Can a $100,000 be a itemized deduction, if given for a reward?

Question

This lady son was killed and she gave the police station $100,000 reward to the informant. She wants to know if she can itemized the $100, 000 on her tax returns?

Answer 1

I'm an accountant. I doubt it. It's not a charitable contribution and it's not a legitimate business expense.

Answer 2

I'm sure this question was asked as it is used as an example problem in the Federal Taxation text book. Yes it can be itemized. Jeff's answer is correct. I also thought it could not be at first due to the consideration and the fact that her motives were not of disinterested generosity. However when the funds are contributed to a qualifying organization, which the police department is, then all of this stands true:

Rev. Rul. 74-246, 1974-1 C.B. 130, concerns an organization that makes funds available to a police department to assist the department, as a regular part of its operations, in offering rewards for information leading to the apprehension and conviction of persons engaging in criminal activity within a particular community. The revenue ruling states that providing funds to enable a police department to perform its regular duties assists the government in carrying out its function.

The establishment of the reward in this case helps the police department of CI maintain the public safety and assists it in carrying out its governmental functions. Therefore, the reward serves an exclusively public purpose and any benefit B receives from the conviction of A's killer or killers is incidental in comparison to the benefits accruing to the public at large.

Answer 3

The basic principal behind a person's ability to deduct an amount from income reported for income tax purposes is that the expenditure has to be laid out for the purpose of earning taxable income. In order for any other payment that does not meet this basic principle to be deducted there has to be a specific legislative allowance. The ability to deduct charitable donations is a case in point. These payments are not laid to earn income however the Canadian Income Tax Act permits such deductions within certain limits.

The only way reward money could possibly become an income tax deduction is if you could link this payment with a subsequent source of taxable income.

Although this is an outlandish analysis I think it re-enforces the point. Say for instance the reward resulted in an arrest which permitted the person providing the reward money with the ability to successfully sue the perpetrator. We will also assume for the purposes of this analysis that the money received from the lawsuit is subject to income tax (which it is not). If such was the case, then the reward would be a deduction in computing how much of the money received as a result of the legal action was subject to tax.

In conclusion, the short answer to your question is unfortunately there is no income tax relief for such payments.

Please express my condolences to your friend I can't imagine how difficult it must be to lose a child in this way.

Answer 4

Revenue Rulings,Rev. Rul. 81-307,,Internal Revenue Service,(Jan. 1, 1981)

Rev. Rul. 81-307, 1981-2 CB 78, January 1, 1981.

Section 170.—Charitable, Etc., Contributions and Gifts

26 CFR 1.170A-1: Charitable, etc., contributions and gifts; allowance of deduction.
[IRS Headnote]

Charitable contributions: reward money to a police department.– A contribution of reward money by a parent of a murdered individual to the policy department of a political subdivision for information leading to the conviction of the murderer is for exclusively public purposes and is deductible under section 170 of the Code.

[Text]
ISSUE

Is a contribution of a reward, as described below, deductible under section 170 of the Internal Revenue Code?
FACTS

A was murdered in 1980. B, A's parent, contributed 10 x dollars to the police department of CI to be used as a reward for information leading to the conviction of A's killer or killers. If the money is not used to pay the reward, the police department will use the money for exclusively public purposes. CI is a political subdivision described in section 170(c)(1) of the Code.
LAW AND ANALYSIS

Section 170(a)(1) of the Code allows as a deduction any charitable contribution made during the tax year.

Section 170(c)(1) of the Code defines a charitable contribution as a contribution or gift to or for the use of a state, a possession of the United States, any political subdivision of a state or possession, the United States, or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.

Rev. Rul. 67-446, 1967-2 C.B. 119, holds that contributions are for “exclusively public purposes” when made to a city to enable it to provide railroad companies with new facilities outside the city in exchange for the railroads' removal of their inner-city facilities and relinquishment of their right of way through the city. The revenue ruling states that although merchants and owners of property in the city who make contributions may receive some benefit from the removal of the railroad facilities, any benefit is incidental in comparison to the benefits accruing to the public at large. See also: Rev. Rul. 79-323, 1979-2 C.B. 106; and Rev. Rul. 69-90, 1969-1 C.B. 63.

Rev. Rul. 74-246, 1974-1 C.B. 130, concerns an organization that makes funds available to a police department to assist the department, as a regular part of its operations, in offering rewards for information leading to the apprehension and conviction of persons engaging in criminal activity within a particular community. The revenue ruling states that providing funds to enable a police department to perform its regular duties assists the government in carrying out its function.

The establishment of the reward in this case helps the police department of CI maintain the public safety and assists it in carrying out its governmental functions. Therefore, the reward serves an exclusively public purpose and any benefit B receives from the conviction of A's killer or killers is incidental in comparison to the benefits accruing to the public at large.
HOLDING

The contribution of 10 x dollars by B to the police department of CI is deductible as a charitable contribution in the manner and to the extent provided under section 170 of the Code.
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Answer 5

Are you saying she gave the money to the police dept? Did she get any kind of receipt or letter from the police department?

Answer 6

TIM gave you the best answer and I agree with him.