Bankruptcy Court Limits Charitable Contributions to 15% of Gross Income

by Bruce Givner on March 30, 2012

In 2008, Mr. and Mrs. McGough earned $6800 in income, and received $22 thousand in social security benefits.  They donated $3400 to the World of Life Christian Center.  In 2009, the McGoughs earned $7300 in income.  They received $23 thousand in social security benefits and donated $1300 to the Center.

On December 31, 2009, the McGoughs filed for Chapter 7 bankruptcy relief.  The bankruptcy trustee sought to avoid donations to the Center on the grounds the contributions were given within two years of filing the petition.  11 U.S.C. § 548.  The Center argued since the yearly contributions did not exceed 15% of the McGoughs annual gross income and the Center was a qualified religious entity, the Trustee could not avoid the donations.  11 U.S.C. § 548(a)(2)

When calculating current monthly income, the Bankruptcy Code excludes Social Security benefits.  The Internal Revenue Code also does not include Social Security benefits in gross income unless the Debtor’s modified adjusted gross income plus one-half of the benefits exceed the base amount.  See IRS Publication 915

Since one-half of the benefits received plus the McGough’s income does not exceed the base standard of $32 thousand, the Bankruptcy Court held their social security benefits were not part of their gross income.  The Bankruptcy Court also held that the Trustee could only avoid the portion of the charitable deductions that exceeded 15% of the McGough’s gross income.

If you need expert advice on Asset Protection Planning or Income Tax Planning, call Givner & Kaye at (310) 207-8008.

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