Louis E. Michelson, A Professional Corporation

Assume that you are an upstanding citizen and contribute generously, over $25,000, to your church in 2012. Assume further that your church, which is recognized as a 501(c)(3) organization, gives you a receipt that acknowledges and thanks you for your contribution. One detail: the receipt does not have a statement whether any goods or services were provided in consideration for the contributions; but you did not notice this omission. You receive the receipt in January, 2013 and you file the receipt and do not give it a second thought until you file your return. Assume further that you gave the receipt to your tax preparer and your taxes are filed timely, claiming the charitable deduction. You are good right?

Not so fast says Tax Court.   There is a substantiation requirement for certain charitable contributions.  Specifically, Internal Revnue Code Section 170(f)(8)(A) provides: “No deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).”

For donations of money, the donee’s written acknowledgment must state the amount contributed, indicate whether the donee organization provided any goods or services in consideration for the contribution, and provide a description and good faith estimate of the value of any goods or services provided by the done organization.   Also, the written acknowledgment is contemporaneous if it is obtained by the taxpayer on or before the earlier of: (1) the date the taxpayer files the original return for the taxable year of the contribution or (2) the due date (including extensions) for filing the original return for the year.

If the acknowledgment does not contain the required statement regarding whether goods or services were provided, the Tax Court holds you are not entitled to a charitable deduction.   The Tax Court was not sympathetic to the “substantial compliance” argument:  “but we have substantially complied with the statute and are entitled to the deduction.”

The take away:  be sure to dot your “i”s and cross your “t”s and make sure your charities are doing their job when they acknowledge your contributions.   Look closely at the acknowledgements you receive from the charities.   For more information see Durden v Commissioner. TCMemo 201-140