The Court has Spoken, the Letter of the Law has Trumped Reason


A practical update on charitable contributions

In an earlier Pottscast ™, we related some of the rules that the law imposes in order to be able to deduct a charitable contribution. One of those rules is that for contributions exceeding $250, the giver must obtain from the charitable organization a “contemporaneous written acknowledgment containing the amount of the contribution and other required information concerning the terms of the gift.”

In a decision handed down in 2012, in Durden v. Commissioner, the Tax Court ruled that Mr. and Mrs. Durden, of Texas, were not entitled to deduct the $22,517 they contributed to their church, Nevertheless Community Church (NCC).The IRS ruled that the Durdens, although they had provided records of their contributions, including copies of canceled checks and a letter from NCC dated January 10, 2008, which acknowledged contributions from them during 2007 totaling $22,517, were not entitled to the deduction.

This first acknowledgement was not accepted because it lacked a statement regarding whether any goods or services were provided in consideration for the contributions. The couple then obtained a second acknowledgement that contained the same information as the first, but included a statement that no goods or services were received in consideration for the contributions.

You’d think this would be plenty. It did not satisfy the IRS. They issued a deficiency letter, and the Durdens responded with a petition in the Tax Court.

They fared no better there. After a lengthy discussion of the judicial doctrine of substantial compliance, the Court held that because the law says “No deduction shall be allowed…for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the donee organization that meets the requirements of subparagraph (B).”

In the end, the Court concluded that the Durden’s did not comply with the requirement that they obtain the statement from the church in a timely (contemporaneous) manner. They denied the deduction.

“Contemporaneous” means (1) the date on which the donor files a return for the tax year in which the contribution was made; or, (2) the due date (including extensions) for filing such return.

What we want to emphasize is that if your church or any other organization which can accept deductible charitable contributions, doesn’t send you a statement (shortly after year end), you should ask for it, and be sure that it includes:

• the amount of cash contributed and a description (but not necessarily the value) of any property other than cash contributed;

• whether the donee organization provided any goods or services in consideration, in whole or in part, for any cash or other property contributed;

• if the donee organization provides any goods or services other than intangible religious benefits, a description and good-faith estimate of the value of the goods or services;  and

• if the donee organization provides any intangible religious benefits, a statement to that effect;

• and most frequently, a statement that they provided no goods and services.

You know, of course, that if you are audited, you should contact our office at once. It is almost always better if the audit is not conducted in your home or place of business, but rather here in our office.