ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, July 15, 1996 TAG: 9607150011
SECTION: MONEY PAGE: A-8 EDITION: METRO
COLUMN: Money Matters
SOURCE: MAG POFF
Q: Earlier this year, my wife and I lost our home and all its contents, including all our tax records. The home and contents were uninsured. Can I claim as a casualty loss for tax purposes on the house or the contents? This home was part of my wife's parents' farm that we purchased for $90,000 in 1981.
Through the kindness of friends, family and several churches, we have received several thousands of dollars in money, food and goods. Is this taxable income?
What is the procedure if I am audited by the Internal Revenue Service since I have no receipts, records or tax papers covering the last 23 years? My wife and I are both self-employed farmers, and my taxes were due and filed for this year on March 1, 1996, before the fire.
A: Harry Schwarz, a certified public accountant with the Roanoke firm of Schwarz & Co., said you can claim a casualty loss for your home and its contents when you file your tax form for this year. (Your loss was through a fire, but anyone who suffered a loss through a government-declared disaster, such as a flood, also has the option of amending a 1995 tax return to claim the loss during this year.)
The food, cash and goods you received are not taxable income because they were gifts, Schwarz said. Any person can give any other person cash or other gifts up to $10,000 without tax consequences on either side, he said. Presumably no one gift exceeded that amount. Of course, the people who gave you these gifts cannot claim a tax deduction either because you are not a charitable organization.
If you are audited by the Internal Revenue Service, Schwarz said, you will have to explain the fire and then do the best you can. You can, for instance, obtain copies of credit card charges and checks from your bank. You can substantiate the value of your home, for instance, from real estate deed and tax records at your county courthouse. You must recreate your records from the best possible sources.
No time limitation on will probation
Q: Is there a statute of limitations on probating a will?
A: Clark H. Worthy, a tax and estate attorney with the Roanoke law firm of Woods, Rogers and Hazlegrove, said he knows of no statute limiting the time allowed for producing and probating a will. Nor is there a time limitation on probating a later-discovered will that is dated after one that already has been probated.
In order for a personal representative under a will to protect himself or herself against the probate of a later-discovered will, the personal representative should utilize the debts and demands and show cause against distribution procedures which culminate in an order of distribution entered by the circuit court.
There is one statute of limitations protecting parties in a real estate transaction involving an estate, Worthy said.
If a person sells property as a personal representative, as a beneficiary under a will or as an heir at law, and a later-discovered will passes title to the property to someone other than the seller, the property sale may be reversed - but only within one year from the date of the decedent's death.
After a year has passed, Worthy said, the property sale is final as to a bona fide purchaser who had no knowledge that the title to the property actually passed to one other than the original seller.
Credit unions and common bonds
Q: My understanding is that federal credit unions pay no income tax. Is this true? How do they stretch the common bond? I'd like to know how the common bond situation works.
A: You sound like a banker. Bankers have long expressed grievances against credit unions because of the two factors you mentioned.
Jerry Karbon, spokesman for the Credit Union National Association in Madison, Wis., said Congress exempted credit unions from federal and state income taxes in 1937 to allow them to "thrive and grow."
He said bankers try every year to repeal the exemption.
Banks are in business to earn a profit for their shareholders, Karbon said. Credit unions, on the other hand, are owned by their members. Profits are returned to members in the form of lower fees, higher rates and services. He said this distinction in ownership and control is important in considering taxation.
Credit union members traditionally had to have a common bond, such as working for the same company or belonging to the same church. Karbon said this is expanding as credit unions add employee groups or even entire communities. "The world has changed," Karbon said, and credit unions are changing with the times.
Expansion of the common bond, he said, protects credit unions that serve a shrinking or downsizing industry.
Karbon contended that credit unions are little threat to banks. Banks, he said, face greater competition today from companies entering the financial services industry or expanding their range of services, such as AT&T; Sears, Roebuck & Co.; and Merrill Lynch.
The NW Employees Federal Credit Union is an example of a credit union stretching its common bond as the railroad's own employment has diminished.
Dick Williams, head of the Roanoke-based credit union, said it now serves 260 designated groups by adding such businesses as Shenandoah Life Insurance Co. which formerly did not have a credit union. Such businesses must be within 25 miles of the credit union.
The NW credit union pays only personal property tax to local governments.
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