Taxable Income ?

[Colonel_Buck]

There was a story in the paper last week about a guy that bought a house and found $45K in cash in a suitcase in the attic. Since the previous owner of the house had died, he gave the money to the previous owner's son. OK, fine ... I don't know that I would have been that generous, but ... whatever ...

My questions are:

1) Is the $45K taxable income to the guy that found it? Can he take a charitable contribution deduction for giving it to the son?

2) Is it taxable income to the son to whom it was given? Could it be considered an inheritance from the father?

[Gregg]

I'd take the position that it was property of the previous owner left by mistake, and returned to his family. Unless his estate was large enough to be taxable no taxable event occurred.

If it was me and I didn't return the money, I'd argue that it was part of what i got when I purchased the house, although I wouldn't count on getting the IRS to go along with it and would be prepared to pay the tax on it.

Your mileage may vary.

[Noah]

I'd take the position that it was property of the previous owner left by mistake, and returned to his family. Unless his estate was large enough to be taxable no taxable event occurred.

If it was me and I didn't return the money, I'd argue that it was part of what i got when I purchased the house, although I wouldn't count on getting the IRS to go along with it and would be prepared to pay the tax on it.

Your mileage may vary.

Gregg you are a optimist.... if the 45K is reported and all the facts are known by the IRS they will tax it twice.

Once as abandoned property and once as a gift. The flip side will be whatever two tax attorneys can come up that MAY be successful in Tax Court....

[LPC]

My questions are:

1) Is the $45K taxable income to the guy that found it?

Maybe. As discussed before in this forum (and I'm not going to search to provide a link), there are regulations that say that "treasure trove" is income.

However, it's possible that the son might have had a claim for the cash on the grounds that the cash was not part of the house and not intended to be included in the sale.

My sense is that the IRS takes a rather liberal view of these things, and is willing to treat settlements between unrelated (and somes related) parties as the parties themselves treat them when the law or the facts are uncertain. So if the new owner believed that the seller was legally entitled to the money, I don't think that the IRS would challenge that belief and try to impose an income tax (and then gift tax) on the owner.

Can he take a charitable contribution deduction for giving it to the son?

No. A charitable deduction is only allowed for a gift to a charitable organization or charitable trust. A gift to an individual could never qualify as a charitable gift.

2) Is it taxable income to the son to whom it was given?

No, it's either a gift from the purchaser or an inheritance from the father, and neither of those kinds of receipts are included in gross income.

Could it be considered an inheritance from the father?

Yes, it could be. And in Pennsylvania, there would be an obligation to report the found property as an additional asset and pay the inheritance (which for a transfer from parent to child would be 4.5%).

[Judge Roy Bean]

The $45K should have been part of the deceased's estate and divided among the heirs.

As such, IMHO, it is not taxable to the buyer of the house but In this case, the estate will have to be reopened and if it's sufficiently large, death taxes may be due.

This is the equivalent of you finding a bag of cash on the street and turning it in to the proper authorities or finding a wallet and returning it to the owner. You can't be held liable for income taxes on such amounts.

[Brian Rookard]

Seems to me it would be a lot easier to very quietly give the money back to the heirs with the silent understanding that it is like Fight Club.....you don't ever freaking talk about it - all $30,000 you give back to the heirs.

I see nothing!