Charitable Deduction Precautions

Since the beginning of 2012, around fifty court decisions have been issued concerning charitable deductions.  In looking at these cases, it is evident that taxpayers are losing their charitable deductions due to defective paperwork more often than they are from valuation issues. 

When the IRS questions a charitable deduction during an audit, it is usually too late to correct any errors.  Thus, taxpayers should have the paperwork in order at the time of the donation, or at the latest, when the tax return is prepared.  The documentation needed depends not only on what was donated, but also on the value of the donation. 

For cash donations of less than $250, the taxpayer must maintain one of the following: (1) a cancelled check, (2) a receipt from the done organization showing the name of the organization, the date the donation was given and the amount of the donation, or (3) any other reliable written records showing the name of the organization.  For cash donations of $250 or more, a canceled check or credit card statement will not substantiate the donation.  Rather, taxpayers must receive a contemporaneous written acknowledgement from the donee to sustain their charitable deduction. 

The above requirements have been in place for 18 years, yet are often overlooked.  If a taxpayer holds a defective acknowledgement letter, the courts have made it clear that an updated, corrected statement cannot be obtained once an IRS agent is involved.  Additionally, a taxpayer should never try to forge a written acknowledgement letter, as a twenty percent negligence penalty could be applied. 

See Laura H. Peebles, How Not to Lose a Charitable Deduction, Wealth Management, Oct. 6, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.