Congress set strict rules on substantiating charitable deductions. There is a recent tax court case that disallowed charitable deductions even though the taxpayers had proof of payment through canceled checks. The purpose of this blog is to list the substantiation requirements for making cash contributions and to review the facts of this recent case.
How to Substantiate Chartiable Contributions of Cash
When making a cash contribution of $250 or less, all that is required is a bank record (e.g., canceled check) or written receipt from the charity showing the charity’s name, amount, and date of donation.
When making a cash contribution of more than $250, no deduction will be allowed unless the taxpayer receives a written contemporaneous acknowledgement from the charity. The acknowledgment must include ALL of the following:
- The name and address of the charity
- The date of the contribution
- The amount of cash contributed
- Whether the charity provided the donor with any goods or services in exchange for the contribution; and, if so, a description and a good faith estimate of the value of the goods and/or services provided to the donor.
To be contemporary, the acknowledgement must be obtained by the taxpayer on or before the earlier of:
- The date the donor files her tax return for the year the donation was made OR
- The return’s extended due date.
The Court Case
In the Durden case, the Tax Court disallowed a taxpayer’s charitable contribution even though the taxpayer had canceled checks and a written acknowledgement from the charity. The reason the contribution was disallowed was because the acknowledgement was insufficient.
On their 2007 tax return, the Durdens claimed a charitable deduction of $22,000 for contributions to their church. The contributions were made by check. The Durdens received a written acknowledgement from the church; however, the acknowledgement was not sufficient because it did not state whether the Durdens received any goods or services in exchange for the contribution. In fact, they did not. The church issued another written acknowledgment stating that the Durdens did not receive any goods or services in exchange for their contribution. However, this second acknowledgment was insufficient because it was received by the Durdens after they filed their tax return that listed the charitable contribution (remember that the acknowledgment has to be received by the earlier of (1) when the return is filed or (2) the extended due date of the return).
Taxpayers must be sure that the acknowledgment they receive from the charity lists all of the items in the substantiation requirements above. Even though the Durdens did not receive anything in exchange for their contribution, the Tax Court held that the written acknowledgment had to explicitly state that nothing was received in exchange for the contribution.
Also, don’t forget the timing requirement. It is important not to file the tax return until you receive the written acknowledgment.
Example: John donates $1,000 to his church in December 2012 and has a canceled check. He files his tax return on January 18, 2013. He receives a written acknowledgment from the church on January 31, 2013. His charitable contribution will NOT be allowed because he didn’t have the written acknowledgment when he filed his tax return.
These are very strict rules and can result in very unfair treatment.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230.