Can the IRS Really Tax You on Income Not Earned?

By Kent Livingston

Just imagine for a moment that you discovered there was a treasure buried in your backyard. Not likely, but just play along. Of course, you decide to dig this treasure up and enjoy all the benefits that come with it. Now imagine that you finally reach the treasure and it’s worth a lot of money. “I’m rich. It’s all mine,” you think to yourself. Well, there’s just one problem. The IRS is going to want its cut, too. “But technically it’s not even income that I earned,” you say.

However, as far as the IRS is concerned, it is.

Sunken Treasure

Although not exactly the same as the fictional scenario above, a somewhat similar situation recently played out in the real world. That’s’ because $1.3 million worth of gold ingots were recently recovered from a shipwreck off the coast of South Carolina. The “treasure” had been lying on the ocean floor since 1857 and although it was discovered in 1988, it was only recently recovered. So to whom does the gold belong?

Thirty-nine different insurance companies filed claims to the loot, but it was a marine exploration company that was finally able to recover the gold on April 15 of this year.

Court Battle Goes IRS’s Way

Of course, the IRS will get its cut as well. That’s because just like any other “treasure trove” that is found, the IRS takes a piece of the pie. That may come as a surprise to some, because it seems like the IRS should not have claim to money that was not really earned. However, according to Cesarini v. United States, a case in which a man found $5,000 cash inside a piano he had purchased for $15, the IRS can claim money that is found as taxable income.

Resistance is Futile

Now, you might think there are measures you can take to avoid turning over a large chunk of your findings to the IRS, but there’s really no way around it. “What if I donate it to charity?” you ask. Things can get even more complicated if you try to donate it. It’s similar to when a person wins prize money and decides to give it away. Although you can avoid all taxes by declining the prize, if you take it and then give it to charity, you will still be liable for taxes.

Even if you donate the prize to charity immediately, you will only be able to claim up to 50 percent charitable contribution of your “contribution base,” which is normally your AGI or adjusted gross income.

The Taxman Cometh

So, if you’re ever digging around in your backyard and happen to come across a “treasure trove,” go ahead and get excited. However, just remember that the taxman will eventually come knocking, and he’ll be asking for his “fair” share too.

Helping You Keep Your Money

As a highly successful and trusted Bay Area tax and accounting firm, GROCO has years of experience helping our clients keep as much of their hard earned money as possible. Whatever tax and/or accounting services you need, we can help. Need assistance with your tax calculations then try our tax calculators. What about business planning and strategic management consulting? We can help you with those as well.

If you need any kind of tax planning or accounting help with your business, then GROCO can assist you. So contact us today.

Follow GROCO on Facebook

We hope you found this article about “Can the IRS Really Tax You on Income Not Earned?” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

To receive our free newsletter, contact us here.

Subscribe our YouTube Channel for more updates.

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

 

Alan L. Olsen, CPA, Wikipedia Bio

 

 

GROCO.com is a proud sponsor of The American Dreams Show.

 

The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business. Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most. They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness.  It’s mission statement:

In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges. Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.