Tax Court Denial of Charitable Deductions

The Tax Court recently ruled that a married couple’s significant amount of charitable contributions were not tax deductible because the written acknowledgment provided by their church did not meet the substantial requirements. Supported by Code Sec. 170(f)(8), the Tax Court requires that all charitable donations be supported with a contemporaneous written acknowledgment that states goods or services were provided in exchange for contributions. Although the couple was able to provide that substantiation after the IRS ruled the deductions disallowable, the documents were ruled untimely and insufficient in proving their compliance.

Code Sec. 170(f)(8) strictly requires charitable contributions of $250 or more to be backed by contemporaneous documents stating whether the organization provided the taxpayer with any goods or services and if so, a description and estimate of the value of those goods and services. Acknowledgment of donations are considered contemporaneous only if the taxpayer obtains the supporting documents before 1) the date that the taxpayer files a return for the year in which donation deductions are applicable or 2) the due date, including extensions, for filing said return (whichever is earlier).

The couple’s charitable deductions, totaling $25,000, were ultimately rejected because the first written acknowledgment did not address whether the charitable organization provided any goods or services to them in return. After providing a second statement explaining that they did not receive anything in return, the document was ruled non-contemporaneous and therefore, not applicable. The Tax Court defended its decision by reiterating that the Tax Code clearly states, in plain language, that written, contemporaneous statements must be provided in order to deduct charitable contributions over $250.

If you regularly contribute to charitable causes, it is vitally important to attain acknowledgments of your donations and timely statements describing whether you were provided with any goods and services in consideration of your contribution. The proper acknowledgment document provided by an organization will include the following components:

• Organization’s name
• Amount of cash contribution or description of non-cash contribution
• Statement if goods and services were or were not provided by the organization
• Description and good faith estimate of the value of goods and services, if any, that the organization provided in return for the contribution

Be sure to keep records of your donations so that you are allowed every possible deduction on your tax returns.

If you have any questions about claiming deductions for charitable contributions, please contact me at (805) 963-7811 or eboscacci@bpw.com.