Charitable organizations frequently depend on donations from the public to allow them to pursue their mission. Many charities see an upsurge in donations at this time of year. Although there are many altruistic reasons people give, it is acknowledged that the federal tax deduction for charitable contributions is a significant incentive. A Tax Court case from earlier this year highlighted how even an  apparently slight oversight in documentation can affect the deductibility of a charitable donation.

General Substantiation Requirements

Substantiation requirements for monetary donations of less than $250 are fairly informal. The donor should maintain a bank record of the contribution or written communication from the donee organization stating the name of the organization, as well as the date and dollar amount of the donation.

Substantiation requirements for donations of $250 or more are more stringent. The donor must obtain a contemporaneous written acknowledgment that states the amount of the contribution, whether the donee provided any goods or services in consideration for the donation, and a good-faith estimate of the value of any goods or services the organization provided. If goods or services received consist of intangible religious benefits, the contemporaneous documentation must contain a statement to that effect.

The Durden Case

The Tax Court’s literal interpretation of Internal Revenue Code Section 170(f)(8) cost the taxpayers a charitable contribution deduction because of what might seem to be an inconsequential oversight. The taxpayers claimed a charitable contribution deduction for cash contributions to their church. Most individual contributions exceeded $250. They produced a letter from their church acknowledging the contributions and cancelled checks supporting the claimed deduction, but the Internal Revenue Service (IRS) declined to accept the acknowledgment on the grounds it did not contain the required statement regarding whether goods or services were received. The IRS disallowed the deduction.

The Durdens subsequently obtained a second written acknowledgment from their church with the required language, but the IRS refused it because it did not meet the contemporaneous requirement. Contemporaneous is defined as the earlier of the date of filing or the extended due date of the return.

The taxpayers argued that substantial compliance with the substantiation requirements should be sufficient to allow the deduction. The Tax Court disagreed, pointing to Code language stating that no deduction shall be allowed unless the applicable provisions are met.  The Tax Court ruled that absent language in the acknowledgment regarding goods or service received in consideration, the amount of the deduction cannot be calculated and the deduction cannot be claimed.

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