Documenting Charitable Deductions--Don't Get Screwed by the Tax Code

Editor's Note: This article is part of our 2013 Tax Tips series. Robert Flach is an expert with almost 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.

NEW YORK (MainStreet) — I have written on this topic many times before here at MainStreet and at my blog The Wandering Tax Pro, but it is one that bears repeating.

The current monthly newsletter from the National Association of Tax Professionals, which I receive as a member, discussed the decision in David P. and Veronda L. Durden v Commissioner (TC Memo 2012-140).

It appears that in 2007, the Durdens donated a total of $22,517 to a qualified church in several separate contributions of more than $250 and claimed a deduction for this $22,517 on their 2007 Schedule A.

The couple's 2007 return was audited by the IRS in 2009. They produced cancelled checks and a statement from the church, dated January 10, 2008, that documented the full $22,517 they deducted. The IRS did not accept the documentation, because the statement from the church did not specifically indicate that no goods or services, other than intangible religious benefits, were provided in exchange for the donation.

The couple received a second statement from the church, dated June 21, 2009, that clearly indicated that no goods or services were provided. The IRS ignored this second statement, because it was not "contemporaneous". In order to be considered contemporaneous a statement must be received "before the earlier of the date the original tax return is filed or the extended due date of the tax return."

The first letter, dated January 10, 2008, was contemporaneous but did not contain the requirement statement. The second letter, dated June 21, 2009, contained the required statement but was not contemporaneous.

The Tax Court agreed with the IRS and upheld the disallowance of the $22,517 charitable deduction. The couple had to pay $7,552 in additional tax and $1,510 in penalties.

The couple legitimately donated over $22,000 to a qualified church or charity. Cash contributions to a qualified church or charity are deductible on Schedule A. There was no question that the amount claimed was actually contributed, nor that the recipient of the contribution was a qualified 501©(3) organization eligible to receive tax-deductible donations. But the deduction was disallowed because the documentation received did not meet the letter of the law. They did not dot all the i's and cross all the t's.

The taxpayers were indeed royally screwed!

This case is just one of several in the past few years that have denied a legitimate charitable contribution to a qualified church or charity because of failure to incorporate the nuanced fringes of the tax code.

Let me review the rules for donating cash to a church or charity.

You must have a hard-copy receipt for every single dollar you contribute to a church or charity in order to claim a tax deduction on Schedule A! If you give a dollar to the DAV for a poppy, or put a dollar in the Salvation Army kettle at Christmas, you must either write a check or get a receipt in order to claim a tax deduction.

Charitable contribution deductions will not be allowed for any monetary contributions by cash or check unless the donor maintains a record of the contribution. The record must be in the form of -

  • an actual cancelled check,
  • a bank record (i.e. a copy of the front of the check included on your monthly bank statement),
  • an entry on a bank or credit card statement indicating a credit or debit card charge, or
  • a written communication from the church or charity showing the name of the organization, the date of the contribution and the amount of the contribution.

If the total amount donated to a church or charity in a single day is more than $250.00 you must have a written acknowledgement from the organization with its name and address, the date of the contribution and a description of the items donated. The acknowledgement must also indicate whether you were provided any goods or services by the charity in exchange for the donation.

Taxpayers - when you make a contribution to a church or charity make sure you receive and maintain all the necessary documentation, and make sure any receipt, statement or acknowledgement from the organization contains the statement: "No goods or services were provided in exchange for the donation."

If you made a contribution earlier this year but did not receive a proper and complete statement from the church or charity there is still time to go back to the organization and get a corrected acknowledgement.

And members of a church or charity - make sure that the person or persons responsible for recording and acknowledging contributions are aware that this statement must be included in all receipts, statements, and acknowledgements.

--Written by Robert D. Flach for MainStreet

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