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Friday, July 20th 2012

12:00 PM

Deduction Denied Because Taxpayers Failed to Cross t's and Dot i's

One of the questions I am often asked is about chaitable contributions.  My answer has always been, make sure the charity makes it clear what the donation is, the value, the date (extremely important) and a statement that no services or goods of any kind have been provided in consideration for the donation.  Below is a copy from our update page on a taxpayer being denied a $25,171 deduction.

Post Date:  7/12/2012
Last Updated:  7/12/2012

Cross References
• Durden, T.C. Memo. 2012-140, May 17, 2012

The taxpayers deducted $25,171 in charitable contributions, most of which were made by check to their church. In response to a notice of deficiency disallowing the claimed charitable contribution deductions, the taxpayers produced records of their contributions, including copies of canceled checks and a letter from the church which acknowledged their contributions. The IRS did not accept the acknowledgement letter because it lacked a statement regarding whether any goods or services were provided in consideration for the contributions.

The taxpayers then produced a second letter from the church that contained the same information found in the first acknowledgement, as well as a statement that no goods or services were provided to them in exchange for their contributions. The IRS did not accept the second acknowledgement letter because it was not contemporaneous.

IRC section 170(f)( (A) says: “No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B).” For donations of money, the donee’s written acknowledgment must state the amount contributed, indicate whether the donee organization provided any goods or services in consideration for the contribution, and provide a description and good faith estimate of the value of any goods or services provided by the donee organization.

The regulations under section 170 state that 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 IRS argued the taxpayers were not entitled to the deduction because the first acknowledgment letter from the church failed to include the language that no goods or services were provided in consideration for the contribution, and the second acknowledgment letter that included the no goods or services language failed to meet the contemporaneous requirement.

The taxpayers conceded that they did not strictly comply with the statute. However, they claimed they did substantially comply with the statute. The Court disagreed with the taxpayers. Nothing in the statue or legislative history requires the IRS to look beyond the written acknowledgment when on its face the acknowledgment fails to provide the information required to substantiate a charitable contribution deduction. The taxpayers did not comply with the clear substantiation requirements of section 170(f)( , and their deduction for charitable contributions was disallowed.

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