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Gift Acknowlegement Critical to Deduction

Thursday, May 24, 2012

In a recent tax court ruling, a Texas couple’s deduction of $25,171 in gifts to their church was denied because the acknowledgement sent by their church following the gift lacked a statement specifying whether any goods or services were provided in consideration for the contributions. The couple had made numerous gifts by check during the tax year, and most were above $250.

Section 170(f)(8)(A) of the Internal Revenue Code 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).” Paragraph B specifies that the donee’s written acknowledgment must: (1) state the amount contributed, (2) indicate whether the donee organization provided any goods or services in consideration for the contribution, and (3) provide a description and good faith estimate of the value of any goods or services provided by the donee organization (if any).

Note that the acknowledgement must be contemporaneous (reasonably close in time to the donation).

The couple produced cancelled checks supporting the donations and a letter from the church acknowledging the total contribution for the year. The letter did not, however, contain a statement that the couple received no goods or services in return for their donations. A second letter produced by the church (that included the statement but dated more than a year later) was not considered by the Tax Court.

Tax Lesson For The Day

If you make a charitable contribution of $250 or more, make sure the acknowledgement you receive from the charity contains the statements specified in IRC Section 170(f)(8). If not, ask the charity to send a revised letter dated the same as the original, with the required information.

For example, the printed materials detailing ticket and table levels for the 2012 Friends Gala contain a statement that in return for table and ticket donations, the organization will provide goods and services to the donors of $75 per seat, regardless of the level of their donation. This is the organization’s estimate of the fair market value of the meal, entertainment, etc., enjoyed by Gala attendees. The amount contributed in excess of $75 per seat is deductible by the donor. If donors indicate that theirs is a “donation only” – with no intention of attending the Gala – the entire gift should be deductible.

Of course, the above example is for illustration only, and not intended as tax advice.

To read the Tax Court ruling in the case described, click this link.

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