Charitable Deductions

The Tax Court recently upheld IRS disallowance of an individual charitable contribution deduction because the donee organization failed to provide a properly completed contemporaneous written acknowledgment of the contribution (Tax Court Memo 2012-140).

The donors were clearly able to provide copies of their cancelled checks made to a qualified IRC 501(c)(3) organization. However, under IRC Sec 170(f)(8)(A), a taxpayer is allowed a charitable contribution deduction for amounts in excess of $250 only if the taxpayer is able to substantiate the contribution with a contemporaneous written acknowledgment from the donee organization. IRC Sec 170(f)(8)(B) requires the acknowledgement include (1) the amount of cash and a description of any property other than cash contributed, (2) whether the donee organization provided any goods or services in consideration, in whole or in part, in exchange for the donation, and (3) a description and good faith estimate of the value of any goods and services received in exchange for the donation.

In the current case, the donors did in fact obtain a contemporaneous written receipt. However, it did not specifically contain the written statements required by IRC Sec 170(f)(8)(B) regarding receipt of goods or services. Thus, the taxpayer obtained a second acknowledgment which contained the correct language, but then it was deemed not to be contemporaneous as defined under IRC Sec 170(f)(8)(C) since it was not obtained prior to the earlier of the due date (including extensions) for filing such return or the date the return was actually filed.

As you make contributions for 2012, please remember to request written acknowledgments and save with your tax documents. You should review or have us review the acknowledgments to assure compliance with the substantiation requirements.