Academic journal article Journal of Accountancy

Documenting Charitable Contributions

Academic journal article Journal of Accountancy

Documenting Charitable Contributions

Article excerpt

At this time of year, many charities see an upsurge in donations, and the federal tax deduction for charitable contributions is a significant incentive. The Tax Court recently highlighted how an apparently slight oversight in documentation can upend the interdependent relationship between donee and donor.

The substantiation requirements for monetary donations of less than $250 remain fairly informal under Sec. 170(f)(17): The donor should maintain a bank record of the contribution or written communication from the donee stating the name of the donee organization, as well as the date and dollar amount of the donation. For donations of $250 or more, Sec. 170(f)(8) requires the donor to obtain a contemporaneous written acknowledgment, stating the amount of the contribution, whether the donee provided goods or services in consideration for the donation, in whole or in part, and a good-faith estimate of the value of any goods or services the organization provided. If goods or services received consist solely of intangible religious benefits, the contemporaneous documentation must state that.

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THE DURDEN CASE

In Durden, T.C. Memo. 2012-140, the Tax Court's literal interpretation of Sec. 170(t)(8) cost the taxpayers a charitable contribution deduction because of what might seem to be an inconsequential oversight. The Durdens claimed a charitable contribution deduction for cash contributions to their church. Most individual contributions exceeded $250. The Durdens produced a letter from their church acknowledging the contributions, as well as canceled checks supporting the amounts of the claimed deduction, but the IRS declined to accept the acknowledgment on the grounds that it did not contain the required statement regarding whether goods or services were received in consideration for the contributions. The IRS disallowed the deduction.

The Durdens subsequently obtained a second written acknowledgment from their church with the required language, but the IRS said it did not meet the contemporaneous written acknowledgment requirement, which defines contemporaneous as the earlier of the date of filing or the extended due date, including extensions, of the return. …

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