It is that time of the year again, when the holiday spirit and gift giving is upon us. Most of us donate money during the holidays for charitable reasons but some of us also make year end donations for tax reasons. In fact, the federal tax deduction for charitable contributions is a significant incentive.
If you are making charitable donations, you should be aware of the IRS requirements for monetary donations to be allowed as a deduction. For that, it is crucial to discuss these requirements with your tax preparer and research the charitable organization as to its qualification before the IRS.
The following tax court case proves how rigorous IRS requirements can be when it comes to allowing charitable contributions.
In the Durden Case, the Tax Court disallowed a Married Couple’s good faith charitable donation of $22,517 to their church, Nevertheless Community Church (NCC). Yes that is the name of the Church. The couple claimed their charitable deduction on Schedule A on their 2007 tax return, which was later questioned by the IRS.
The couple provided the IRS with records of their contributions, including copies of canceled checks and a letter from NCC dated January 10, 2008, which acknowledged the contributions in 2007. After reviewing the records, the IRS said that church’s letter didn’t contain the statement “that no goods or services were provided to them (the church) in exchange for their contributions.”
The couple obtained a second letter, from their church, with the language required by the IRS, which was refused by the court explaining that the second letter did not meet the contemporaneous written acknowledgment requirement.
In essence, the Tax Court ruled the couple is not entitled to their charitable donation because the taxpayers got their second letter too late. The Court held, that:
- They must have obtained their written statement before they filed their timely 2007 tax return and
- That statement must have stated that the church did not provide any goods or services in exchange for the donation.
It is clear that the IRS will enforce the substantiation requirements for charitable contribution deductions and will disallow any contributions that lack the specific language.
Before filing your tax returns, make sure you review the charitable donations requirements. Review the statements you received from your charitable organizations at year-end for gifts over $250, and make sure they contain the magic words “the charitable organization did not provide any goods or services in exchange for the donation”. If not, then get a corrected statement right away.
You should be mindful of The IRS requirements, but this should not prevent you from continuing your charitable work and from enjoying the holiday spirit of giving.
See Durden v. C.I.R., 103 T.C.M. (CCH) 1762 (T.C. 2012). Also see sec. 170(f)(8)(B); sec. 1.170A–13(f)(2), Income Tax Regs.