Beaufort and Morehead City, North Carolina, Tax Attorney, Andrew G. Foster

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Make Sure You Check Your Charitable Contribution Statement:

Many people know that in order to claim a charitable contribution deduction on your income tax return you must have documentation to substantiate the amount claimed.  IRS Tax Topic 506 explains that for a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution.  When the amount of the contribution exceeds $250 the substantiation requirements not surprisingly are more stringent.  In fact,  for any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed.   

Furthermore, the acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. 

There are two key statements that you need to be aware of regarding the above mentioned substantiation requirements.  The first key is that the acknowledgment needs to be contemporaneous, which means that you have the document prior to filing your income tax return.  The second key is that the acknowledgement must state whether any goods and services were received in consideration for the gift.   Many charitable organizations including churches unknowingly fail to include this statement on their acknowledgment letters.  The ramifications of not including this statement came to light recently in a United States Tax Court Case, Durden v. Commissioner.

In Durden, the taxpayers made contributions totaling more than $25,000 in tax year 2007, most of which were made by check to their church. With the exception of a few checks, each contribution was greater than $250. Before the taxpayers filed their tax return for 2007, the taxpayers had received a written acknowledgement from their church dated January 10, 2008, which confirmed that the taxpayers made the stated contributions.   However, the acknowledgment from the church dated January 10, 2008, failed to contain language stating whether the church provided goods or services to the taxpayers in consideration for their contributions.  Despite the fact that the taxpayers later received a second acknowledgement from the church that no goods and services were received for their contributions, the Tax Court nevertheless disallowed the taxpayers’ entire charitable deduction because the second acknowledgement did not occur prior to the taxpayers filing their income tax return.  This denial resulted in a tax bill in excess of $7,000 for the taxpayers. 

The Tax Court’s decision in Durden seems quite harsh on its face.  However, it underscores the importance of not just following the spirit of the law but the actual letter of the law.  So as your charitable giving statements begin to come in, do yourself a favor and make sure they address whether goods and services were provided for the contribution.  It just might save your deduction, which would save you a bunch of money.

If you have any questions regarding this article, please contact Andrew G. Foster at Harvell and Collins, P.A.

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