"Contemporaneous" or Bust
The substantiation rules for charitable contributions have evolved over the years, and, in light of a recent United States Tax Court ruling, it is now more important than ever to make sure you have the proper documentation on file when claiming a charitable contribution on your tax return.
Section 170(f)(8) of the Internal Revenue Code is very clear about substantiation requirements for certain contributions. The general rule is that no deduction is allowed 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 (a canceled check or other reliable records are not sufficient proof). The acknowledgment must include all of the following information:
- The amount of cash and a description (but not 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 property received.
- A description and good faith estimate of the value of any goods or services that were provided or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
To be considered "contemporaneous," the taxpayer must obtain the acknowledgement on or before the earlier of (1) the date on which a return is filed for the taxable year in which the contribution was made, or (2) the due date (including extensions) for filing such return.
These rules were put to the test in a recent United States Tax Court case (Durden, TC Memo 2012-140). In this case, the taxpayers deducted donations they had made to their local church on their tax return. However, the acknowledgment from the church failed to state that no goods or services were given for the donations. When the taxpayers were notified that the deduction had been denied, they obtained a second letter from their church that included the required statement about no goods or services being provided to them in exchange for their contributions. The Tax Court, however, continued to deny the deduction because the donors didn't have a valid written acknowledgment from the church before they filed their tax return.
Please be advised that, based upon current Internal Revenue Service (IRS) rules and standards, the advice herein is not intended to be used, nor can it be used, as the sole basis for decisions. Additional issues may exist that could affect the treatment of the individual transactions, and this narrative does not provide a conclusion with respect to all such issues.
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