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Investigation into Baltimore’s Mosbys includes their charitable donations. When can those prompt federal tax scrutiny?

The federal investigation into the personal finances of two of Baltimore’s top elected officials has shined a spotlight on a familiar type of tax deduction, making charitable donations to churches or religious organizations.

As part of a criminal investigation of Baltimore City Council President Nick Mosby and State’s Attorney Marilyn Mosby, the U.S. Attorney’s Office and the FBI have sought tax returns, bank statements, credit card statements, loan documents and canceled checks. They also have subpoenaed Marilyn Mosby’s campaign treasurer and requested records tracing back to 2014, some related to the Mosbys’ private travel and consulting businesses.

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Donations to churches and other nonprofits have been part of the probe, too. Federal grand jury subpoenas have been sent to representatives of Union Baptist Church, Bethel AME and the children’s group Muse 360.

The Mosbys’ attorney, A. Scott Bolden, has called the investigation a “political witch hunt,” and said the couple did nothing wrong and will cooperate with the investigation.

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Generally, churches are nonprofits and donations to them can be tax deductible if you itemize deductions on your tax return.

But tax experts say that Internal Revenue Service rules surrounding charitable donations, whether cash, goods or real estate, can be complicated and confusing, while aiming to respect the constitutional separation between church and state.

“The federal government has given a lot of deference to churches because of that perception,” said Charles T. Dillon, a Towson-based tax attorney who represents both businesses and individuals.

In the Mosby case, investigators are seeking information about whether Nick Mosby contributed to Union Baptist, according to a church official. The pastor of Bethel AME, Rev. Patrick Clayborn, confirmed he received a subpoena but told The Sun he did not know details of the information being sought.

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It’s unknown why investigators want to review the possible donations or what they believe they might find. But a number of scenarios could prompt the government to look more closely at an individual’s return.

Those could include giving to charities that are not IRS-approved or getting something in return for a contribution. A return also could be flagged if a filer’s charitable deductions account for too high a percentage of the filer’s adjusted gross income.

Filers who itemize deductions can deduct charitable contributions of either money or property up to 50% to 60% of their adjusted gross income, but in some cases 20% or 30% caps apply, according to the IRS.

“You can’t contribute more than you make,” and claim all of that as deductions, said Marcy A. Block, an enrolled agent at S.H. Block Tax Services Inc. in Baltimore, which represents taxpayers before the IRS. “The dollar amount is going to be the first thing that gets picked up.”

Larger deductions are allowed for the 2020 tax year, however, because of changes to the tax code that are part of the federal coronavirus relief package, including a increase in cash charitable contributions to $300 from $250 and allowing deductions for up to 100% of adjusted gross income.

Though only a small percentage of returns face audits, filers with incomes of more than $100,000 or less than $25,000 have a greater chance of getting audited, Block said. But she noted, if fraud is suspected, the IRS always can look at previous years’ returns.

Taxpayers who file Schedule A forms and itemize could be flagged if they take total deductions of more than 50% of their adjusted gross income, and they could be flagged at an even higher priority level if those deductions account for more than 70%, she said.

For charitable contributions specifically, a return could be flagged if the amount is more than 15% of adjusted gross income or get an even higher priority flag for contributions of more than 25% of adjusted gross income, Block said.

For an unintentional mistake, a taxpayer can face paying not only taxes but interest and penalties. The penalties are higher for those found to have willfully defrauded the government.

Even “a tiny mistake can cost you more than you know,” Block said.

In general, investigators in a criminal case look for fraud or evasion of taxes. They also could look at whether a tax filer made a donation to get something in return.

“If you get something in return, it’s not a pure charitable contribution and you don’t get full tax benefits for a donation,” Dillon said.

In the Mosby case, Sharayna Christmas, executive director of Muse 360, told The Sun she received a subpoena requesting records related to any charitable donations made by the Mosbys to her organization. She said the Mosbys sent their children to her dance studio, and she was not aware of any significant donations made by the couple.

The attorney for Union Baptist said that he reviewed records and found Nick Mosby had made a negligible donation.

“I spend more at Starbucks,” Robert Dashiell told The Sun.

Emerson L. Dorsey Jr., an attorney for the Mosbys’ church, New Psalmist Baptist Church, declined to discuss whether the church had received a subpoena as well.

Baltimore Sun reporters Tim Prudente and Justin Fenton contributed to this article.

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