Requirements To Deduct Charitable Contributions

In 2011, Americans give almost 300 billion to charities with the expectation that its deductible on their tax returns. And while there are many charitable causes, the receiving organization needs to be certified as tax exempt under IRS Code section 501(c)(3) in order for the donor to take a tax deduction. If you are not sure, you can go the IRS website to verify if your charity has been certified.

Once you have determined a charity to which you intend to make a cash contribution qualifies, you need to understand what is necessary in order for it to be tax deductible. A donor cannot claim a tax deduction for any single contribution of $250 or more unless you obtain a contemporaneous, written acknowledgement of the contribution from the recipient organization.

An organization that does not acknowledge a contribution incurs no penalty but without it, the donor cannot claim the tax deduction. Although it's the donor's responsibility to obtain the written acknowledgement, an organization can assist a donor by providing a timely, written statement containing the following information:

  • Name of organization
  • Amount of cash contribution
  • Statement that no goods or services were provided by the organization in return for the contribution
  • Description and good faith estimate of the value of goods or services, if any, that the organization provided in return for the contribution

In a court case that highlights the necessity of following the statutory requirements we turn to Durden vs. Commissioner TC Memo 2012-140. Here, the court ruled the first acknowledgement letter did not include the required statement stating no goods or services were provided for the contribution received; the second written acknowledgement was not considered contemporaneous.

The couple timely filed their 2007 joint income tax return claiming a charitable deduction to the church in the amount of $22,517. On April 13, 2009 IRS sent a notice of deficiency disallowing the claimed charitable deductions. In response, taxpayers produced records of their contributions, including copies of canceled checks and a letter from the church dated January 10, 2008.

The IRS rejected the acknowledged letter as it did not include a statement regarding whether any goods or services were rendered to taxpayers in consideration for their contribution. The taxpayers then obtained a second letter from the church dated June 21, 2009 that contained the same information found in the first acknowledgement as well as the required statement that no goods or services were provided to them in exchange for their contributions.

The Court noted that it is impossible to determine from the amounts reported whether the taxpayers contributions were for meals or other goods or services provided by the church. Therefore, the first acknowledgement letter does not provide enough information to determine the deductible amount of their contributions.

The second acknowledgement letter was rejected as not being contemporaneous. For the letter to be considered contemporaneous, it must be obtained on or before the earlier of (1) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or (2) the due date (including extensions) for filing such return. See code section 170(f)(8)(C).

The Court concludes that the taxpayers have failed to comply with the clear substantiation requirements of section 170(f)(8) and disallows their charitable contributions for 2007. Accordingly, IRS determined deficiency of $7,552 and an accuracy- related penalty of $1,510.40 is upheld.

While most charities include the necessary language in the acknowledgement letter, it is up to you, the donor, to review its contents to determine if meets statutory requirements in order to claim a tax deduction on your individual tax return. For more information on the above and rules for non-cash contributions, please go to the IRS website to view the various publications that are available.