2 January 2009 | |
| Get a judgment in a court of law, then claim a bad debt when collection of the judgement appears to be impossible. | |
| January 2, 2009 | |
| Pframpton, did your clients happen to have tuition protection insurance? If so, they may be able to get a refund through the insurance.
And what were the legal means used to try to get a refund? | |
| January 2, 2009 | |
| Riley, let's assume that the contract is clear that the tuition is nonrefundable if the child withdraws voluntarily, and let's also assume that it was a voluntary withdrawal. How likely do you think it would be to get a judgment against the school? | |
Pframpton60601 (talk|edits) said: | 2 January 2009 |
| Thanks everybody. Some great points and things to think about.
I want to give you some more facts. The withdrawal from the school was involuntary. The school was shut down due to violation of state laws and was reopened a month later. Since my client did not want their child's education to suffer, they enrolled them in another school (which was more than happy to take kids from this school). When approached about a possible refund, the school denied. My clients' attorney discussed the matter with the school and advised my client that the costs would be more than what would be recovered from the school (assuming it went all the way to trial). And since this is Florida, attorney costs would have to be paid by the client not the defendent. I like Riley2's thought about a judgement and claiming bad debt. Any other thoughts, in light of this additional information would also be appreciated. Happy 2009 all!! | |
| January 2, 2009 | |
| Well, that certainly is a different matter. How did they pay the tuition? If via credit card, is there any chance they could dispute it? I take it there was no tuition protection insurance. | |
| 2 January 2009 | |
| I love the way the facts keep changing. Makes me wonder if Frampton is making this up as we go along <G>. | |
Tonymontana (talk|edits) said: | 2 January 2009 |
| I think he came to my office last year trying to pass his pet rock as a dependent.
When I told him pet rocks were not deductible. The pet rock magically became a person, than a child, then his child. No sarcasm here. | |
| 4 January 2009 | |
| Natalie -- there is a such thing as tuition protection insurance? I would be interested in that... and like tony says I have seen that client as well...the situation changes as they find out that they don't qualify to get it to where they do qualify (Or at least they think that it does qualify). | |
| January 5, 2009 | |
| Yes, Laticia. Some schools offer it when students enroll. The premiums I've seen are about $200 - $400 per year. In a case such as the one noted above, the parents probably could have gotten 60% - 75% of the remaining tuition back. | |
Pframpton60601 (talk|edits) said: | 12 January 2009 |
| Apologize if this seems like a change of facts, which it is not. Simple facts - child was withdrawn from school (due to pressing circumstances). Lawsuit was not a good economic outcome. There was no tuition protection. The tuition was paid via cashiers check. 2 months of school was attended while 10 months were lost due to enrollement at another institute (i.e., client paid tuition again for this new school). The student is now enrolled in this new school and will be completing it this summer.
Is the tuition paid to the old school lost and can no write-offs be obtained??? | |
| January 12, 2009 | |
| Pframpton, what does the contract say? I would guess that the tuition paid is tuition, even when the student withdraws. That would mean it is not a bad debt nor a charitable contribution. | |
Death&Taxes (talk|edits) said: | 12 January 2009 |
| They've made a personal decision; it certainly was not their intent to make a charitable contribution so I don't see how any amount of wishing can make that so. As for the No-business Bad Debt, apparently they had little grounds for suit [else perhaps an attorney would take it on a contingency] so I don't see how they could win on this either. | |
| 12 January 2009 | |
| I agree with D&T. To make a charitable contribution, there must be donative intent. It does not appear that donative intent can be shown. However, you state that the school was closed by the state. In that case, I would think Riley's assessment of probability of winning might go up, since it would seem to be a breach of contract. Absent a court judgment, however, I don't believe your client will be able to claim a bad debt loss because a valid debt does not yet exist. So you are back to assessing the costs of a lawsuit against the possible benefit to be obtained. | |
| January 12, 2009 | |
| Jdugan, the school was only temporarily shut down. My guess is that they fixed whatever violations there were and continued on. In addition, I would also guess that they made arrangements to continue the school year beyond the planned last day of school to make up for the time it was closed. If that's the case, I don't think there would be any significant increased chance of winning a judgment against the school. | |
Pframpton60601 (talk|edits) said: | 13 January 2009 |
| Natalie, you are correct. The school did make up for the closed time and claimed to have rectified the issues. This was the reason the attorney did not think a suit would be successful. Thanks everybody!! | |
