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Tax Alert: Taxpayers Must Substantiate Charitable Contributions


A recent U.S. Tax Court memorandum serves as a reminder to all taxpayers to obtain and retain adequate documentation for substantiating charitable contributions.

Under Internal Revenue Code Section 170, a taxpayer will only be allowed a charitable deduction for cash contributions (including contributions made via checks and credit cards) if the donor retains a bank record or a written receipt from the charity showing the name of the organization, the date, and the amount contributed. However, for gifts of $250 or more the substantiation requirement is greater, as illustrated in the recent tax court memorandum described below.

About the Memorandum

In a recent tax court memorandum (David P. Durden, et ux v. Commissioner, TC Memo 2012-140), the court disallowed the taxpayers' charitable contribution deduction to their church because the church failed to provide a properly completed contemporaneous written acknowledgement of the contribution. In this case, the taxpayer had copies of the cancelled checks and a letter from the church acknowledging the contribution, but it did not include all of the required information.

Donor Responsibilities If the value of the gift is $250 or more, donors must obtain a written acknowledgement from the charity. This acknowledgement must be received no later than the earlier of the date the return is filed or the due date of the tax return including extensions for the year the contribution was made. Each donation is viewed as a separate contribution for the $250 substantiation limit. As indicated in Durden v. Commissioner, if the required written acknowledgement is not properly completed and timely obtained, the charitable contribution can be disallowed in its entirety.

The donee organization must include in its written acknowledgement the following information:

  • The name of the organization and date of contribution;
  • The amount of cash and a description of any property other than cash contributed;
  • Whether the donee organization provided any goods or services in consideration; and
  • A description and good faith estimate of the value of any goods or services or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.

Churches and religious organizations that do not acknowledge contributions do not incur a penalty, leaving it up to the donor to make sure that they receive the acknowledgement.

In addition, contributions to private foundations are not exempt from the written acknowledgment rule. As a result, a donor must obtain an acknowledgment-even if it means writing a letter, as foundation officer, to himself as donee. Also, gifts to pooled income funds and gifts to establish a charitable gift annuity require the appropriate receipt. However, gifts to charitable remainder trusts and charitable lead trusts are specifically excluded from the substantiation rules.

Special rules apply for contributions made by payroll deduction. Taxpayers can substantiate their contributions with two documents: a pay stub, Form W-2, or other document furnished by the employer that indicates the amount of the contribution withheld from the employee's pay during the year; and a pledge card or other document prepared by the charity that includes a statement indicating the organization does not provide goods or services in return for donations made by payroll deduction.

As indicated by the recent tax court memorandum, the IRS does not have to look any further than the written acknowledgement. If that acknowledgement fails to provide the required information, the deduction can be denied.

If you have any questions regarding substantiating charitable contributions, please contact Jill Best, CPA, manager, at jbest@jhcohn.com or 860-678-6050, or your J.H. Cohn engagement partner at 877-704-3500.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and J.H. Cohn LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Published date: 6/4/2012

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