U.S. Tax Court Denies Charitable Deductions for Lack of Substantiating Documents

On May 17, 2012, the U.S. Tax Court ruled that a married couple could not deduct from their income $22,517 which they contributed to their church in 2007. Durden v. Commissioner, T.C. Memo. 2012-140 (Tax Ct. May 17, 2012). The basis for the court’s holding was that the taxpayers did not have contemporaneous written documentation of their contributions from the church, as required by the Internal Revenue Code (“IRC”) and the applicable Treasury Regulations.

Section 170(a)(1) of the IRC allows a deduction for contributions to charitable organizations described in Section 170(c) of the Code. However, section 170(f)(8)(A) provides that:

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).

Treasury Regulation § 1.170A-13(f)(2) requires that, for donations of money, the charity’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 charity. A 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. See IRC § 170(f)(8)(C).

In the Durden case, the taxpayers paid their disputed contributions by delivering to the church several checks, each of which exceeded $250. The church provided the taxpayers a letter dated January 10, 2008, which acknowledging contributions during 2007 totaling $22,517. However, the January 10, 2008 letter did not contain a statement regarding whether any goods or services were provided in consideration for the contributions. For this reason, the Internal Revenue Service disallowed the deduction. The taxpayers then obtained from the church a second letter 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 Service refused to accept the second acknowledgment on the ground that it was not “contemporaneous” with the contributions.

The Tax Court agreed with the IRS that neither acknowledgment met the statutory requirements for deductibility of charitable contributions. As to the first acknowledgment, the court concluded that,

It is impossible to determine from the amounts reported (or the checks produced) whether, for example, petitioners’ payments were for meals or other goods or services provided by the church.” Therefore, the first acknowledgment does not provide enough information to determine the deductible amount of petitioners’ contributions.

Because the second acknowledgment was not contemporaneous, the court did not consider it. Finally, the court rejected the taxpayers’ contention that they had substantially complied with the essential statutory requirements. According to the court, “the satisfaction of the[ ] [documentation] requirements [is] mandatory for a written acknowledgment properly to substantiate a charitable contribution.”

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