Tax Court Rules Officer Can Deduct Charitable Contributions Paid by Corporation

Sept. 26, 2013

The Tax Court recently ruled that a corporate officer may deduct charitable contributions paid by his corporation on his behalf.

Larry Zavadil, CEO of an S corporation, directed the S corporation to make several charitable contributions on his behalf during 2004 and 2005. Zavadil was able to provide evidence that he repaid the S corporation for some, but not all, of the charitable contributions.

In Zavadil v. Commissioner of Internal Revenue, the Tax Court treated Zavadil’s S corporation as his agent in making charitable contributions even though the S corporation made the contributions. Zavadil’s prompt repayment of the charitable contributions provided sufficient evidence of an agency agreement. The court held in favor of the IRS where Zavadil could not produce any evidence of repayment.

Although this case resulted in a generally taxpayer-favorable ruling, it demonstrates the importance of separating business and personal financial matters. Zavadil was able to support a significant portion of the deductions claimed on his personal tax return, but not without a substantial time and money investment. Businesses should take care to enter into transactions with officers and owners using the same procedures as they would with any unrelated third party.
 
 

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David Holets
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Howard Wagner
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