Taxpayer Loses $22,517 Donation Deduction on a Technicality

You’ve already given your charitable gifts for the 2012 tax year, but if you itemize your deductions, there is still time to think about records you need to keep for those deductions in case you are selected for audit. In the case of Durden v. Commissioner, a couple thought they had followed the rules when they filed their 2007 return, claiming a deduction for donations to their church. However, in May 2012 the Tax Court denied their deduction entirely.

The technicality – The Durdens made $22,517 in donations to their church throughout 2007, and the church provided them with an acknowledgment letter showing the total amount donated. So what was missing? A statement that no goods or services were provided to the taxpayer in exchange for their donations. After the IRS denied the deduction in 2009, the couple obtained a second letter from their church including the proper wording. However, it was too late and the Tax Court denied the deduction because, to the letter of the law, they did not have the required proof of the donation.

The lesson? Check your acknowledgment letters as they come in. For cash donations of $250 or more, a letter should contain all of the following: a) the amount donated, b) whether you received any goods or services in exchange for the donation and if so, an estimated value, and c) a statement that the only benefit you received was an intangible religious benefit, if that was the case. This letter must be received before the due date of the tax return, or the date the return is filed, whichever is earlier.

If your letters do not have the magic wording, especially for substantial donations, contact the charity and ask for a new letter prior to the due date of your tax return. In light of this case, all organizations taking charitable donations who don’t already use this wording should be updating their thank-you letters.

For more information on charitable deductions, give our office a call.

-Diane Ravenscroft, CPA
J.A. Solari & Partners LLC
(775) 827-3550