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ben-garrison
New Member

If I give money to a friend and ask them to donate it, can they take a tax deduction?

I donate more than the 50% limit every year, and my donations over 50% are no longer tax-deductible. I figure if I can't get a deduction, somebody else could.

Also,

Yes, I know I have to abide by the gift limit of $14,000 per person per year.
Yes, I know that no part of it is tax deductible for me, and would not ask them to give the tax deduction back to me.

--
edited for clarity (that this is an ongoing situation, not just for this year)
1 Best answer

Accepted Solutions
Howard1948
Level 7

If I give money to a friend and ask them to donate it, can they take a tax deduction?

The answer to your question is a little bit complicated.

Can you do what you suggested and have your friend get the deduction (assuming that your friend itemizes deductions and does not exceed the same 50% limitation)?  Yes.  What you suggest is not illegal as far as I know.

There is a concept in tax law known as a "sham" transaction.  There is another known as a "structured" transaction. Both involve one or more actions which are designed to yield a specific tax outcome but are not truly arms-length transactions between unrelated parties.  Should the IRS become aware of what you are doing, they could assert that your actions fit one or both of these transactions and disallow the deduction to your friend.  On the other hand, since the beneficiary is a charitable organization, they could decide to look the other way.  Just understand that the ultimate outcome cannot be determined unless and until the IRS becomes aware of all the events, as unlikely as that may be.

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4 Replies
Howard1948
Level 7

If I give money to a friend and ask them to donate it, can they take a tax deduction?

Do you realize that you can carry forward to future years the excess of donations over the 50% limit?
ben-garrison
New Member

If I give money to a friend and ask them to donate it, can they take a tax deduction?

Yep! I've donated 50% every year since I started working, but now I make enough (and paid off my house) such that it's going to keep building up, and I'd rather donate it.

Thanks for pointing that out - I've updated the question to clarify it.
Howard1948
Level 7

If I give money to a friend and ask them to donate it, can they take a tax deduction?

The answer to your question is a little bit complicated.

Can you do what you suggested and have your friend get the deduction (assuming that your friend itemizes deductions and does not exceed the same 50% limitation)?  Yes.  What you suggest is not illegal as far as I know.

There is a concept in tax law known as a "sham" transaction.  There is another known as a "structured" transaction. Both involve one or more actions which are designed to yield a specific tax outcome but are not truly arms-length transactions between unrelated parties.  Should the IRS become aware of what you are doing, they could assert that your actions fit one or both of these transactions and disallow the deduction to your friend.  On the other hand, since the beneficiary is a charitable organization, they could decide to look the other way.  Just understand that the ultimate outcome cannot be determined unless and until the IRS becomes aware of all the events, as unlikely as that may be.

ben-garrison
New Member

If I give money to a friend and ask them to donate it, can they take a tax deduction?

I suppose I was thinking that as long as it's genuinely a gift (i.e. they can do with it what they want), and I'm just suggesting what they could do with it, that it wouldn't count as a sham transaction. But, from looking at articles on it now (I didn't know the right technical term until you used it), it does seem like it's up to the IRS to define it, so I can't really be sure.

Thanks for answering! Super helpful.

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