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Septuplet Family Faces Tax Issues

November 22, 1997

WASHINGTON (AP) _ One would think the McCaughey family already had their hands full. But just wait until April 15.

Depending on whom you ask, the family faces a tax nightmare or a windfall in the wake of an outpouring of donated items _ ranging from a lifetime supply of diapers to construction of a new home.

To some accountants, the issue is a slam-dunk: The donated items are not income, and therefore the McCaugheys don’t face a tax liability.

``The answer, with maybe one or two little exceptions, is that they are gifts, and you are not taxed on gifts,″ said Tom Ochsenschlager, a partner at the accounting firm Grant Thornton in Washington.

The IRS 1997 tax guide tends to support that view.

``Generally, property you receive as a gift, bequest or inheritance is not included in your income,″ the IRS document said. But if the property donated later generates interest or dividends, that would be ruled taxable income. An IRS spokesman in Washington declined to comment on the case.

Ochsenschlager predicts the family will enjoy a windfall. The parents can take a $2,650 dependency deduction for each of the seven newborns. And when they do their taxes in 1999, they can also take a $400 tax credit for each child, which is part of the new tax relief bill approved this year.

But other tax experts painted a more complicated picture, saying the family could face tax liability for the value of the gifts.

``It’s quite possible that they would have to pay on this stuff,″ said Brian T. Whitlock, with the accounting firm Blackman Kallick Bartelstein LLP in Chicago.

Whitlock, who teaches a tax class at DePaul University, cited the case of a professional football player who had to pay taxes on a car he received as a gift from a sports magazine after he was received a most valuable player award.

``I don’t know if it’s so clear,″ Whitlock said. ``Because if you win the lottery, you have to pay tax.″

Also at issue is whether the companies donating gifts to the McCaughey family could deduct those items as promotional expenses.

Iowa developer Lloyd Clarke, chairman of The Clarke Companies, has offered to build a new home for the McCaugheys. Clarke proposed to donate the home to the United Way of Central Iowa, which in turn would lease the home to the McCaugheys for no cost and then give them the home after 10 years.

Under such an arrangement, The Clarke Companies could seek a charitable deduction, since the United Way is a qualified nonprofit agency, Clarke said in an interview. He said the house could be transferred to the family in other tax-free ways, such as having the city take title to it.

``There is not a problem. We will solve it,″ Clarke said in a telephone interview.

A spokeswoman for Procter and Gamble Co. said it would not take a tax deduction for the lifetime supply of diapers it is giving the McCaughey family.

``It’s strictly a gift. We’re not asking anything from the family,″ said Procter & Gamble spokeswoman Elaine Plummer. ``This was not a tax-break type of situation.″

Whitlock said the McCaughey case is so rich in tax questions that he plans to make it a research project for his students this year.

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