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Wednesday, March 04, 2009

Purim, Gifts, and Tax Law

VIN has decided to post under the title, "New York - Is There A Chiyuv to Give Ma'aser From 'Mishloach Manos'? "

When asked this question, a Rabbi Ephraim Greenblatt answers the following:
". . . saw in a Sefer Uvacharta BaChaim that Rav Chaim Kreiswirth said in
hesped for Rav Yaakov Kaminetzky that Rav Yaakov would report as income and pay taxes on mishloach manos that he received. If so then similarly one should give ma'aser. He concludes by saying that nevertheless the matter needs further research. "

Actually, this needs no further research. When your neighbor brings you a pricey basket filled with overpriced items that you would never purchase yourself, don't start sweating about your Federal 1040. No need to hire an assessor before your children attack the pile of nosh.

The Rabbi is onto something, but he is no tax accountant. There are occasions where Rabbis (and their female counterparts) receive significant gifts on specific occasions that are not gifts, but actually income. Unlike VIN, I'm not going to pontificate about which gifts are income, rather than gifts. Those receiving honorariums for speaking or performing weddings or brit milah and those receiving significant Chanukah gelt should consult a tax practice about what they need to account for. They should also learn what expenses are deductible so they don't blindly go about claiming income and not fully expensing what they can legally expense.

Yashrut needs more emphasis and we are sadly witnessing the terrible consequences of a lack of yashrut (see the latest from Spinka and how extensively the IRS is prosecuting, U.S. Attorney News Release posted at VIN). But, I'm sorry, chatting about the possibility that mishloach manot might be taxable to the average Joe, isn't likely to promote the increase in yashrut that many of us would like to see.

12 comments:

Al said...

A gift, from friends or family, of less than $11,000/year, is generally not taxable. A purim basket is such a gift. A suggested gift when selling Chometz as someone's agent is NOT a gift, it's a fee for services rendered (that's the whole point of the contract)... in common law, the Rabbi takes an action on my behalf in consideration for the money I give him. If I don't give him money, he's not my agent, because there is no consideration. If he acts as my agent for "free" but requires a "gift," well, that's not a gift, that's fee for services rendered.

We can throw all the Yiddish you want in, but if you get a gift < $11k, it's a gift, if you get a "gift" for performing a service, it's income. Barter income is taxable.

Enforcement is another matter, but the legalities are pretty clear.

Ariella said...

OH don't bring up barter. I get so tired of all those people who ask about all the combinations for ad rates for Kallah Magazine and only then declare that they only "pay" for advertising through barter. That is very often the case for not inexpensive restaurants.

Anyway, Sephardi Lady brought up the question of people who get "gifts" for their services. I should think those should be considered just like tips are for waiters and thus subject to income tax. For example, the mohel who demanded $400 nearly 15 years ago for my son's bris was no only taking schar Shabbos -- as the bris was done on Shabbos with no follow-up visit to claim as the basis for the payment. Really, he was raking in what some top doctors charge with no malpractice insurance premiums or reduced fees for medical insurance contracts.

JLan said...

"A gift, from friends or family, of less than $11,000/year, is generally not taxable."

A couple of notes:

1) The exclusion for 2009 is up to $13,000 (it was $12,000 last year, so you're a couple years behind).

2) The exclusion is strictly per person, and does not apply to gifts or transfers between spouses. Therefore, any individual can receive $13,000 from any other individual, or $26,000 from a couple (provided they divide that up properly). Similarly, a couple could receive $26,000 from one individual ($13,000 for each) or $52,000 from another couple ($13,000 from each person to each other person).

Note, however, that I'm pretty sure Ariella is correct in saying that the original post is about gifts in exchange for services, which is a whole different ball game.

And incidentally, Ariella- it's possible that he's relying on preparations done during the week before for taking that money.

Anonymous said...

I am not mekabel the story because without further clarification because of the confluence of 2 "aggadic" statements:
1.Judge Learned Hand -
"Anyone may arrange his affairs so that his taxes shall be as low as
possible; he is not bound to choose that pattern which best pays the
treasury. There is not even a patriotic duty to increase one's taxes.
Over and over again the Courts have said that there is nothing sinister
in so arranging affairs as to keep taxes as low as possible. Everyone
does it, rich and poor alike and all do right, for nobody owes any
public duty to pay more than the law demands."

2.Yaacov Avinu returned for "pachim ketanim" and chazal say from there we learn, "Zaddikim, chavivim aleihem mamonam" - Even pachim ketanim...

So I doubt R' Yaakov would've paid more taxes than legally required by declaring as income something not includable.

KT
Joel Rich

Mike S. said...

Mishloach Manot are gifts not subject to income taxes. If the push the total value of gifts during the year from one person to another over the limit, it is subject to gift tax.

Calling a payment for service a "gift," or part of the required tuition a "donation to the building fund", however does not change its tax status.

Al said...

Jlan, thanks for the reminder... albeit not hugely relevant to many people right now... It spent so long at 10k, I forgot the ramp up period.

Correct, couple to couple transfers of 52k/year are permitted which is a good thing to explain.

My point was the simple point that if you are getting a "gift" in exchange for a service, it's not a gift, it's income. If you are actually getting a gift, it's fine... people are unlikely to get Purim baskets in excess of 13k (or 52k if you treat it as couple to couple), or even the old 10k limit.

It's a silly point, generally phrased in such a way as to hide the myriad of ways in which people hide income calling it a gift.

Lion of Zion said...

ARIELLA:

did the mohel really "demand" the money? (although $400 is a bargain these days, and i'm talking about during the week)
and if he never came back for a follow up, i'd be more concerned about danger and negligence than the halakhic ramifications.

"he was raking in what some top doctors charge"

my friend's father is a urologist and is very resentful about this. as he relates, when he does (medical) circumcisions he makes a fraction of the mohel, even though he went to med school/residency and pays malpractice and other overhead (and taxes).

Anonymous said...

"So I doubt R' Yaakov would've paid more taxes than legally required by declaring as income something not includable."

Agree with Joel Rich-IT SOUNDS LIKE URBAN lEGENDS of GDOLIM.
mycroft

Ariella said...

LOZ, I thought I mentioned how long ago it was. My son just turned 15. When we handed the mohel the cash after Shabbos, we gave the figure he had named earlier. He then said that people ususally give him more for Shabbos.

All he did outside Shabbos was pop in for a minute to glance at the baby on Friday. A few days after the bris, he called me to tell me to take off the bandages -- no follow up visit. Incidentally, I did not choose this mohel. My in-laws hosted the bris and selected this guy. I don't know why when he didn't even live in the neighborhood and so slept over at his daughter's house in that area. I'm sure he was nowhere near Washington Heights --- where we were living at the time and where the follow-up visit should have been. I would advise people in future to only pay in full to the mohel once full services are rendered. Then he has some motivation to do the follow-up in order to pick up his pay. My sister made a whole string of brises; according to her, it is not customary for the mohel to just leave the bandage removal for the mom.

Lion of Zion said...

ARIELLA:

"He then said that people ususally give him more for Shabbos."

this is true. i remember my friend paid telling me was told that a mohel gets double time for a shabbat gig (he paid 1k 6 or 7 years ago)

"according to her, it is not customary for the mohel to just leave the bandage removal for the mom."

i've never heard of a mohel not coming to remove the bandage and check the baby

שבוע טוב

Anonymous said...

"i've never heard of a mohel not coming to remove the bandage and check the baby"

In my sons case-but frankly. the mohel let us know in advance that he was going to Israel a couple of hours after the bris-and he suggested that I ask a certain physician friend of mine to take care of removing the bandage and cheching the bris which I did.

mycroft

Anonymous said...

"My point was the simple point that if you are getting a "gift" in exchange for a service, it's not a gift, it's income. If you are actually getting a gift, it's fine... people are unlikely to get Purim baskets in excess of 13k "

True-very little if anything that a congregant gives his Rabbi or his childs teacher or Rebbe is anything but income to the recipient. In rare circumstances theri might be a gift-if the Rav or Rebbe is getting married-a wedding gift may be a gift etc.
BTW-a gift is never taxable to the recipient-the exclusion amounts quoted are how much one can give as a present interest to a recipient during the year without hte donor having that amount count towards the unified transfer credit amount-that can be used up either as gifts during lifetime or as estate transfers post mortem. But that is only when talking about a gift-IMHO the vast majority of transfers to employees are not gifts. Check with your tax adviser.
mycroft