Some deductions like charitable contributions are conducive to tax fraud. These tax-related events are subject to the utmost IRS scrutiny. Therefore, taxpayers are subject to very detailed rules which require them to produce a specified form of documentation as proof of a viable deduction. If they do not provide the requisite paperwork, then no deduction will be allowed, regardless of the availability of other information that may justify the deduction. Taxpayers that make charitable deductions in excess of $250 and fail to provide specific, detailed documentation to the IRS will have their deductions ultimately disallowed.
I.R.C. §170(f)(8)(B) requires that a taxpayer obtain an acknowledgement that contains the following information:
(B) Content of acknowledgement. An acknowledgement meets the requirements of this subparagraph if it includes the following information:
(i) The amount of cash and a description (but not value) of any property other than cash contributed.
(ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
(iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
For purposes of this subparagraph, the term “intangible religious benefit” means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.
I.R.C. §170(f)(8)(C) provides there is a specific time by which the taxpayer must obtain this acknowledgement and information:
(C) Contemporaneous – For purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of—
(i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or
(ii) the due date (including extensions) for filing such return.
What is often the most problematic is the taxpayer’s failure to provide a statement indicating what goods or services were received by the taxpayer in exchange for the contribution or, if nothing was received, which is the usual case, a statement indicating this.
In the case of French v. Commissioner, TC Memo 2016-53, the taxpayers had made a contribution of a conservation easement in late 2005, with a deed recorded on December 29, 2005. The taxpayer received a letter from the charity on June 6, 2006 that stated they had received no goods or services in exchange for their contribution.
Unfortunately the deed that the taxpayers produced as their proof did not have language indicating it represented the entire agreement of the parties. Because the deed neither stated that no consideration was given nor contained any merger clause, the taxpayers failed to meet the documentation requirements.
In summary, all taxpayers that make charitable contributions must have all of their documentation in their possession with all of the necessary information before they file their returns. Included in this is some acknowledgement and statement of consideration.
If you have any questions about whether you have sufficient documentation to substantiate a claim of a viable, allowable charitable contribution expense, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, please call 212-490-0704.
