Donors and Charitable Organization Leaders; Beware!
The Internal Revenue Service Is Extremely Tough on
Enforcing Charitable Contribution Documentation
Dear Friend:
If you serve as a board member of a charitable organization, serve in a leadership position within your church, or if you make charitable contributions of $250 or more to any charitable organization, this letter will provide you or your organization with important information.
” the Internal Revenue Service will disallow the deductions and assess penalties. No Goods or Services Provided in Consideration for the ContributionsUpon an Internal Revenue Service audit, if your receipts for charitable contribution of $250 or more do not contain the words “
Docket No. 17441-09, Filed May 17, 2012) should give all of us reason to pause. Here are the facts – avid P. Durden and Veronda l. Durden, v. Commissioner of Internal Revenue,The summary judgment opinion issued by the US Tax Court (Tax Court Memo. 2012-140, D
1. David and Veronda filed a 2007 joint income tax return, attached an itemized deduction Schedule A and claimed charitable contribution deduction deductions of $25,171.
2. Most of the charitable contributions were made by check to the Durden’s church. Except for five checks totaling $317, the petitioner wrote checks to their church for amounts larger than $250.
3. Their church is a section 501(c) (3) organization and is eligible to receive tax-deductible contributions under Internal Revenue Code section 170(c) (2).
4. Internal Revenue Service sent a notice of deficiency disallowing the burdens claimed charitable contribution deductions for 2007.
5. The Durden’s responded by producing records of their contributions, including copies of canceled checks and a letter (first acknowledgment) from their church dated January 10, 2008 which acknowledged contributions from them totaling $22,517.
6. The Internal Revenue Service rejected the acknowledgement and informed the Durden’s the first acknowledgment lacked a statement regarding whether any goods or services were provided in consideration for the contributions.
7. The Durden’s obtained a letter (second acknowledgment) dated June 21, 2009 that contained the same information found in the first acknowledgment, as well as a statement that no goods or services were provided to them in exchange for their contributions.
The Tax Court’s unsettling opinion was based upon the application of the law to the Durden’s facts and circumstances.
A. Since there were no material facts in dispute in this case, Rule 121 allows the court to render a Summary Judgment rendered as a matter of law.
B. Internal Revenue Code section §170 (a) (1) allows a deduction for contributions to charitable organizations defined in section 170 (c).
C. Internal Revenue Code section §170 (f) (8) provides substantiation requirements for certain charitable contributions. Specifically, this section provides: “no deduction shall be allowed under subsection (a) for any contribution of $250 or more, unless the taxpayer substantiation the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subsection (B).”
D. Internal Revenue Code section §170 (f) (8)(B) and U.S. Treasury Regulations 1.170A – 13(F)(3) requires that the donee’s written acknowledgment must state -
a. The amount contributed,
b. And provide a description and good faith estimate of the value of any goods or services provided by the donee organization.
Further, a written acknowledgment is contemporaneous if it is obtained by the taxpayer on or before the earlier of:
(1) The date the taxpayer files the original return for the taxable year of the contribution, or
(2) The due date (including extensions) for filing the original return for the year.
The Court reasoned that, while the second, acknowledgment included the required language the Court held the second acknowledgment was not contemporaneous and the audited contributions were disallowed.
Previous U.S. Tax Court opinions held that the specific contemporaneous statement is necessary for the allowance of charitable contributions include Friedman V. Commissioner, T.C. Memorandum 2010–45; as well as Kendricks V Commissioner, T.C. Memorandum 2006–9.
Suggested Action Plan –
- If you are in a leadership role of a charitable organization
” is advisable. Your charity’s acknowledgment receipts must be timely provided to your donors (before they file their income tax returns claiming the contributions in question). No Goods or Services Provided in Consideration for the ContributionsMake sure your charity issues acknowledgment receipts for all contributions of $250 or more that your charity receives and the acknowledgment receipts includes a description and good faith estimate of the value of any goods or services provided by the donee organization. If no consideration is given in to your donors in exchange for their contributions, a statement similar to “
If you make any contributions of $250 or more,
income tax return, secure and review (contemporaneously dated) charitable contribution acknowledgments from charities that, have accepted $250 or more in charitable contributions.Before filing your individual
1. Review the charitable contribution receipt to ensure the language contains,
a. The amount of your contribution, and
b. A description and good faith estimate of the value of any goods or services provided by the donee organization to you.
i. If you did not receive any goods or services in exchange for your charitable contribution the charitable organizations acknowledgment of your contributions should explicitly state “no goods or services were provided to you in exchange for your contributions”.
2. Retain such statements to support your charitable contributions in the event your charitable contributions become an audit issue.
Please feel free to contact me if you have any questions or concerns or if I can be of any further assistance to you.