Want a Charitable Contribution Deduction? Make Sure You Dot the I's and Cross the T's

A recent Tax Court decision, Albrecht v. Commissioner, was a reminder that the IRS requirements for substantiating a charitable contribution are strictly enforced by both the IRS and the Tax Court. In Albrecht, a widow lost a $464,000 deduction for failing to comply with the IRS requirements, although many of us would consider it nitpicking by the IRS and the Tax Court.

By way of background, IRC Section 170 allows a deduction for charitable donations and the substantiation requirements for the donation depend on the amount and type of donation.

For cash donations the substantiation requirements are as follows:

1. For cash donations under $250, the donor simply needs a copy of the cancelled check made payable to the charity.
2. Cash donations over $250 require a statement from the charity confirming the amount of the donation and whether the donor received goods or services in return. If the donor received goods or services, the statement must include the value of the goods or services received and the donor’s deduction is limited to the amount of the donation less the value of the goods or services received. Importantly, the donor must have the statement from the charity before the tax return at issue is filed.

Like cash, the requirements for property donations depend on the value of the property donated.

1. For a donation of property valued at less than $250, a taxpayer must have records showing the name of the charity, the donation site, the date and value of the property donated, including the item’s condition.
2. For a donation of property valued between $250 and $500, in addition to the information above, a taxpayer must have a written statement from the charity confirming the amount of the donation and whether the donor received goods or services in return. The donor must have the statement from the charity before the tax return is filed.
3. For a donation of property valued above $500, a taxpayer must include an IRS Form 8283 with their tax return. In addition to the information discussed above, the Form 8283 will include the date the donor acquired the property and the cost basis. There are special rules for donations of cars, airplanes and boats worth more than $500.
4. Donations of property with a value exceeding $5,000 require a complete Form 8283 and a qualified appraisal.

In 2014, Ms. Albrecht donated about 120 Native American jewelry and artifacts to the Wheelwright Museum of the American Indian in Santa Fe, New Mexico. Ms. Albrecht’s 2014 Form 1040 claimed a $463,676 deduction for her gift to the museum. The return also included a Deed of Gift detailing the donation. Unfortunately, when Ms. Albrecht filed her return, she did not have a statement from the museum saying whether she received goods or services in return for her donation. Although Ms. Albrecht later obtained a statement from the museum that she did not receive any goods or services, the IRS – and ultimately, the Tax Court – disallowed the charitable contribution deduction for failing to comply with the requirements.

Lesson to learn? Dot the “i’s” and cross the “t’s” for any charitable donation.

For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact Joel Crouch at (214) 749-2456 or jcrouch@meadowscollier.com.