Minimizing Your Taxes and Managing Your Complex Affairs

Tax Tips, Finance Tips, Fun Events

Tips for Individuals, Businesses and Charities. Fun Events.

Make Sure Your Charitable Donations are Audit Proof

The IRS is strict about records needed to support a charitable contribution deduction. It’s important that you comply with all rules as failure to comply with these rules will result in no tax deduction.

 

Cash contributions (including check or credit card) of any amount must be substantiated by a bank record (such as a canceled check or statement) or a receipt from the donee organization showing the organization’s name, the date the contribution was made and the amount.

In one case (Durden TC Memo 2012-140) the Tax Court disallowed $22,000 in donations to the donor’s church. The Durdens produced records of their contributions, including copies of canceled checks and a letter from their church dated January 10, 2008, which acknowledged contributions from them during 2007 totaling $22,517. The IRS did not accept the first acknowledgment and informed petitioners that it lacked a statement regarding whether any goods or services were provided in consideration for the contributions. The Durdens obtained a second letter from the church dated June 21, 2009, that contained the same information found in the first acknowledgment as well as a statement that no goods or services were provided to them in exchange for their contributions.

 The Tax Court disallowed the donations to their church since the taxpayers did not obtain a written contemporaneous acknowledgement. The first letter failed to qualify as an acknowledgment since the detail of any goods or services received was not provided. The Tax Code is strict on this as there is no way for the IRS to know what portion of the donation is not tax deductible (i.e. the value of dinners received). The second letter did not qualify since it was not contemporaneous.

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Richard Pon CPA, CFP