Paul L. Caron
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Thursday, December 1, 2011

Tax Exam Question: 80-Year Old Man Donates Suit to Goodwill With $13k Life Savings Sewn Inside Lining


An 80-year-old Illinois man mistakenly donated an old suit to Goodwill with his $13,000 life savings sewn inside the lining. (He kept the savings in the suit because he did not trust banks.) He is offering a $1,000 reward for the return of the money, which he needs to help care for his wife, who is battling stage-four cancer.

Question: Discuss the income tax consequences of these events.

https://taxprof.typepad.com/taxprof_blog/2011/12/tax-exam.html

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Some thrifty shopper may get a great bargain at an Illinois goodwill store: The 80-year-old man, whose name isn’t being... [Read More]

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Comments

The tax consequences to the buyer of the suit would be under the treasure trove analysis found in Cesarini v. US. The $13k would simply be gross income to the buyer of the suit.

Posted by: Anon | Dec 2, 2011 1:12:39 PM

At his age, he probably doesn't have sufficient taxable income to be required to file a tax return. Anyway, there aren't enough facts on that end to make a comment. As far as convincing the IRS that he had thirteen grand in cash in the suit...good luck. You didn't say if Goodwill acknowledged their windfall, so many assumptions are possible. I think the poor guy is out of luck and has learned a hard and expensive lesson.

Posted by: Gustav | Dec 2, 2011 8:22:10 AM

I can understand people of his generation not trusting banks, especially after the Great Depression. It's sad.

The money would be a Sch A casualty loss if he has reasonable proof, but it probably wouldn't help on taxes after all the limitations are computed. But, the good news is that, if he itemizes, he can deduct the thrift store value of the suit!

Posted by: Woody | Dec 1, 2011 10:17:50 AM

Would the purchase of the suit, and its contents, and subsequent return to the man constitute a gift of $13,000 + the cost of the suit? Or part sale/part gift?

Posted by: ST | Dec 1, 2011 9:40:31 AM

While this exam question may seem cute, no client will ever pay for tax advice of this kind. If this question is yours, please do your students a favor and give them a realistic fact pattern that they might actually face from a paying client in practice, whether it be as a solo practitioner or at a firm. You should tap current practitioners for the issues the are facing everyday, which is never something like this. Love your blog, but this exam question and others like it do a disservice.

Posted by: Anon | Dec 1, 2011 8:12:24 AM

Will the $1,000 reward be paid from the $13,000?

Posted by: Shag from Brookline | Dec 1, 2011 3:22:53 AM

Median national salary for associate professor of law: $110,000

Salary of Goodwill of the Heartland CEO: $137,000 plus $29,000 in benefits.

Discuss personal tax consequences of your school opening a thrift store to sell used clothes.

Posted by: Bob | Dec 1, 2011 3:00:46 AM